Whole Foods Market's Potential Irish Opportunity Dashed in A Flash; Musgrave Group Buys Superquinn

Pictured above is a Musgrave-affiliated 16,000 square-foot Supervalu banner supermarket in Virginia, County Cavan, Ireland, owned by the McEvoy family. The independent-owner-operators of the Supervalu store, which features full-service meat and seafood counters staffed with experienced butchers and fish mongers, along with an in-store bakery, service deli and post office branch, say 70-75% of the food items offered in the supermarket are grown and produced in Ireland.

Wholesaler Musgrave has a major fresh and local foods program, including private brands its developed, that's used by its Supervalu and other banner retailers, including the McEvoys. Superquinn, which Musgrove is buying, also puts a major emphasis on fresh and local foods in its 23 stores in Ireland. The two should be a good fit.

News/Analysis/Commentary

[Companion Story: July 18, 2011: The Superquinn Irish Sweepstakes Offers An Opportunity For Whole Foods Market On the Emerald Isle.]

Writing about breaking news and selling fresh foods have more in common than might first meet the eye. For example, both are extremely perishable and therefore are subject to having a short shelf life.

Such is the case regarding our story of less than 24-hours ago in which we suggested that Ireland's Superquinn supermarket chain, which went into financial receivership and for sale on the auction block yesterday, offered an opportunity for Austin, Texas-based Whole Foods Market in its efforts to grow its business across the pond.

What a difference a day makes tough.

Ireland's Musgrave Group, which is a family-owned grocery wholesaler and operates supermarkets in partnership with independent owners under the Supervalue, Centra and Daybreak banners in Ireland, along with the Budgens and Londis brands in Great Britain and Dialprix in Spain, said today it's buying Superquinn and that it would retain the grocery chain's 2,800 employees at its 23 stores in Ireland.

Chris Martin, Musgrave's CEO, said about the deal today: "Having come to this agreement with the Joint Receivers, we are excited by this opportunity. Purchasing Superquinn, when approved, supports our growth agenda and will sustain our competitiveness. We are looking forward to working with the Superquinn team to develop the future of the business."

Neither Musgrave Group or the creditors and receivers said how much the Irish grocery wholesaler-retailer is paying for Superquinn.

But the Irish Times reported today (here) that according to its sources Musgrave bought Superquinn for about €100 million, which if true is €350 million less than debt-ridden owner Select Retail Holdings paid for it in 2005 when it bought the 51-year-old supermarket chain from founder Fergal Quinn.

The paper also reported today Musgrave Group is buying a distribution center in Blanchardstown, Dublin and 11 properties around the city as part of the deal, which is included in the €100 million price tag.

In our piece yesterday we said Musgrave Group/Supervalue was one of the potential buyers for Superquinn. We didn't expect such a quick deal though, even though based on the confidence the bank creditors and receivers voiced in their statement yesterday it was clear discussion were already in the works with one or more potential buyers.

If Musgrave Group's purchase of Superquinn is approved by the Irish authorities, the retailer, which has a combined market share of between 23-24% with its Supervalu, Centris and Londis bane stores, will overtake United Kingdom-based Tesco as the leading food and grocery retailer in Ireland. Tesco has an about 27% share. Musgrave Group's will rise to about 29-30% with the addition of Superquinn's 23 stores in Ireland. The Supervalue brand (and stores) is the groery wholesaler's leading food and grocery retailing banner in Ireland with an about 19.5% market share.

We think Ireland's Competition Authority will look closely into Murgrave Group's purchase of Superquinn but  will approve it without much difficulty for two primary reasons. Those reasons are:

>Better to have a local retailer, Musgrave, buy another local retailer, Superquinn, than have one from outside Ireland do so. The two fastest-growing grocers in Ireland for example are the German hard-discount chains Lidl and Aldi.

>Musgrave's has pledged to keep all 23 Superquinn stores open and retail its 2,800 employees. That will be a tough promise for the group to make. But its music to the ears not only of the workers but of Ireland's politicians because the country continues to struggle with high unemployment.

In announcing the deal today Musgrave Group CEO Martin said: "Superquinn has been challenged by the scale of its debt burden and the difficult trading environment. This purchase secures the jobs of 2,800 people and on completion of the sale process, Musgrave intends to invest in the stores and work with the Superquinn employees to develop the future of the business."

Musgrave Group was founded in 1876 by brothers Thomas and Stuart Musgrave. Today it's Ireland’s leading food and grocery wholesaler/distributor, serving around 3,300 stores in Ireland, Great Britain and Spain.

The wholesale grocer reported sales of €4.4 billion for its 2010 fiscal year, with a pre-tax profit of €72 million. Sales for 2010 were 3% less than in the previous year. But the 2010 profit amount was 3% higher than the profit for 2009.

Musgrave also eliminated €59 million in debt which it started out with in 2010, closing the year with a net cash surplus of €21 million.

We expect Musgrave to keep the Superquinn banner because of the brand's strong standing and iconic status in Ireland.

We also expect the wholesaler to over time find independent grocer-owners for most or all of the 23 Superquinn stores because Musgrave Group's model and focus is to be a product wholesaler and value-added partner providing financial, operational, marketing, advertising and merchandising services and the like to its independents who own their own stores.

As for our story yesterday, although its shelf-life is already over in terms of timeliness for Whole Foods Market, unlike perishable fresh foods which go away when the sell-by date is up, the story remains useful perhaps as a case history, despite its short shelf-life as part of a breaking news story.

For example, Whole Foods' got its start in the UK, where it has just five stores, by acquiring four markets previously owned by Britain's Fresh & Wild chain. As we detailed in our story yesterday, the natural and organic-focused grocery chain plans to at least double its store count in the UK over the next five years by building new stores. It's signed leases for two new units in metro London thus far and soon will open a store in Scotland.

Perhaps Whole Foods Market, taking its UK origin (Fresh & Wild) and our case history example (Superquinn) as twin points of departure, should start thinking small acquisitions as well as organic growth in the UK and surrounding area, considering the retailer continues to say it's bullish on the region as one of its existing two (the other being Canada) markets outside the U.S.