Acme grocery chain is being sold to investment group

Embattled Acme Markets' corporate parent, Supervalu Inc., announced Thursday the sale of five grocery chains, including Malvern-based Acme, to a group of private-equity firms and real estate investors.

Supervalu announced a "definitive agreement" to sell its Acme, Albertsons, Jewel-Osco, Shaw's, and Star Market stores and related in-store pharmacies for $100 million and the assumption of $3.2 billion in debt.

The buyer is AB Acquisition L.L.C., an affiliate of an investor consortium, former Chrysler owner Cerberus Capital Management L.P. Investors include Philadelphia based Lubert-Adler Partners, as well as Kimco Realty Corp., Klaff Realty L.P., and Schottenstein Real Estate Group.

Under the deal, AB Acquisition subsidiary Albertsons L.L.C. will run 877 stores, including Boston-based Shaw's and Chicago-based Jewel. The sale is expected to close by March 31.

Acme has 112 stores and 10,000 employees, mostly in Southeastern Pennsylvania and New Jersey, and a few stores in Delaware and Maryland.

In recent years, Acme has closed stores, laid off hundreds of unionized clerks, and lost market share to Shop Rite, Giant, Walmart, and others.

"I'm hearing they are going to try to operationally run the stores, rather than sell them to a competitor like Kroger or Safeway," said analyst Michael Keara, of Morningstar Inc. "That remains to be seen."

The same investor group bought more than 600 Albertsons stores in the South, Southwest, Midwest, and West in June 2006 and put in a management team headed by supermarket veteran Bob Miller.

Later, at least one-quarter of those stores were sold to Publix and Save Mart supermarkets. Albertsons L.L.C. closed 100 stores and sold others in a variety of transactions.

Of the latest acquisition, Miller said: "We see great potential to improve operations. In 2006, we acquired a set of stores that lacked investment and were in tough shape." Since then, "we have grown into a solid regional supermarket chain with growing sales. I believe we can be successful again."

Albertsons L.L.C., owned by Cerberus Capital, today operates 190 Albertsons markets and two Super Saver food stores in eight states.

"Our focus is on growing same-store sales through running good stores and improving operations," said spokeswoman Christine Wilcox. "There are no immediate, specific plans for any of the banners. It's too soon and inappropriate to speculate on what will happen with operations."

Overall, the traditional supermarket industry is not faring well. Retailers such as Costco, BJ's, Walmart, and Target sell food at low margins just to get people in their stores.

Scott Mushkin, an analyst with Jefferies & Co., said that if the new owners do what they say they are going to do - invest in price, better quality, and store improvements - "Philadelphia will continue to be one of the worst markets for profits for grocery stores in the country."

Why? Because there are too many stores in the region.

"Definitely good news for Acme employees, and definitely good news for Philadelphia shoppers," Mushkin said. "For the industry as a whole, this isn't great news. Because it's going to continue the irrational market that Philadelphia is. For the other supermarket companies that were probably hoping for some square footage to come out of the market, some closures, I don't think we can think of a worse-case scenario."

He added, "This is a big move by Cerberus into an industry that's been in bad shape, and the assets they are purchasing, Acme included, need enormous amounts of work."

Wendell Young IV, whose United Food and Commercial Workers Local 1776 represents about 3,000 of the roughly 10,000 Acme employees, said he did not know how the sale would affect the chain.

"Our concern is the same concern we've had for a while," he said. "Acme has not had much investment in upgrading stores, facilities, marketing, merchandising, and pricing. And they've lost a lot of customers, and closed a lot of stores. So whoever ends up owning them, whether it's Cerberus or whether Cerberus flips them to somebody else, our key concern is that the owner invests in growth. Without that, it's going to be very difficult for Acme Markets to make it."

Young said Cerberus bought "big chunks" of Minnesota-based Supervalu because it fits with Cerberus interests elsewhere.

"They had to take on a certain amount of Supervalu to get the pieces they want," he added. "They may spin off the pieces they don't plan to keep for the long run, and Acme might be one of those."

Jeffrey Metzger, publisher of Food Trade News, said Cerberus and AB Acquisition were primarily interested in the West Coast.

Supervalu had shopped Acme, Jewel, and Shaw's the last few years, Metzger said. "They lost a lot of money, and got no takers. I think the priorities will be the same for AB."

"We're told Cerberus is interested in keeping the West Coast stores on a longer-term basis, and look to divest as quickly as they can down the road Acme, Shaw's, and Jewel," he said. "Acme is significantly underperforming, and has for five years. Shaw's is even worse, and Jewel in the last few years has plummeted."

Metzger doubts Cerberus will make "a significant-enough investment to change the course of Acme's slide in the Delaware Valley."

"My guess is the long-term goal would be to either find another buyer, which will be difficult, or to commence at some point down the road a sale-auction-closure process. A combination of all those things."