The Kroger Co. and EG Group, a privately-held convenience store and fuel retailer based in Blackburn, Lancashire, United Kingdom, has announced a definitive agreement for the sale of Kroger’s convenience store business unit to EG Group for $2.15 billion. The companies expect to close the transaction during the first quarter of Kroger’s fiscal year.
Kroger’s convenience store business operates in 18 states and includes 66 franchise operations. The stores employ 11,000 associates and operate under the following banner names: Turkey Hill, Loaf ‘N Jug, Kwik Shop, Tom Thumb and Quik Stop. Kroger’s convenience store business generated revenue of $4 billion, including selling 1.2 billion gallons of fuel, in 2016.
Kroger’s supermarket fuel centers and its Turkey Hill Dairy, based in Conestoga, PA, are not included in the sale.
As part of the agreement, EG Group will establish its North American headquarters in Cincinnati, OH and continue to operate stores under its established banner names.
Kroger announced in October 2017 its intention to explore strategic alternatives for its convenience store business, including a potential sale, in conjunction with Restock Kroger, the big chain’s initiative to restructure the layout and operational procedures of the company’s nearly 2,800 supermarkets and combination stores. Once Kroger announced it was exploring a sale of its c-store unit, the largest pure play supermarket chain in the U.S. reportedly attracted multiple bidders.
“Our convenience store business has been a part of our company for many years. We want to thank our management team and associates for their enduring commitment to our customers, and for the contributions they have made to build our supermarket fuel business,” said Mike Schlotman, Kroger’s executive VP and CFO. “As part of our regular review of assets, it has become clear that our strong convenience store business unit will better meet its full potential outside of our business.”
“One of the most important considerations in our decision-making process was continued operations to ensure minimal disruption to our associates. We are very pleased the EG Group plans to establish their North American headquarters in Cincinnati. EG Group is also a recognized international petrol forecourt convenience operator and they have a commercial model which clearly looks to enhance the consumer offer by working with leading retail brands customers know and trust,” noted Schlotman. “This is good for our associates across the country and for our headquarter city of Cincinnati. Throughout the process we were impressed with the EG Group’s professionalism, investment commitment and more importantly their understanding of the US convenience retail market. We now look forward to working with them closely to ensure a smooth transition for associates.”
Mohsin Issa, EG Group founder and co-CEO said “This is an exciting time for EG Group, the entry into the U.S. market presents a fantastic opportunity to deliver a successful retail offer to consumers across the various states. We have had much success across Europe and we firmly believe the Kroger assets present a fantastic foundation to overlay our retail experience and know-how in the U.S. We are committed to investing in the Kroger network, partnering with leading retail brands and working with the exceptional management team and associates transferring across to deliver a comprehensive retail offer.”
“Our business model is simple but effective – EG Group is creating a stronger relationship between consumers and leading retail brands they want to access. In the US we aim to create a retail environment which delivers convenience, provides value and serves as a retail destination offering excellent welfare to motorists who live and work near our petrol forecourt convenience retail stores,” added Zuber Issa, EG Group founder and co-CEO.
Kroger plans to use net proceeds from the sale to repurchase shares and to lower its net total debt to adjusted EBITDA ratio.
The transaction is subject to customary closing conditions, including expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The company expects the transaction to close quickly as EG Group has no U.S. presence today.
Founded in 2001 by brothers Zuber and Mohsin Issa, EG has established partnerships with global brands such as ESSO, BP, Shell, Carrefour, Louis Delhaize, SPAR, Starbucks, Burger King, KFC, Greggs and Subway.
The EG Group currently employs more than 12,500 staff working in more than 2,600 sites across various European markets including the United Kingdom, France, The Netherlands, Belgium, Luxembourg and Italy. In 2017, the business secured about 1,000 petrol forecourt assets from Esso in Germany which will be transferred and integrated into the existing network in Q4, 2018. With the inclusion of the Kroger assets, EG Group will own and operate approximately 4,400 sites across Europe and the U.S.
Prior to including revenue from the convenience stores being acquired from Kroger, EG Group’s European business pro-forma revenue (including Italy and Germany) is $14.5 billion. Including the revenue from Kroger’s C-store business gives total EG Group pro forma revenues of $18.5 billion.