Strong Research Guides Clients Through Sale
of Grocery Chain
 Roundy's, Inc. is a leading food retailer and wholesaler in the Midwest. As of April 3, 2004, Roundy's operated 119 retail grocery stores under the Pick 'n Save, Copps and Rainbow Foods banners. The company is owned by investment funds controlled by Chicago-based Willis Stein & Partners III, L.P. |
Challenge
When Fleming, a wholesaler and grocery supplier, declared bankruptcy in 2003, the company decided to sell its chain of Rainbow grocery stores to Roundy’s, a Wisconsin-based grocer. Given the opportunity to be selective, Roundy’s chose only 31 of the 44 Rainbow stores—those it perceived to offer the surest opportunity. This concerned two United Properties clients whose properties were among those rejected. The clients asked for advice from retail asset management and development experts at United Properties.
- The lease at the Plymouth Station Rainbow store was a capital lease, which has a negative impact on the retailer’s corporate balance sheet. The store’s sales were also lower than other locations.
- At the Apple Valley Square shopping center, the Rainbow store was in poor condition, had declining sales, and was on a very short-term lease. There was an empty K-Mart next door. In addition, Rainbow’s lease contained a provision that would have allowed the landlord to cancel it based on the tenant’s sales volume. The owner was nearing the end of the holding period but had limited options without a strong anchor.
Both of these clients faced substantial losses of value if they could not appeal to Roundy’s to recommit to the locations.
Strategy
These United Properties clients were offered research data, analysis and counsel unavailable from any other real estate firm in the market together with direct access to decision makers at Roundy’s. In both cases, these clients were able to quickly find solutions that met both their needs and the needs of Roundy’s and that preserved these important tenancies.
- A recently updated Twin Cities grocery sales model created by the United Properties’ team provided some background and insight on why the Plymouth Station site was under-performing and showed the longer-term potential. With this information, the owner began a renewed negotiation with Roundy’s and the city.
- At Apple Valley Square, Roundy’s liked the location but required a commitment from the owner. Since the owner was working to position the property for sale, new terms were negotiated that met the needs of both parties and secured Roundy’s tenancy for the long term.
Results
After a brief negotiation, Roundy’s purchased the Plymouth Station store. The owner was able to negotiate tax concessions from the city. One year after the resolution, the store is on target to meet its desired results. This resulted in significant savings to all parties, including the community.
Following the renegotiated lease at Apple Valley Square, Roundy’s committed more than $3 million to the store and began a major renovation. The owner was able to begin marketing the property for sale, taking advantage of one of the best seller’s markets in recent memory. This new commitment from the anchor tenant helped attract very robust interest from top institutional investors.
In both cases, the United Properties team helped preserve significant value and position these properties for long-term stability and success. Roundy’s was also pleased because they were able to add two more stores with very good prospects to their acquisition.
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