SPARTAN TO BUY D&W FOOD CENTERS

JON SPRINGER

GRAND RAPIDS, Mich. - Spartan Stores and D&W Food Centers are getting back together again.

Spartan late last month said it planned to close a purchase of the 20-store independent chain in March, paying $45 million in cash plus some inventory costs. Spartan said the deal would provide $200 million in annual sales and be accretive to its earnings within 12 months of the closing date.

Both Spartan and D&W are based here, and worked together in a distributor-customer relationship until 2000, after Spartan converted from a cooperative wholesaler to a retailer-distributor.

D&W at that time left Spartan for Minneapolis-based Supervalu, saying that by purchasing area stores in competition with D&W, Spartan had become a competitor.

Ron Cox, vice president of marketing for D&W, told SN the company was glad to be back with Spartan, which should provide purchasing power and added strength in a market which has seen heightened competition as the result of battles between Meijer and Wal-Mart Stores.

"Given the competition here in western Michigan from both local and national chains, we felt it was appropriate for the independent retailer to look to consolidate the market," Cox said. "We have had a long-standing relationship with Spartan Stores that goes back for decades, and there's a lot of synergies in how we think, how we treat the customer and approach the market. We felt that two local companies coming together was the best possible outcome for the market."

Jeanne Norcross, a spokeswoman for Spartan, told SN that Spartan has instituted a hiring freeze so that it can consider D&W employees and executives during the 90-day due diligence period.

Spartan earlier this year considered buying another retailer with stores in a contiguous market, believed to be Farmer Jack. But Craig Sturken, Spartan's chief executive officer, insisted at that time that the company could still be in the acquisition market.

A purchase agreement filed with the Securities and Exchange Commission made provisions for an unnamed number of "wind-down stores" that could close shortly after the deal is complete.

Family owned D&W in recent years operated as many as 28 stores, but more recently has closed or sold several outlying locations.

"[D&W] is a very high-quality regional chain, positioned to the middle-upper end, but they did run into problems beginning three or four years ago with more competition," Neil Stern, principal with McMillan/Doolittle, Chicago, told SN. "I think they've been under a little financial pressure."

Burt P. Flickinger III, managing director, Strategic Resource Group, New York, told SN that as Spartan faces the same issues with heightened competition as D&W, the merger made sense for both groups.

"It's a good reunion between a good retailer and a very good wholesaler," Flickinger said. "It can add more operating leverage and expertise Spartan needs as it takes on Wal-Mart on one side and Meijer on another."