Spartan to sell Pharm to Rite-Aid

4/4/2008

The locally launched Pharm discount drugstore chain soon will be owned by one of the nation s top three drugstore chains.

Spartan Stores Inc., of Grand Rapids, Mich., said yesterday it has a deal to sell to Rite Aid Corp. certain assets of 12 of its 14 Pharm stores, all in northwest Ohio.

No announcement was made about the future of the stores, but area industry experts said they expect the stores will remain open, named Rite Aid, but no longer sell grocery items.

No price for the transaction was disclosed. Rite Aid already has 31 stores in northwest Ohio.

The transaction likely was spurred by the intense competition by area outlets selling prescription and over-the-counter medicines, with the growth of Rite Aid and Walgreen s.

The deal, expected to be finalized within 60 days, will result in Spartan severing its ties to the area.

It bought Seaway Food Town in 2000 for $179 million, getting 47 grocery stores and 26 Pharm stores.

It has since closed or sold the grocery stores and shuttered some of the Pharms.

The Pharm stores have been a good business for Spartan Stores and it is staffed with hard-working and dedicated associates, making this divestiture transaction a more difficult decision, said Craig Sturken, Spartan s chairman and chief executive officer.

The sale was the best move for the company to focus on its core food distribution and supermarket operations, much of it in Michigan, he said.

Industry experts said a key to the deal was the prescription customer lists.

Rich Iott, former president and chief executive of Food Town and the son of its late founder, Wallace D Wally Iott, said the sale was probably inevitable because Spartan didn t know what to do with the drugstores after it got rid of Food Town in 2003.

It s unfortunate, Mr. Iott said. The Pharm was a good operation and they did extremely well and pretty good for Spartan.

The difficulty was Spartan never really bought into them because they were supermarket people.

Neither Spartan nor Rite Aid, of Camp Hill, Pa., would discuss the fate of the stores, which have about 200 employees in total. They said Rite Aid hasn t completed its inspection of the 12 stores, which include four in Toledo, two in Maumee, and one each in Tiffin, Fostoria, Oregon, Rossford, Northwood, and Sylvania.

The owner is negotiating with other parties to sell assets of its two other stores, one in Sandusky and one in Adrian, Mich. Spartan plans to use proceeds from the overall sale for its strategic growth plan, which includes updating grocery stores in Michigan.

According to area experts familiar with the deal, Rite Aid will eliminate the Pharm s produce, meats, and other grocery sections that are inconsistent with the bigger chain s format. The stores likely will need fewer employees, they said.

Officials of United Food and Commercial Workers union Local 911, which represents the Pharm workers, met yesterday with Rite Aid officials. The union also represents employees at 18 Rite Aid stores in northwest Ohio.

Mark Zyndorf, a commercial real estate agent with the Toledo office of Signature Associates and a co-owner of the Golden Gate Plaza in Maumee that includes a Pharm store, said the sale to Rite Aid likely will be a good thing.

He had a long-term lease with Spartan for the Food Town store in the plaza, which prohibited him from redeveloping the center.

A lot of people look at this property and say, This is in bad shape. It looks terrible, he said. Well, I wanted to improve it but the lease prevented that. Sure, I m collecting the rent, but it looks bad.

But if the sale to Rite Aid occurs, Mr. Zyndorf said, he will be able to terminate his Food Town lease and demolish the closed supermarket and build a new drugstore, most likely for Rite Aid.

So we re excited about it because the center is tired and needs to be redone, he said.

As for the other stores, Mr. Zyndorf said, Rite Aid must determine whether it is feasible to keep them open.

It doesn t want to shut a newly bought store and have prescription customers leave because they consider the closest Rite Aid too far away.

When someone buys someone else s scrip list they very much want to keep those customers, Mr. Zyndorf said.

Contact Jon Chavez at:jchavez@theblade.comor 419-724-6128.