C&S BOOSTS RETAIL IN BI-LO BUY

Jon Springer

GREENVILLE, S.C. -- Bi-Lo Holdings here last week said it would sell 104 stores to an affiliate of its supplier, C&S Wholesale Grocers, in a move the companies said focuses Bi-Lo on its best locations and provides C&S with a platform to develop a retail presence in the Southeast.

No purchase price was announced for the stores, which will move in a series of transactions set to close over the next 11 months, the companies said. The stores operate under the Bi-Lo, Food $mart, Bruno's, Food Fair, Food World and Food Max trade names in Georgia, North Carolina, Tennessee, Alabama, Florida and Mississippi. In addition to the stores being sold to C&S, Bi-Lo said it would close three stores and attempt to sell nine others in a separate deal.

The moves represent what Bi-Lo called the last phase of a long-term growth strategy dating back to its divestiture from former corporate parent Ahold. In a transaction engineered by Bi-Lo executives, Netherlands-based Ahold sold its Bi-Lo and Birmingham, Ala.-based Bruno's divisions late last year to the private investment firm Lone Star Funds. The two divisions combined into a centrally operated, 455-store private chain called Bi-Lo Holdings, which engaged C&S to take over supply and distribution from Ahold.

Combined with 29 store closures announced in March, last week's sale agreement would reduce Bi-Lo to a 313-store chain, but one with nearly all its assets located in markets where it would be No. 1 or No. 2 in market share, or could reach that position in "one or two years," Dean Cohagen, Bi-Lo's chief operating officer, told SN.

The shake-up removes Bi-Lo from Mississippi and represents the exit of all Bruno's banners from Georgia. The remaining company would maintain a strong presence in the Carolinas and Georgia under the Bi-Lo name, and in Alabama and the Florida panhandle under the Bruno's and Food World banners.

Capital from the sale of the stores will be directed toward store renovations and building in Bi-Lo's remaining markets. "This is about a growth strategy for us," Cohagen said. "It ensures that the organization can focus on our core markets and that we have the capital to improve."

As part of the sale agreement between Ahold and Lone Star, a portion of Bi-Lo's proceeds from the sale will go to Ahold, Cohagen said.

For C&S, which will acquire and operate the stores under a newly created affiliate called Southern Family Markets, the acquisition represents a new commitment to developing a retail presence, Mark Gross, C&S' chief financial officer and the president of Southern Family Markets, told SN. The company has hired Frank Curci, the former chief executive officer of Ahold's Tops Markets, to be chief operating officer for the new group. Jim Ferraro, the former CFO of Ahold's Giant-Carlisle chain, will assume the same role at Southern. Curci at one time was executive vice president of marketing at Bi-Lo.

"Over the long haul, our goal will be to understand what's going to best serve the consumers in each area, and we hope to tailor a shopping experience that will meet their approval," Gross said.

Retail complements existing businesses for C&S, so the company is interested in acquiring and operating stores, Gross said. C&S was a bidder for Pathmark Stores when that chain was for sale earlier this year.

"It provides another way for us to interact with the manufacturing community," Gross explained. "We look at the total family of companies seeking to provide solutions in all aspects of the distribution chain. ES3 provides distribution solutions for the manufacturer. C&S is the wholesaler providing distribution from the manufacturer to the retailer, and expansion of retail allows us to provide goods from the retailer to the consumer. We think there are exciting opportunities and synergies in being involved in the entire distribution chain."

While C&S has long been involved in supporting its independent retail customers, the Bi-Lo purchases represent its largest single retail acquisition since acquiring 185 stores from Grand Union in 2001. However, C&S had buyers lined up for most of those stores when it made the deal, and it retained only 31 of the stores. Gross did not rule out subsequent spin-offs of acquired Bi-Lo/Bruno's stores, but said no deals were currently in the works. According to the press release, C&S intends to operate a "majority" of the locations.

"Our primary focus is to own and operate the stores," Gross said. "We would explore some situations where we would be able to provide opportunity to a store manager or employees who may want to own their own store."

Bi-Lo will operate the stores under their current trade names until C&S takes control of them, with the earliest locations set to move in mid- to late summer, Cohagen said. C&S will address changing the banners when they change hands, Gross said.

The added stores would boost retail sales to more than $1 billion annually for C&S, Gross noted.

C&S, which last week completed its takeover of the former Ahold distribution centers and supply agreements with Bi-Lo, views Bi-Lo as its "anchor" in the Southeast and a platform for growth, Gross said. Its presence there is developing just as Winn-Dixie prepares a plan to reject a number of store leases -- 100 or more, some have speculated -- throughout the Southeast, raising the possibility that C&S could do more consolidating there in the future.

"I think those are opportunities that are far more meaningful to us now than they were before," Gross said.