Kroger Picks Buyer for its C-Store Business

The Kroger Co. has reached an agreement to sell its convenience store business, totaling more than 700 stores in 18 states, to EG Group, a privately held fuel and convenience store retailer based in the United Kingdom, for $2.15 billion.

As part of the deal, expected to close in the first quarter of Kroger’s fiscal year, EG Group will establish its North American headquarters in Kroger’s hometown of Cincinnati and continue to operate stores under the grocer's established banner names.

Kroger announced in October 2017 its intention to explore strategic alternatives for its c-store business, including a potential sale, in conjunction with the company's Restock Kroger plan.

"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 EVP and CFO. "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."

According to Schlotman, a key consideration was “minimal disruption” to affected c-store associates. “Throughout the process we were impressed with the EG Group's professionalism, investment commitment and, more importantly, their understanding of the U.S. convenience retail market,” he noted. “We now look forward to working with them closely to ensure a smooth transition for associates."

Mohsin Issa, EG's group founder and co-CEO, called the deal a “fantastic opportunity” for his company to enter the U.S. market.

“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 U.S.,” Issa said. “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."

Co-CEO Zuber Issa described his company’s “simple but effective” business model as “creating a stronger relationship between consumers and leading retail brands they want to access. In the U.S., we aim to create a retail environment that 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.”

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 c-store business includes 66 franchise operations. The stores employ 11,000 associates and operate under the Turkey Hill, Loaf 'N Jug, Kwik Shop, Tom Thumb and Quik Stop banner names. The business generated revenue of $4 billion, including selling 1.2 billion gallons of fuel, in 2016.

Kroger's supermarket fuel centers and its Turkey Hill Dairy manufacturing facility aren't included in the sale.

Founded in 2001 by brothers Zuber and Mohsin Issa, EG Group has established partnerships with global brands such as Esso, BP, Shell, Carrefour, Louis Delhaize, Spar, Starbucks, Burger King, KFC, Greggs and Subway. EG Group currently employs more than 12,500 staff working in more than 2,600 sites across various European markets, including the United Kingdom, France, The Netherlands, Belgium, Luxembourg and Italy.