Ukrop's in Talks to Sell Company

JON SPRINGER

RICHMOND, Va. — Ukrop's, the iconic family-run supermarket chain founded here 72 years ago, could be sold within weeks, sources told SN last week.

The family that runs the 28-store chain has been in talks with multiple bidders, a source said. Talks began when Ukrop's — which has been struggling recently and does not have a plan for succession within the family — contacted select strategic buyers to gauge their interest, according to a source who spoke on the condition of anonymity.

It is believed that Ruddick Corp., parent of the Harris Teeter chain, along with Ahold and Delhaize are among potential bidders. Minneapolis-based Supervalu, Ukrop's primary supplier, has dropped out of the bidding to buy the stores but remains in the picture as a potential supplier, sources added.

In a memo distributed to employees of Ukrop's last week, Bobby Ukrop, chief executive officer, said the chain would not respond to rumors. “Please know that if anything changes with our company's direction, you and our customers will hear it from me and not the rumor mill, blogs or anonymous sources,” the memo said. The company declined further comment.

Spokespeople for Harris Teeter, Ahold, Delhaize and Supervalu separately declined comment. Amsterdam-based Ahold operates the Giant Food banner in Virginia, while Delhaize, Brussels, operates Food Lion, Bloom and Bottom Stores in the region.

One source said talks had progressed beyond an opening round of bidding “and now they're into the nitty-gritty. They're in the getting-serious phase. A deal could be done in a matter of weeks.”

Harris Teeter long been rumored to be interested in Ukrop's, but recently “chatter has been like wildfire,” one local source told SN. Karen Short, an analyst who follows Matthews, N.C.-based Harris Teeter for Friedman, Billings, Ramsey and Co., in a research report last week noted the chain skipped over Richmond while expanding to Northern Virginia but is now constructing a new distribution facility in Fredericksburg, only 57 miles away.

Ukrop's and Harris Teeter have a similar focus on service and prepared foods, both use loyalty cards, and both are non-union. Local sources said Harris Teeter had previously scouted Richmond for store sites.

However, some observers last week noted the parties may not agree on a price. Declining performance at Ukrop's has affected its valuation, particularly as a multiple of EBITDA, which Short estimated at $35 million. Ukrop's has estimated annual sales of $590 million, or about $21 million per store, per year, Short said.

“We believe an acquisition makes sense strategically” for Ruddick, Short said, “but at more than seven times [EBITDA], we estimate an acquisition may not be accretive.”

Short's model values Ukrop's at about $248 million.

“The reality is their numbers are dropping,” Jeremy Diamond, a supermarket consultant for the Diamond Group, Baltimore, told SN. “But emotionally, I don't know if Ukrop's will let go of the chain.”

According to local sources, Ukrop's has suffered in recent years as an influx of population to the Richmond area also attracted new competitors, including Whole Foods, The Fresh Market and Trader Joe's. It has also faced stiffer opposition from resurgent banners like Kroger and Food Lion. In some cases, Ukrop's built stores that cannibalized one another to keep competitors out, sources said; in the meantime, its own efforts to expand outside of Richmond have not been entirely successful.

“The numbers don't look very good right now,” one source told SN. “They have declining sales and troubles in some particular stores. When you only have 25 or 26 stores, it doesn't take a lot to put you in a bad situation. Four or five stores go wrong, and you're in trouble.”

Ukrop's at the same time has resisted breaking with its long-standing traditions of not opening on Sundays and not selling beer or wine, seemingly ceding those days and categories to competitors. According to estimates by Short, Ukrop's could increase annual revenues by $98 million by opening on Sundays — or more than 16%