Spartan Boosts Michigan Base With VG's Buy

MARK HAMSTRA

GRAND RAPIDS, Mich. — Spartan Stores here last week agreed to acquire the 17-store VG's Food and Pharmacy chain, considered one of the premier independent operators in Michigan.

The $85 million, all-cash purchase is expected to close by the end of the current fiscal quarter. VG's is Spartan's own largest wholesale customer.

In a conference call discussing second-quarter earnings, also announced last week, Spartan's new chief executive officer, Dennis Eidson, said the VG's business was a strong one.

“VG's is an exceptional retail supermarket operator with very keen insight into their markets,” he said. “They run a great business, as evidenced by the more than $30 million in capital investments that they've made in their stores during the past five years.”

Spartan said VG's averages about $376,000 in sales per week, or $100,000 more than Spartan corporate stores.

In an interview with SN, Lisa Van Gilder, president and CEO of VG's, said she had some health problems that led her family to choose to sell the company, which had been founded by her parents, Russell and Shirley Van Gilder. Her brother, also named Russell, is the chief operating officer.

“We didn't think of anyone else but Spartan when we decided to sell,” she said, citing the two companies' long-term relationship.

Spartan said it would keep the VG's name on the stores, which include 15 in-store pharmacies, and would establish a regional office in VG's Fenton, Mich., headquarters.

Van Gilder said VG's is known for its perishables and its high service levels.

“Anyone can build a box, but it's the people you put in the box that make the difference,” she said.

The acquisition marks the third purchase of a regional Michigan chain in the last three years for Spartan, which in 2006 bought D&W Food Centers and last year acquired the 20-store Felpausch chain.

Spartan said VG's would boost its annual retail division sales by $310 million, and boost overall consolidated sales by $160 million. The company expects the acquisition to have a neutral effect on earnings per share in the current year, and to become accretive to earnings next year. Spartan currently operates 84 supermarkets under the D&W Fresh Market, Family Fare, Glen's Market and Felpausch Food Center banners.

In its second-quarter earnings report, Spartan said same-store sales growth of 4.1%, excluding fuel, and increased distribution sales helped drive profit gains in the period. Net income rose 21.6%, to $11.07 million, on a sales gain of 4.8%, to $626.8 million. Total retail sales rose 6.3%, to $323.5 million, and retail operating earnings were up 7.8%, to $12.5 million. Distribution sales rose 3.2%, to $303.3 million.

Net income for the 24-week first half rose 34.4%, to $21 million, on a sales gain of 8.5%, to $1.2 billion, reflecting the acquisition of the Felpausch stores.