MINNEAPOLIS -- Supervalu here is expected to strengthen its position as the nation's leading wholesaler and one of its leading retailers with the acquisition of Richfood Holdings, Richmond, Va., the dominant distributor in the Mid-Atlantic region.
Analysts told SN they expect Supervalu to expand Shoppers Food Warehouse within the Washington marketing area; make its Sav-A-Lot limited-assortment format available to Mid-Atlantic operators, and be more willing than Richfood has been to make loans to help retail customers expand their operations.
They also said they anticipate more efficient distribution patterns in the Mid-Atlantic region, including possible warehouse consolidations; better buying by Supervalu, to the benefit of Richfood customers; a better hand at overseeing retail operations; economies of scale through personnel reductions; and a rationalization of private label.
With the addition of Richfood -- and the $2.3 billion the company will pick up from a supply deal with Kmart Corp., Troy, Mich., Supervalu's sales jump to $23.1 billion, including $6.9 billion, or 33%, in corporate retail sales. The deal adds $1.8 billion in retail sales from Richfood's three corporate retail chains: Shoppers Food Warehouse, Lanham, Md.; Metro Markets, Baltimore; and Farm Fresh, Norfolk, Va.
According to Michael W. Wright, chairman, president and chief executive officer of Supervalu, "This acquisition fits perfectly with Supervalu's two key strategies -- to drive distribution-industry consolidation and to aggressively grow our retail supermarket business.
"By acquiring Richfood, we are enhancing our own industry-leading distribution network with Richfood's highly productive operations and building a great platform for growth in the Mid-Atlantic.
"We are also aggressively growing our retail supermarket business. Many of Richfood's 93 supermarkets are located in fast-growing markets with favorable demographics and are a natural fit with our price superstore concepts, Cub Foods and Shop 'n Save.
"The combination of these two companies creates an organization ideally positioned to continue to drive distribution consolidation and to accelerate retail growth while creating an overall more competitive cost structure."
John E. Stokely, chairman, president and CEO of Richfood, said the merger "is in the best interests of our shareholders, customers and employees. Supervalu's strategy of retail growth and creating efficiencies to keep distribution customers competitive are highly compatible with our own, which will make for an easy transition."
The merger comes on the heels of the pending loss of $600 million in volume from Richfood's largest customer, Giant Food Stores, Carlisle, Pa., which observers said was the impetus for the merger.
After Giant was acquired by Netherlands-based Ahold late last year, it said in January it would sign a new supply agreement with Richfood covering the period beyond 1999; however, Giant reversed that decision in April after Ahold made a deal to acquire Pathmark Stores, Carteret, N.J., and decided to have both chains supplied by Pathmark's wholesaler, C&S Wholesale Grocers, Brattleboro, Vt.
In June, with Richfood's stock price hovering at about $13 per share -- down from $20 before the announcement of Giant's pullout -- Supervalu's offer of $18.50 per share made a merger very attractive to Richfood, observers said.
Until recently Richfood itself had been an industry consolidator, acquiring the Waynesboro, Va., division of Fleming Cos. in 1991; the civilian wholesale division of B. Green & Co., Baltimore, in January 1993; Rotelle, a frozen-foods manufacturer based in West Point, Pa., in August 1994; Camellia Foods, a Norfolk, Va.-based wholesaler, in April 1995; Super Rite Foods, Harrisburg, Pa., in October 1995 (which included Metro Markets, giving Richfood its first experience as a retail operator); Norristown Wholesale, a Philadelphia-based produce distributor, in September 1996; Farm Fresh in March 1998; and Shoppers Food Warehouse in May 1998.
For the fiscal year ended May 1, Richfood sales achieved record levels of $3.4 billion. Supervalu paid $1.5 billion for Richfood, including assumption of $642 million of Richfood debt. The combined company would operate 36 full-service distribution centers, plus 296 supermarkets and 151 limited-assortment stores.