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Kroger Considering Sale of 784 C-Stores in 18 States

Triple-Net Convenience Store Sector Becoming a Hot Commodity Among Investors
October 11, 2017
Kroger Co. (NYSE: KR) is exploring options for its $4 billion convenience store business, including a potential sale, as the supermarket company tries to fend off the threat to its brick-and-mortar grocery business from Amazon.com and other rivals looking to get into the lucrative U.S. grocery business.

The Cincinnati-based company's convenience store business includes 784 c-stores employing 11,000 people in 18 states under the Turkey Hill Minit Markets, Loaf 'N Jug, KwikShop, Tom Thumb and QuickStop banners, including 68 franchise operations.

Supermarket fuel centers or Turkey Hill Dairy locations are not included in this review, announced during its investor conference this week as part of a plan by Kroger to increase shareholder value by revitalizing its business as Amazon makes a major play in the grocery business following its $13.7 billion acquisition of Whole Foods.

Kroger initially reported that its c-store operations generated revenue of $1.4 billion and sold 1.2 billion gallons of fuel in 2016, with 62 consecutive quarters of identical store sales growth. The company later issued a clarification, asserting that the $1.4 billion reflected only inside sales. Including fuel, the business branch generated $4 billion in total sales last year.

"We understand that today's marketplace is shifting rapidly," said Kroger CEO and Chairman Rodney McMullen. "Kroger's success has always depended on our ability to proactively address changes by focusing relentlessly on our customers. We have the scale, the data, physical assets and human connection to win."

The move to explore a sale comes as the nation's large convenience store chains are consolidating as consumers buy more of their food and other grocery options at triple-net convenience stores, an often-overlooked segment of U.S. retail.

The Association for Convenience and Fuel Retailing (NACS) reported earlier this year that the number of c-stores in the U.S. increased 0.2% in 2016 from the prior year to 154,535, accounting for more than $575 billion in sales.

While roughly 80% of c-stores sell gasoline, lower gas prices have helped bring in more foot traffic to convenience stores, with more drivers on the road and stopping into the store during fill-ups to buy a growing mix of merchandise.

"Considering the current premium multiples for convenience stores, we feel it is our obligation as a management team to undertake this review," added Mike Schlotman, Kroger's executive vice president and CFO.

The company has hired Goldman Sachs & Co. to identify, review and evaluate the options.
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