Kash n' Karry Food Stores Inc. has agreed to buy Save and Pack in Tampa Bay and plans to continue running the three-store operation as a separate no-frills grocery chain.
The experiment, not unusual in the grocery business but risky from a marketing standpoint, means Kash n' Karry will be selling groceries for less at Save and Pack than at its 113 other stores that serve the same market.
Customers, however, must be willing to bag their own groceries, fill their carts from boxed goods stacked on pallets and typically drive miles out of their way to save a few bucks. Although the warehouse stores are usually bigger than conventional competitors, the selection is a lot skimpier.
"We think it's a viable concept. We've got the cost structure to make it work. We think we can expand the business," said Ray Springer, Kash n' Karry's chief financial officer.
The warehouse grocery format relies on a customer driven almost completely by bargains. Highly visible stores are put on the busiest major roads. While a conventional grocery store relies on residents who live within three miles, warehouse regulars do not think twice about driving 15 miles. Because the customer is more loyal, the no-frills formula calls for minimal advertising.
Save and Pack is the second national grocery chain to back out of Tampa Bay's fiercely competitive grocery market this year, and the third in five years. Jewel Osco, an American Stores Inc. venture, sold out to Albertson's Inc. in January.
Kash n' Karry did not disclose the price. But Kash n' Karry is only assuming leases and buying the inventory, which in a store the size of Save and Pack is about $1-million per store.
The stores are located at 2525 N Dale Mabry Highway and 11612 N Nebraska Ave. in Tampa and at 3533 U.S. 19 in Palm Harbor.
Some neighborhoods will soon be crowded with competitors. A Save and Pack near Tampa Stadium, for instance, is less than a mile from a Kash n' Karry at Dale Mabry and Interstate 275. A huge new Sam's Warehouse, the Wal-Mart warehouse club that also sells food, is about to be built in the same block.
Save and Pack in Tampa was created by Safeway Inc., but purchased by St. Louis-based Wetterau Inc. about five years ago. It is supplied by a Wetterau warehouse near Tallahassee. Wetterau, which makes most of its money running 26 distribution centers around the country that supply independent grocers, is being acquired for $1.5-billion by Super Valu Inc., a Minneapolis food distributor that also operates Cub Foods in the Midwest.
"The sale to Kash n' Karry makes sense because Save and Pack is not really that good a fit with where Super Valu seems to be going. You might see some more asset sales before this is over," said John Russo, a securities analyst with A.G. Edwards & Sons Inc. in St. Louis.
Wetterau officials declined to talk about their motivation for selling. Wetterau shareholders vote Oct. 29 on accepting Super Valu's takeover offer. The sale to Kash n' Karry is scheduled to close around Nov. 1.