Photo: Wikimedia Commons/Minnaert
Smart & Final swaps private equity owner for largest U.S. Hispanic grocer
Grupo Comercial Chedraui, Mexico’s third-largest retailer and the largest Hispanic grocery store operator in the U.S., has reached an agreement to acquire Smart & Final, which operates “smaller, faster” warehouse stores across California, Arizona and Nevada.
The set purchase price is $620 million. Private-equity giant Apollo, the seller, acquired the business in 2019.
Smart & Final, which is headquartered in Commerce, CA, operates more than 250 free-membership warehouse-style stores under the Smart & Final and slightly larger Smart & Final Extra banners, as well as 16 stores in Northwestern Mexico through a joint venture. The company is celebrating its 150th anniversary this year.
The retailer seeks to differentiate itself by offering a broad range of product sizes, including standard-sized items typically found at conventional grocers and larger-sized offerings typical of warehouse clubs. Pricing is said to be “substantially lower” than conventional grocers and competitive with large discounters and warehouse clubs.
“We believe we offer higher quality produce at lower prices than typically found at large discounters,” Smart & Final added in its 2019 10K. “We also believe our Smart & Final stores provide a better everyday value to household and business customers than typical warehouse clubs by offering greater product selection at competitive prices, with no membership fee requirement, in a convenient easy-to-shop format.”
Flagship Smart & Final stores average about 17,000 square feet and carry about 12,000 SKUs on average. Costco’s locations, in contrast, average 146,000 square feet and offer an average of 3,800 SKUs. Conventional supermarkets generally average between 30,000 to 40,000 SKUs.
For Chedraui, the acquisition broadens and diversifies its customer base and expands its footprint. In the U.S., through its Bodega Latina subsidiary, Chedraui operates 120 stores under its ownership of Los Angeles-based El Super and Houston-based Fiesta Mart.
With Smart & Final’s annual sales at $4.1 billion, Chedraui’s sales in the U.S. will reach in excess of $11 billion post-acquisition. “Smart & Final, with a unique go-to-market and operating strategy, is an attractive fit that is aligned with our business strategy in the U.S., utilizing differentiated formats to focus on growing, but underserved markets,” said Carlos Smith, president and CEO of Bodega Latina.
- Grupo Comercial Chedraui Announces the Acquisition of Smart & Final – Grupo Comercial Chedraui
- Smart & Final to Be Sold to Mexican Retail Giant – The Wall Street Journal
- Smart & Final Stores, Inc. – Securities & Exchange Commission
- Smart & Final to be acquired by Bodega Latina for $620 million – Supermarket News
Discussion Questions
DISCUSSION QUESTIONS: What do you think of the competitive positioning and growth potential for the Smart & Final concept? Will the change in ownership from a private equity firm to Chedraui make a difference for Smart & Final’s operations and performance going forward?
Poll
BrainTrust
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Andrew Blatherwick
Chairman Emeritus, Relex Solutions
The Smart & Final described in the discussion is no different than the Smart & Final of decades ago. Back then they had a niche, knew their customers and executed well. I haven’t followed them in years, but it seems they are getting back to what they are good at.
But the biggest encouragement is that they are no longer under the thumb of a PE firm and now are owned by a real retailer, one who also knows the target.
Actually it is much different. The majority of stores have been converted to the “Extra” format. While there are still large size items, and two aisles full of foam cups and plastic tubs for food service, the “Extra” format is more like the Kroger Food 4 Less format (that is where the leadership came from). Also they are running at least a few dozen former Vons/Albertsons locations they got from Haggen with perimeter departments closed off and minimal remodeling other than that. In general they are a terrible shopping experience. Their pricing is not great and quality is poor. Service varies. This chain needs a lot of help and focus.
The “old” Smart & Final you describe, that has been watered down, as the converted more stores to the “Extra” format. They then relied on the “Smart Foodservice” format (since sold to US Foods) to take care of the business customer the old Smart & Final was catering to. It does appear in SoCal, which is their largest market and where they did not expand Smart Foodservice, they held on to that line of business a little better. But in the markets where both banners existed, Smart & Final converted to Extra and is trying to be a discount grocery store catering to families, not businesses.
Also not sure if anyone here has been into El Super or Fiesta owned by Bodega Latina … El Super is all about cheap, and service/quality are the compromise to get there. Fiesta is more along the lines of a typical conventional, but still a price focus. Smart & Final is somewhere in the middle. Bodega Latina is operating three VERY different formats….
Thanks. An excellent update for me.
Since seeing this type of acquisition a few years ago, Chedraui is an established retailer operating several different formats in Mexico. It has been able to tailor the format to its neighborhood successfully there. I am hopeful that Bodega Latina will be as successful and make minimal changes to the format (albeit the expected integration of systems). Too much change might drive away the customer base to other options – and there are a lot of options.
Smart & Final has a niche position in the market and the additional buying power and possible slight shift in range could work really well for them. Price is the key element of their competitive strategy so anything that improves buying power will help. Their locations are aligned to their new owner’s market and will enable them to quickly add some additional variety in range, which could see a good result.
Having a retail owner rather than PE will also make their life easier as they now have a joint and well-focused business direction with a parent that understands how retailers operate and the pressures they face.
Chedraui is a well-run Mexican retailer and will infuse an operator’s mindset into the ownership and oversight role instead of a PE player’s. I expect some changes to Smart & Final’s assortment as Chedraui brings deep category and consumer expertise in Latinx offerings. However with any ownership change, there’s likely to be some bumps along the road despite that road’s eventual improvement.
I’d like to see Smart & Final set up a small, digital-first presence in adjacent markets to where it currently operates to test the waters. This could be accomplished initially by entering new areas with dark stores or creating central hub stores similar to the chain’s current formats with a micro warehouse of some sort in back to accommodate an initial focus of fulfilling online orders for delivery or pickup (curbside-only if the dark store approach is used). The chain has the potential to move north along the west coast or into more eastern locations in Colorado, New Mexico and Utah.
They already tried Colorado with the SmartCo Foods format. It was out of business in a matter of months.
I remember that. My expectation is that Chedraui has something to bring to this equation that may help fix some of the ways Smart & Final has slipped over the past 10 years. Your earlier point about the switch to the Extra format and its lack of differentiation are well taken. Maybe I’m engaging in wishful thinking that having financially stable retail-based ownership will enable S&F to lift its game.
Let’s hope they lift their game. It will be interesting to see how many locations get converted to El Super in the process, if any. Such conversions would require major investments in fresh departments and staffing though.
Apollo made out well on this deal, SFS is no longer under their (tight) control and Chedraui is an excellent operator. Hoping this move will improve SFS operation and market penetration in areas where its historical niche format has been successful.