Roundy’s plan to go public

Roundy’s plan to go public and sell stock to reduce its debt is not common in the supermarket business, but it makes sound financial sense, said two industry experts.

Brandon Scholz, Wisconsin Grocers Association

“I think it’s a very positive thing,” said Brandon Scholz, CEO and president of the Wisconsin Grocers Association in Madison. “It goes to continuing to make the company strong. I see this as addressing debt and moving forward.”

Mark Hamstra, editor of Supermarket News, New York, said the move by Roundy’s was unusual, as the last time a large supermarket chain went public was in 2010, when Fresh Market, based in Greensboro, NC, filed for an initial public offering of the company’s stock to raise $345 million.

“But they were never a hometown company like Roundy’s or Pick ‘n Save,” he added. “There haven’t been a whole lot of public offerings in the supermarket industry.”

Mark Hamstra, Supermarket News

Roundy’s, owned by the Chicago investment firm Willis Stein & Partners, filed a prospectus with the Security and Exchange Commission on Dec. 5 for an IPO to raise $230 million. Roundy’s, which operates Pick ‘n Save stores in Wisconsin, would use the money to help pay off its debt of about $800 million.

Scholz said he believed fierce competition and Roundy’s venture into the Chicago market was behind the IPO.

“The grocery business, overall, is a highly competitive business between grocers,” he said. “It is an industry known for having razor-thin margins. In addition to being competitive within the industry, now add to that that others want to be in the business too.”

Walmart and Woodman’s are two in particular who compete with Pick ‘n Save pricewise, said Scholz, but Target and a vast array of other stores are vying for supermarkets’ customers.

“Convenience stores – they continue to grow with a bigger footprint offering more than what convenience stores started offering,” he said. “They are more than soda, cigarettes and coffee. They are not competitively priced, but they’re still there.

Roundy’s, with a 139-year-old history, operates 158 stores in Wisconsin, Minnesota and, more recently, Illinois. Besides Pick ‘n Save, Metro Market and Copps here, the company operates the Rainbow chain in Minnesota and Mariano’s Fresh Market, a new group in Illinois.

Milwaukee is Roundy’s largest market. It has 60 stores in the city and had 55 percent of market share, according to the prospectus. Overall, Roundy’s claims 44 percent of the market in Wisconsin, the filing said.

According to the prospectus, Roundy’s considers Aldi, Costco, Target and Walmart key competitors across all markets. In Wisconsin, Festival Foods, Piggly Wiggly and Woodman’s are its top competitors; in Illinois, Dominick’s, Jewel/Osco, Strack & Van Til, Trader Joe’s and Whole Foods top the list; and in Minnesota, it’s Cub Foods and Lund’s/Byerly’s.

To gain market share, Roundy’s forged into the Illinois market in July 2010, when the first Mariano’s Fresh Market opened in Arlington Heights. As of November, Roundy’s opened another four stores in the Chicago market, and it plans to open another four to five within the next five years.

Interestingly, CEO and President Robert Mariano, who last year was paid $1.4 million in salary and bonus, held a similar position at Dominick’s in Illinois until its sale to Safeway in 1998. Mariano joined Roundy’s in 2002.

According to the prospectus, Dominick’s equity line increased from $385 million when it went public in 1996 to $1.2 billion in 1998 when it was purchased. Mariano is partially credited with that gain.

Roundy’s, meanwhile, had in recent years been looking for a buyer, but none surfaced.

Whether Roundy’s is positioning itself for a sale is conjecture, but for the time being, Scholz said he doesn’t anticipate any change in how business is conducted at Roundy’s stores.

“An IPO really isn’t going to impact the consumer side,” he said. “I just don’t see how it would.”

Scholz likened it to a homeowner refinancing a house, and he said fears that jobs could be lost or community investment scaled back are unwarranted.

“Do you think by opening up stock sales the Packers are going to become something different in the community? No. If Johnson Controls was to do an IPO, would that suggest there’d be a loss of local control? Not at all.”

Hamstra agreed: “These are veteran supermarket managers that know there’s value in investing in the local community. The fact that they have started a public offer is probably overall a good thing for the company. It did portend more growth for the company. They’ll be able to access capital.

“I don’t see any real downside to the local market in Wisconsin.”