Spartan Stores to Purchase D&W Food Centers

GRAND RAPIDS, Mich. -- Let the 2006 mergers begin. Spartan Stores, Inc. here said it plans to acquire D&W Food Centers, Inc., also based here, in a deal that could add $200 million a year to Spartan's sales revenue.

Spartan said the acquisition of the privately held 20-unit regional operator, with stores located throughout West Michigan, would be completed late in its fiscal 2006 fourth quarter or early in its fiscal 2007 first quarter.

Spartan Stores chairman, president, and c.e.o. Craig C. Sturken said the deal is "a component of our previously stated business strategy, which is to grow our business through opportunistic acquisitions of other grocery operators that are adjacent to or in markets where we operate today."

It sounds like the merger would be a good fit. Spartan Stores has been operating as a grocery wholesaler in the Michigan market since 1917, and as a retail operator since 1999. D&W Food Centers, Inc. has been operating retail grocery stores in the Michigan market since 1943.

Because of their respective longevity in their trade areas, both companies have a profound understanding of grocery customer needs in the West Michigan market, noted Sturken.

"This transaction will significantly strengthen our competitive retail market position by expanding our services to certain communities and trade areas not currently served by our existing store base. D&W Food Centers is a very well respected name in western Michigan grocery retailing, known for its fresh and unique product offerings. This combination presents an outstanding opportunity to pool the talents and resources of both organizations to benefit consumers in the west Michigan market. Our distribution customers, associates, and the communities where we operate will all benefit from the economies of scale created from this transaction."

The agreement is subject to certain conditions including, among others, satisfactory completion of the company's due diligence process. Spartan Stores earlier this year completed a strategic review process in which it looked at various options, including a possible sale or possible acquisition of a group of retail stores, and decided to stay independent and continue a plan to grow retail and distribution sales. Just last week, Spartan said it had expanded its existing senior secured credit facility to $225 million from $215 million, with the term extended to seven years from five.

Sturken offered a laundry list of efficiencies that should accrue from the merger, including "reintroducing our award-winning 'Spartan' private label products to D&W Food Center customers," applying Spartan's category management disciplines to D&W's stores, achieving "distribution efficiencies through higher sales volumes," and boosting its buying power as a wholesaler and a retailer.

Sturken added that Spartan intends to "continue D&W Food Centers' fine tradition of providing high-quality products and services, and fresh, unique perishable selections."

Local trade observers said that, based on Spartan's previous track record of acquisitions of other Michigan grocery chains, the wholesaler might follow one of a few scenarios. Spartan, for example, could choose to close unprofitable D&W locations outside of the immediate Grand Rapids area, the said. The wholesaler's traditional strategy has been to create neighborhood markets that fill a need amid Michigan's supercenter skirmish between Meijer Inc. and Wal-Mart.

Observers also said is likely that the D&W stores that remain open will retain their name and identity, as had been the case with Spartan's acquisitions of the Family Fare and Glen's Markets. It is virtually certain that D&W will convert its store brand products to the Spartan house brand, they said.

D&W was founded by Roy Woodrick, who was joined shortly afterward by partner Sid DeVries. While the Woodrick family now owns the business, both families still have members in the executive management. In recent years, D&W has pared its store count, and laid off workers to consolidate its base and concentrate on its core markets around Grand Rapids.

The deal brings together two former retailer/supplier partners, which had previously formed a relationship that began in 1961. Spartan was D&W's supplier of groceries, frozen foods, dairy products and health and beauty care products, as well as Spartan and D&W private label products for 38 years, until D&W switched to Supervalu in 2000.

Earlier this year, Spartan was reportedly a potential buyer for the Farmer Jack chain of groceries in Southeast Michigan, but said it would continue waiting for the right acquisition candidate to surface.

Spartan Stores, with warehouse facilities in Grand Rapids and Plymouth, Mich., distributes over 40,000 private label and national brand products to more than 350 independent grocery stores in Michigan, Indiana, and Ohio. The company also owns and operates 54 retail supermarkets and 19 deep-discount food and drug stores in Michigan and Ohio, including Family Fare Supermarkets, Glen's Markets, and The Pharm.

Family-owned D&W Food Centers, Inc., operates 20 retail stores and employs approximately 2,200 associates.
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