No Express Checkout for This Supermarket IPO

The grocery aisle is already stocked full with rival stores, but is there room for one more? Apparently based on the success of IPOs earlier this year from specialty retailers Sprouts Farmers Market (NASDAQ: SFM  ) and Fairway Group Holdings (NASDAQ: FWM  ) , Southeastern Grocers believes it's time to go public, too.

Southeastern, through its Bi-Lo subsidiary, purchased Winn-Dixie last year for $9.50 a share, or $560 million, and took it private. It was only a few years before that Winn-Dixie had emerged from bankruptcy, so it was making the round trip through the public and private markets, and earlier this year Southeastern agreed to buy the Sweetbay, Harveys, and Reid's grocery chains from their parent company, Delhaize, for $265 million cash. And just this month, Bi-Lo agreed to buy 22 Piggly Wiggly's while selling seven of its own stores to Publix.

It's clear the grocery store operator was looking to bulk up its business before going public, and last week said it was looking to raise half a billion dollars by publicly bringing forward its 685 stores throughout Florida, Georgia, Alabama, and the rest of the southeast. The filing notes it has achieved 18 consecutive quarters of positive same store sales growth with better than 3% growth over the last six quarters.

It goes on to note it is the second largest supermarket operator by number of stores in the eight states it operates in, and they're ranked the top one or two supermarket operator in 44 of its major metropolitan markets. With about 83% of its stores located in those centers, it's got a leg up on its rivals.

The risk for Southeastern, though, is that it's not really fish or fowl here. The two successful grocery IPOs this year were in special niche markets of organic foods, which is experiencing a period of extraordinary growth. According to the market analysts at the industry group SPINS, in an area dominated by Whole Foods Market  (NASDAQ: WFM  ) organic products have surged 13% across all retail channels with 63% of all packaged produce being "certified organic." I recently noted there has been a wave of organic grocers going public over the past few years, including The Fresh Market in 2010 and Natural Grocers by Vitamin Cottage last year. In that respect it's less surprising we had two more IPOs this year.

But, of course, as a conventional supermarket, it's not specifically targeting that niche, being more of a discounter. Thus it is filling a space already at capacity with Wal-Mart and Costco on one side, and the dollar stores, particularly like Dollar General (NYSE: DG  ) and Dollar Tree (NASDAQ: DLTR  ) , which are adding greater amounts of consumables to their aisles, on the other.

While Southeastern Grocers believes those concepts have reached a saturation point in the southeast, limiting their ability to grow much further, that doesn't mean it can continue expanding further. Winn-Dixie, for example, has already shown twice that in the low-margin grocery-store space it hasn't been very successful. 

So, it's not that Southeastern won't continue being a viable grocer in its markets, but from an investors point of view, the chain doesn't appear to be offering anything unique that will capture the market's imagination. The space is a much more competitive place and I can't see it in the express lane for growth.

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