Kroger to Buy Scott's in Indiana

MARK HAMSTRA

FORT WAYNE, Ind. — Kroger Co. said last week it had agreed to acquire the Scott's Food & Pharmacy banner here from Supervalu for an undisclosed sum, adding to a string of regional acquisitions by Cincinnati-based Kroger.

In a conference call with analysts discussing Supervalu's fourth quarter, Jeff Noddle, Supervalu's chairman and chief executive officer, said the company did not see any growth potential in the market for the Scott's banner, which operates 18 stores in the market.

“They had a tremendous amount of square footage built into a market of 300,000 people — there was just too much square footage, and we felt we could recycle the capital into other markets with much higher returns,” he said.

Kroger could not be reached for comment on the acquisition. In a prepared release, the company said it planned to preserve the Scott's banner and that it would become part of Kroger's 145-store Central Division, based in Indianapolis.

According to Kroger's website, it already operates five stores in Fort Wayne itself, where Scott's has 10 of its stores. The two banners also overlap in the Indiana towns of Auburn, Columbia City, New Haven and Rochester.

Chuck Cerankosky, an analyst with FTN Midwest Research, Cleveland, described the deal as a “win-win situation.”

“Kroger has a long-running habit of paying well less than replacement costs for in-market acquisitions, and the Scott's acquisition certainly is in-market,” he said. “Supervalu will get some undisclosed amount of cash out of it and redeploy that into other parts of the business, and Kroger makes the kind of acquisition it likes to make every other month or so.”

The deal is expected to close later this year.

Analysts on Supervalu's conference call suggested that Scott's had faced an influx of supercenter competition and had been losing money, an assertion Noddle did not dispute.

Scott's was founded in 1954 by Don Scott, who expanded the chain in northern Indiana with partner Bill Reitz. Supervalu acquired the banner in 1991.