NEW YORK -- Roundy's, Pewaukee, Wis., said last week it will make no further acquisitions this year after it completes the purchase of 31 Rainbow Foods stores from Fleming, Dallas.
Bob Mariano's declaration that Roundy's will not seek additional acquisitions after the Rainbow deal appears to take the company out of the market for Dominick's, Chicago, which Safeway put up for sale in November. Roundy's had been one of the industry's most acquisitive companies during the past few years, seeking independent stores in its core markets. Last year, it acquired four Gold's Pick 'n Save Stores in Milwaukee for $26 million.
During a presentation to investors at a conference here sponsored by Bear Stearns, also based here, Mariano, Roundy's chairman, president and chief executive officer, said, "We will be quiet [following the completion of the Rainbow acquisition]."
He added that the Rainbow stores, all but one of which are in the Minneapolis/St. Paul market, need immediate cleaning, reorganizing and improved lighting. He said after that, Roundy's will begin a three-year program of remodeling the units, with $13 million allocated to be spent this year.
"I have no sense of urgency to go at warp speed to get these stores remodeled," he said.
Roundy's will serve the stores from its Stevens Point, Wis., grocery distribution center, which is currently operating at about 50% of its capacity, according to Mariano.
Although Roundy's and Fleming had signed an asset purchase agreement last month, the deal required the approval -- granted last week -- of the U.S. Bankruptcy Court in Wilmington, Del., which is overseeing Fleming's Chapter 11 reorganization. Fleming filed for Chapter 11 protection on April 1.
The agreement calls for Roundy's to pay Fleming $86.5 million for the stores, and assume $35 million in capital lease obligations, according to a Fleming spokesman.
Mariano called the Minneapolis/St. Paul market "very attractive," noting that it is a "big, growing, good income market." He said the Rainbow stores have "great locations and a strong history."
Roundy's does not plan to reflag the stores. "We'll continue with the Rainbow brand," he said. Roundy's currently operates stores under two banners: Pick 'n Save, an everyday-low-price format with stores averaging 56,000 square feet, and Copps, a promotional format with stores averaging 46,000 square feet, according to Mariano. Rainbow stores average 51,000 square feet, he said.
Mariano added that he considers the Minneapolis/St. Paul market "no more competitive than Chicago," a city he knows well, having worked at Dominick's Finer Foods for 25 years before it was acquired by Safeway, Pleasanton, Calif., in 1998.
Other topics that surfaced during Roundy's presentation and the following question-and-answer session included:
Competition with supercenters operated by Wal-Mart Stores, Bentonville, Ark. Mariano said, "We are getting better at being more proactive before they're open. We are far more focused on our customers and what we can do best." He noted that Roundy's faces, on average, five or six competitive Wal-Mart Supercenter openings a year.
Increased sale of organic produce. "Consumers want to be able to choose organic," he said. "They don't want to have to make another trip [to a different store]." However, he added that Roundy's had not had as much success with organic meat. "There has not been as much acceptance as in produce," he noted. "We have got more work to do there."
