Kroger to Sell Convenience Stores in $2.2B Deal

02/05/2018

The Kroger Co. will sell its convenience stores to British gas station and convenience store retailer EG Group for $2.15 billion. EG Group, based in Blackburn, Lancashire, UK, and Kroger expect to close the transaction during the first quarter of Kroger's fiscal year. Kroger's convenience store business generated revenue of $4 billion, including selling 1.2 billion gallons of fuel, in 2016.

Kroger's convenience store business operates in 18 states.  It includes 66 franchise operations and the stores employ 11,000 associates and operate under the following banner names: Turkey Hill, Loaf 'N Jug, Kwik Shop, Tom Thumb and Quik Stop. 

As part of the agreement, EG Group will establish their North American headquarters in Cincinnati, Ohio and continue to operate stores under their established banner names. 

Kroger announced in October 2017 its intention to explore strategic alternatives for its convenience store business, including a potential sale, in conjunction with Restock Kroger.

"Our convenience store business has been a part of our company for many years. We want to thank our management team and associates for their enduring commitment to our customers, and for the contributions they have made to build our supermarket fuel business," said Mike Schlotman, Kroger's executive vice president and chief financial officer. "As part of our regular review of assets, it has become clear that our strong convenience store business unit will better meet its full potential outside of our business."

"One of the most important considerations in our decision-making process was continued operations to ensure minimal disruption to our associates. We are very pleased the EG Group plans to establish their North American headquarters in Cincinnati. EG Group is also a recognized international petrol forecourt convenience operator and they have a commercial model which clearly looks to enhance the consumer offer by working with leading retail brands customers know and trust," said Schlotman. "This is good for our associates across the country and for our headquarter city of Cincinnati. Throughout the process we were impressed with the EG Group's professionalism, investment commitment and more importantly their understanding of the US convenience retail market. We now look forward to working with them closely to ensure a smooth transition for associates."

Mohsin Issa, EG Group Founder and co-CEO expressed "This is an exciting time for EG Group, the entry into the US market presents a fantastic opportunity to deliver a successful retail offer to consumers across the various states. We have had much success across Europe and we firmly believe the Kroger assets present a fantastic foundation to overlay our retail experience and know-how in the US. We are committed to investing in the Kroger network, partnering with leading retail brands and working with the exceptional management team and associates transferring across to deliver a comprehensive retail offer."

"Our business model is simple but effective – EG Group is creating a stronger relationship between consumers and leading retail brands they want to access. In the US we aim to create a retail environment which delivers convenience, provides value and serves as a retail destination offering excellent welfare to motorists who live and work near our petrol forecourt convenience retail  stores," added Zuber Issa, EG Group Founder and co-CEO.

Kroger plans to use net proceeds from the sale to repurchase shares and to lower its net total debt to adjusted EBITDA ratio.

Kroger's supermarket fuel centers and its Turkey Hill Dairy are not included in the sale.