GRAND RAPIDS, Mich. — Spartan Stores here is adding another independent chain to its roster with the acquisition of 20 Felpausch Food Centers from G&R Felpausch Co.
Despite persistent speculation to the contrary, however, Spartan has no interest in acquiring the Farmer Jack chain, but it may help some of its customers buy a few of the 66 Farmer Jacks that remain, according to Craig Sturken, Spartan's chairman, president and chief executive officer.
“Our role in Detroit is as a business partner to our retailers there, not as an owner,” Sturken, who used to run the Farmer Jack stores for parent A&P, told SN last week. “That's just not in our sweet spot as far as operating stores.”
A&P could not be reached for comment on reports that it may want to unload the Farmer Jack chain as it prepares to absorb Pathmark Stores and take on Pathmark's $618 million debt load. A&P has long been thought to be mulling over the sale of its Farmer Jack banner, which it has whittled down over the last several years and has sought to revive with a series of marketing and merchandising schemes. In 2005 the company promised United Food and Commercial Workers Local 876 that it would keep at least 60 stores open until March 2007.
“If they receive a good offer for some or all of the stores, I believe they will take it,” said Roger Robinson, president of Local 876, in a prepared statement last week. “I suspect that A&P has been actively pursuing a deal to spin off Farmer Jack for quite some time, and it could be closer to reaching a deal than anyone is letting on.”
One local real estate specialist, however, said he questions how imminent the sale of Farmer Jack actually is.
“If there is an entity engaged by A&P to do something with the stores, they would have to be pretty active about getting the information out, and we haven't seen any of that yet,” said David Long, a senior associate at real estate firm CB Richard Ellis, Detroit. “It leads me to believe they haven't gotten that far yet.”
A&P had discussed the sale of Farmer Jack in the fall of 2005 and had engaged financial services firm William Blair & Co., Chicago. Reports last week said the firm was again engaged to sell the chain. William Blair could not be reached for comment.
In 2005, Spartan was reported to have discussed buying Farmer Jack. Both Spartan Stores and Nash Finch Co., Minneapolis, supply several independent operators in the Detroit area, which local reports said might be interested in some of the stores.
Long said Farmer Jack operates stores in a wide range of demographic areas, but he described all as “high-traffic locations.”
“There are going to be good opportunities at each location, although each may be slightly different,” he said. Most sites, which range in size from about 40,000 to 55,000 square feet, are thought to be leased.
Long said that given Michigan's weak economy and the widespread availability of supermarkets in other areas, he doubts a single buyer will emerge for the whole Farmer Jack chain, if indeed it is for sale.
Sturken said he believes Kroger will “certainly be taking a look” at the Farmer Jack stores. Meijer Inc., Grand Rapids, also was reported to be a potential bidder.
Neither Kroger nor Meijer could be reached for comment.
Another reason Spartan has not taken an interest in the Farmer Jack stores, Sturken told SN, is that it has been occupied with the Felpausch acquisition.
“As we were doing the Felpausch deal, it pre-empted our ability to do anything with Farmer Jack,” he said.
Spartan said it would pay an undisclosed amount of cash to purchase the 20 Felpausch Food Centers, two fuel centers and three convenience stores from G&R Felpausch Co., a 74-year-old company owned by the Feldpausch family and its employees. The acquisition does not include a distribution center and some Save-A-Lot stores operated by G&R Felpausch.
According to local sources, Felpausch has been smothered by an influx of Wal-Mart supercenters during the last few years, and has also had to compete with a revitalized Meijer operation.
Felpausch, which operates stores ranging in size from 15,000 to 50,000 square feet, has been a customer of Spartan Stores for 50 years. It was reported to be Spartan's second-largest customer. Chairman and CEO Mark Feldpausch will not remain with the chain, Spartan said.
Executives at Felpausch could not be reached for comment.
“We have a very good relationship with Felpausch, and we came to the conclusion that it would be a fair deal for Felpausch and the ESOP owners,” said Sturken, referring to the employee stock ownership plan at Felpausch.
He said Spartan is evaluating whether or not to retain the Felpausch name on the stores, which operate primarily in small towns east and south of Spartan's company-owned store network. Spartan operates 68 supermarkets under the Family Fare, D&W Food Centers and Glen's Market banners in western and northern Michigan, plus a 19-unit deep-discount drug chain called The Pharm in Ohio and Michigan.
In a prepared statement, CEO Feldpausch said the transaction “strengthens the market position of a leading conventional grocery store operator and will ensure that customers in south and central Michigan continue to have a choice to shop at one of the best conventional retail supermarket chains in the local market.”
Spartan said the acquisition of Felpausch, which is expected to close by June, will increase its retail sales by about $200 million and add $100 million to its top line, and that first-year synergies from the acquisition will be more than offset by expenses of $5 million to $6 million for marketing, training and other associated costs.
In a presentation at the Western Michigan University Food Marketing Conference, Sturken said Spartan is continuing to seek out additional retail acquisitions.
“We want to expand our distribution and retail operations in Michigan, Indiana and Ohio,” he said. “The Felpausch deal is the kind of deal we want to do, and we want to do more. We will aggressively pursue new stores.”