MAUMEE, Ohio -- Seaway Food Town here said last week its board has authorized management to retain an investment banking firm to assist the company in evaluating "various strategic alternatives."
The company said these alternatives "might include a merger, a business combination or a strategic alliance."
Charles Cerankosky, an analyst with McDonald & Co., Cleveland, told SN what's driving Seaway's strategic search is increasing competition from larger chains, particularly Kroger Co., Cincinnati, and Kmart, Troy, Mich., rather than any internal problems.
Seaway operates 73 retail units -- 47 supermarkets and 26 discount drug stores -- in Ohio and Michigan, a region with a stable population, according to Cerankosky. "It may be growing a little," Cerankosky said, "but Toledo is not Atlanta."
Seaway's problem, he added, is that as a regional company it can't duplicate "the economies of scale achieved by Kroger and Kmart."
Cerankosky said the most likely sort of "strategic alternative" for Seaway would be for it to be "acquired by and integrated into a larger company."
A great variety of larger companies could purchase the chain, according to Cerankosky. These include "retailers, wholesalers and multi-format retailers, either foreign or domestic."
Another, somewhat less likely possibility, Cerankosky said, would be for Seaway to "merge with another company as an equal."
Cerankosky said that despite concern about an acceleration of competition for the future, the company's recent performance has been strong. "The company is moving along well. It just finished a good quarter."
Seaway said that sales for the 13-week fiscal 1999 third quarter that ended May 29 increased 8.3% to $167.3 million, and net income rose 9.7 % to $1.9 million, a third-quarter record.
The company also said sales for the 39 weeks that ended May 29 rose 5.5% to $494.3 million, and net income increased 8.6% to $5.6 million.
The company attributed this performance, in part, to the opening of one supermarket, the acquisition of a second and the conversion of a third to a discount drug store.