MILWAUKEE — Roundy's Markets here said Monday it has agreed to pay $36 million in cash to Safeway to purchase 11 Chicago-area Dominick's locations, which will be converted to the Mariano's banner early next year.
Robert A. Mariano, chairman and chief executive — who once headed the Dominick's chain before it was sold to Safeway — said Roundy's was "intentionally selective," noting the 11 stores are "irreplaceable locations and an excellent strategic fit with the 13 existing Mariano's stores and with our expansion plans there."
He said the stores are expected to produce revenues of $850,000 to $950,000 a week, with an EBITDA contribution of approximately 6% — similar to what Mariano's existing stores do. He also said the average rents will average $10 per square foot less than the company is paying for the stores it has built in Chicago and that Safeway will remain the leaseholder at three of the 11 locations.
The company will proceed with plans to open five new stores during 2014, giving it a total of 29 Mariano's stores by the end of the year, with the potential for up to 45 to 50 Mariano's locations in the greater Chicago market in the next few years, Mariano said.
There will be no direct transfer of Dominick's employees once the ownership changes, he said. "We will hold job fairs and accept applications online," he noted — the same procedure the company followed when it acquired and converted two former Dominick's to Mariano's in the past.
Read more: Safeway Sets Chicago Exit for Dec. 28
Although the deal with Safeway will close before the end of the year, Mariano said there will be a transition period of one to two months before Roundy's takes possession of the stores and reopens them under the Mariano's banner. He said the company plans to take possession of five Dominick's stores in late January and to close them for 30 to 45 days to clean and upgrade them; it expects to take possession of the other six stores in early March, with similar plans to close and remodel five of the six over a 30- to 45-day period.
Mariano said the company has the opportunity to expand the sixth store, in Westchester, a Chicago suburb, so it will be closed for expansion and reopened later in 2014. All 11 stores will undergo full remodelings over the next two or three years, he added.
He said Roundy's plans to refinance its debt — and to suspend its dividend — to provide the flexibility to complete the acquisition and integrate and upgrade the facilities. Mariano also said the acquisition will be neutral to EBITDA in 2014 because of the startup and remodeling costs and accretive the following year.
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