Dive Brief:

• Kroger announced Monday it's selling nearly 800 convenience stores to EG Group, a privately held British gas station operator, for $2.15 billion, according to CNBC.
• The sale is part of Cincinnati-based Kroger’s Restock plan to streamline sales and operations at its 2,800 supermarkets. Kroger says it plans to use the proceeds from the deal to buy back shares and pay down debt.
• This will be EG’s first foray into the U.S. It will establish headquarters in Cincinnati, and continue to operate the c-stores under their existing names, including Turkey Hill, Loaf ‘N Jug, Kwik Shop and Tom Thumb.

Dive Insight:

The supermarket chain announced in the fall that it was interested in divesting itself of its nearly 800 convenience stores, as part of the plan to focus on the increasingly competitive grocery space. Other elements of the company's Restock initiative include investing in technology and seeking strategic partnerships.

Kroger has said it will use the proceeds from the sale of c-stores to fund share buy backs, and pay down debt. Increasing the overall share value will likely appeal to shareholders, who have seen a nearly 40% stock price decline in 2017, though it has recovered some.

The convenience stores Kroger is selling drew fair interest in the industry, and for good reason. The businesses which include Turkey Hill, Loaf ‘N Jug, Kwik Shop, and Tom Thumb, had annual revenue of $4 billion.

Casey’s General Store, an Iowa-based c-store chain, submitted a bid for Kroger’s convenience stores last week for about $2 billion. As c-stores increasingly take sales away from traditional grocers, operators are motivated to expand their turf. Supermarkets, like Albertsons, are also piloting programs to cash in on consumer’s growing interest in the quick-stop stores.

When Kroger’s deal closes, it will have gained operating capital that can help it better compete with low-price grocers Aldi and Lidl, as well as online giants Amazon and Walmart.  

The nation’s largest grocer could use some of that funding as it expands the reach of “Scan, Bag, Go,” a checkout program that lets shoppers scan and pay for items using their mobile phones or handheld devices provided in stores. It’s expected to grow from 20 stores to 400 this year. The ClickList online shopping platform, one of Kroger’s more popular tech advancements, will also be rolled out to more stores, and its interface is getting a sophisticated upgrade.

Although Kroger has divested its c-store business, it's still very interested in competing outside the grocery channel. The company recently opened its first restaurant, and announced last year it would introduce its first private label clothing line this fall. Reports have linked Kroger with Ace Hardware, as well. It's hard to say why, exactly, the retailer decided to give up a $4 billion sales generator while pursuing these unproven channels, but Kroger clearly has a plan, and if recent history is any indication, it's unwise to bet against it.