Supervalu selling off Farm Fresh stores

Minneapolis-based wholesaler and retailer Supervalu said it is divesting its Farm Fresh supermarket banner in Virginia and North Carolina and has agreed to sell 21 of the 38 locations to local competitors for about $43 million.

Virginia Beach, Va.-based Farm Fresh had been considered among the weakest of Supervalu’s struggling retail banners, and many industry observers had expected its sale as Supervalu continues to seek to optimize its asset portfolio.

“Exiting the Farm Fresh banner will enable us to allocate greater resources and energy toward the strategic growth of our wholesale business,” Mark Gross, Supervalu’s CEO, said in a statement.

The company agreed to sell 10 of the Farm Fresh stores to Kroger Co.’s Harris Teeter division, eight to Kroger’s Mid-Atlantic division and three to Food Lion. Supervalu said it is exploring the potential sales of the remaining Farm Fresh stores to current and prospective wholesale customers and certain Farm Fresh employees.

Supervalu also said it was transferring the prescription files from 10 pharmacies that were not included in these transactions to Rite Aid and four to CVS Pharmacy.

Consulting firm The Food Partners advised Supervalu on the transactions and is continuing to work with the company on the disposition of the remaining Farm Fresh locations.

Following the sale of its Save-A-Lot limited-assortment banner to Onex Corp in 2016, Supervalu has said it was eyeing other retail divestitures, which focus on investing in its Hornbacher’s and Cub Foods banners in North Dakota and the Minneapolis market, respectively.

Chuck Cerankosky, an analyst with Northcoast Research, Cleveland, said the Farm Fresh divestiture was not a surprise.

“It’s my expectation that they would sell the weaker [retail banners], and when you look at the price of about $2 million per location, that indicates that the Farm Fresh stores were one of the weaker one,” he said.

Cerankosky said Kroger’s strong presence in the market should help it turn around the acquired stores’ performance.

“In-market acquisitions have worked very well for Kroger in the past,” he said.

Other retail banners that observers believe Supervalu could seek to sell include its Shoppers Food & Pharmacy banner in the Washington, D.C., metro area and its Shop ’N Save banner in St. Louis and central Illinois. Last year, Supervalu combined the merchandising and operations functions of the Shoppers banner with those of Farm Fresh amid declining retail sales performance.

Just a day before Supervalu’s announcement about the divestiture of Farm Fresh, Michael Zarpas, VP of retail brokerage and development at Norfolk, Va.-based S.L. Nussbaum Real Estate Co., predicted that Farm Fresh would succumb to the increasing pressures of the market.

“The grocery wars are in full swing in Hampton Roads,” Zarpas said during the Hampton Roads (Va.) Real Estate Market Review and Forecast at Old Dominion University, according to a report in the local Daily Press. “I believe Farm Fresh will be the first casualty in 2018.”

Among the increasing retail activity in the area, German discounter Lidl last year entered the market with nine stores, while both Lakeland, Fla.-based Publix Super Markets and Rochester, N.Y.-based Wegmans Food Markets are planning stores in the area.

Food Lion, the Salisbury, N.C.-based banner owned by Ahold Delhaize, is also embarking on a multi-year, market-wide remodeling effort in the area.

Farm Fresh, which was founded in 1957, currently employs about 3,300 workers.

Following are the locations of the Farm Fresh stores being sold: