KROGER MAY SELL 20 CALIF. STORES

Elliot Zwiebach

CINCINNATI -- Kroger Co. here is reportedly seeking buyers for 20 of its 48 Northern California stores, with another five reportedly set to close because of short-term leases.

Kroger officials declined comment last week. Several industry sources, however, told SN Kroger is accepting bids for 20 stores in the Bay area -- operating under the Ralphs, Bell and Cala banners.

One of the 20 stores has already been closed, and five other stores with short-term leases will reportedly be closed soon, the sources said.

Most of the 20 stores range from 20,000 to 30,000 square feet, with one store of less than 10,000 square feet and the largest store, operating under the Ralphs banner in San Ramon, Calif., at 50,000 square feet.

Kroger's interest in leaving the Bay area is apparently based on its desire to be No. 1 or No. 2 in the markets in which it operates, observers said, "but these stores are generally in poor locations, with few opportunities to expand and several years without any investment -- just too many negatives to overcome," a real-estate consultant told SN.

According to another consultant, "Most of those stores have been neglected for too long, although given their size, it's not surprising the company didn't want to pour money into them."

Kroger would prefer to sell the 20 stores to a single buyer, observers said. Two possible contenders reportedly preparing offers are Unified Western Grocers, Los Angeles, and C&S Wholesale Grocers, Keene, N.H., each of which would bid on the stores with an eye toward securing their volume while spinning them off to individual operators, sources told SN.

If the stores are sold piecemeal, there might be some interest among drug store operators for some locations, sources added.

Kroger operates a distribution center in Northern California that has not been put on the block. While Unified would probably opt to supply any new customers out of its Stockton facility, which is operating below capacity, C&S might be interested in acquiring the warehouse and retaining its employees, sources said.

While only 20 Kroger-owned stores are now for sale, sources said they doubt Kroger would be interested in continuing to operate the remaining handful of Northern California stores and would likely put them up for sale later.

All of those remaining stores are in the Sacramento Valley area, where observers speculated that Sacramento-based Raley's might be interested in acquiring them.