Can Lucky’s Market survive loss of grocer partner Kroger?
The future of quirky Lucky’s Market is in question after an announcement by major shareholder Kroger that it “meaningful” ownership in the company.
Is luck running out for the quirky, colorful Lucky’s Market grocery store chain?
Lucky’s primary financial backer — supermarket giant Kroger — plans to divest its ownership share, raising questions about whether the Boulder, Colo.-based small-format chain can continue its rapid expansion into Florida.
At stake are 14 stores planned for 2020 openings in Florida and the 21 stores opened in the state since 2015, including in Coral Springs, Plantation and Oakland Park.
Gary Millerchip, Kroger senior vice president and CFO, said during the company’s Dec. 5 earnings call with investors that the company’s decision to divest its interest in Lucky’s followed a “portfolio review.”
W. Rodney McMullen, Kroger Chairman and CEO, added that Kroger concluded it could not realize “a good return for the investments that we needed to be made” in Lucky’s.
Lucky’s executives did not respond to several emails and phone calls seeking information about how they plan to proceed without Kroger.
While it shared numerous attributes with upscale foodie chains Whole Foods and Fresh Market, Lucky’s carved a niche by offering mid-priced meat, seafood, juices and prepared foods, plus a wide variety of health products and locally sourced packaged goods. Produce is displayed in farmer’s market-style displays, and samples are doled out generously.
“Organic for the 99 percent” is chain’s slogan.
Inside-store messaging often winks at laid-back happy hour and cannabis culture, such as labeling a package a “Dime Bag.”
Memorably, Lucky’s encourages shoppers to “sip ‘n stroll” by selling beer for $2 and wine for $3 in glasses that fit into cup holders attached to its shopping carts.
After Kroger’s announcement, spokeswoman Krista Torvik sent a prepared statement to the Boulder (Colorado) Daily the
Camera vowing to work with “the current ownership group to determine best steps for moving forward.”
Founded in 2003 by husband and wife Bo and Trish Sharon, both chefs, Lucky’s had 17 stores when the companies announced the Kroger investment in April 2016 and has since grown to 39 stores, including 18 in nine states outside Florida.
The two companies never revealed how much Kroger had invested, saying only that it was a “meaningful” sum. Lucky’s is not publicly traded.
Kroger, which has no stores in Florida, reportedly saw Lucky’s as a way to gain a foothold in the state without provoking a head-to-head battle with market leaders Publix and Walmart. But its rapid expansion into Florida was “not well thought out,” said Neil Z. Stern, senior partner at Chicago-based retail consulting firm McMillanDoolittle.
“They were basically a successful chain in the Rockies,” Stern said by email.
“Kroger put a lot of attention in Florida at the same time Sprouts, Earth Fare and Aldi are also opening stores. It did not make a lot of sense to jump as much or as fast geographically. And Florida is always a tougher market than it initially appears. Publix and Walmart are formidable in the state.”
According to Lucky’s website, new stores are planned to open next year in Miami, Dania Beach, and Delray Beach, while Boca Raton is scheduled to get two stores.
Other Florida cities on the 2020 expansion list are Port St. Lucie, Lake Mary, Bonita Springs, Cape Coral,
Fort Myers, Port Charlotte, Venice, Brandon and Clearwater.
Job openings are posted on the company’s website for several of the planned stores. Among them are numerous positions posted after Kroger’s announcement on Dec. 5.
Some of the stores now planned for 2020 openings were originally announced as opening this year, including one at the new Uptown Boca Raton plaza at Glades Road and 95th Avenue South and another in Dania Beach at the Dania Pointe Shopping Center at 150 S. Compass Way. In July 2018, the company said those stores would open in summer 2019.
Neither has opened yet. The Dania Point location on
Stirling Road has a “Now Hiring” sign, but no opening date has been announced.
The Uptown Boca Raton development is still under construction, with the first tenant likely to move in next spring, said Brian S. Schmier, executive vice president of the Boca Raton-based developer Schmier & Feurring Properties Inc.
“Our project is proceeding as planned, and I have full confidence Lucky’s is going to open,” Schmier said by phone Wednesday.
After signing a lease for a planned store at 3350 N. University Drive in Cooper City, the deal fell through and the company decided to pursue another site in the city, said Paco R. Diaz of the
Miami office of real estate firm Caldwall Banker Richard Ellis. No Cooper City location is currently on the 2020 openings list.
In its third-quarter earnings report filed with the U.S. Securities and Exchange Commission, the publicly-traded Kroger said it was taking a $238 million impairment charge on the investment, including a $107 million net loss attributable to its minority interest in the Lucky’s chain.
According to the website Investopedia.com, companies take impairment charges to accurately convey an asset’s true value to investors.
Losing Kroger could hurt Lucky’s by making the smaller company look less stable to potential creditors, including landlords, according to real estate insiders. If an anchor store like Lucky’s has a deep-pocketed partner like Kroger, a shopping center developer can command a higher purchase price from a real estate investor, while the anchor store can leverage the partnership as collateral to negotiate more favorable rent.
Mark Thompson, founder of the website GroceryAnchored.com, which sells supermarket development information to investors, real estate professionals and retailers, said survival is not out of the question for Lucky’s, despite competitors large and small. “The Florida market is eclectic enough, and there are enough people that multiple grocers can serve and be successful,” he said.
Time will tell whether Lucky’s can find a new partner to replace Kroger.
Typically, there are two types of buyers, Stern said. “Strategic buyers, who would be another supermarket chain, potentially in the same [niche], who would be interested in the chain or possibly even the [real estate].” That type of buyer is unlikely to emerge considering the challenging state of the retail grocery industry, he said.
“The second is a financial buyer, typically private equity, who believes they can operate these stores more efficiently. There are always options, at the right price.”