Could Ukrop’s find buyer?

If Ukrop's Super Markets Inc. is looking for a buyer, as has been reported, it could be difficult for the Richmond-based grocery chain to find a company willing to spend the money to break into an already saturated market.

One analyst has pegged the value of Ukrop's at about $248 million, but it's unclear if a supermarket chain would be willing, or even able, to invest that sort of money in a company already seeing its market share decline.

The Ukrop family will also have to decide if the time is right to let go of a Richmond institution that has been in the family since 1937.

North Carolina-based Harris Teeter is one of the reported potential buyers that analysts say is most likely and most compatible.

Karen Short, a senior vice president of equity research at FBR Capital Markets & Co. in New York, said Harris Teeter has access to revolving loans and a sound borrowing ability, which means financing should not be a barrier.

That may not be the case with other suitors, analysts say.

Another problem facing a potential buyer is the chain's current footprint of 28 stores -- 25 in the Richmond region with three others elsewhere in the state.

The risk is even bigger when you consider that, despite the cost of buying a grocery chain, profit margins are thin industry wide. Over the past year, profit margins at privately owned grocery stores have dropped from 2.31 percent to 1.51 percent, according to Sageworks Inc., a Raleigh, N.C.-based financial analysis firm

One sure way to regain some of the market share that Ukrop's has lost would be to open on Sundays and possibly sell beer and wine, which the Ukrop family has been unwilling to do.

In a note to investors, Short said that opening stores for the entire week could increase the company's annual revenue by $98 million. She estimated that the company's current yearly revenue is $590 million.

But if Ukrop's were to change, as one analyst put it, it would just be an ordinary grocery store and could lose its appeal with some customers.

Ukrop's has a loyal fan base locally, but that has not necessarily translated elsewhere. In January, the chain closed one of two Williamsburg stores because of lackluster sales. Its store in Roanoke is struggling.

"You've got a grocery store that has gone great guns in the Richmond region for years and years and years, but when they've taken it outside the Richmond region, people aren't very excited about it," said David Urban, a marketing professor and the interim dean at Virginia Commonwealth University's School of Business. "In terms of future growth, what are you going to do?"

The company has already lost some customers. After dominating the Richmond market since 1986, Ukrop's last year slipped to No. 2 in market share.

Food Lion, Wal-Mart and other big competitors have put pressure on pricing while specialty-food retailers such as Whole Foods encroach on the upper-scale market Ukrop's has dominated.

"If you're Ukrop's, you're sort of in the middle of two forces that are weakening your position," Urban said. "When you've been No. 1 for a long, long time and suddenly you're No. 2, that changes things a little bit."

New ownership though, could breathe life into the chain, especially if it invests heavily.

"Big chains can try new things and test out new concepts, but smaller chains don't have the latitude because of cash," said Dan Saklad, chief operating officer of Sageworks.

Ukrop's has declined to comment since the report by the trade publication Food World on Tuesday that Ukrop's has issued a prospectus for potential buyers.

"Just because they are interested in seeing what other chains might offer them, doesn't mean they have to sell," Urban said. "They're not in dire financial straits. They don't have to be in a hurry."

Robert S. Ukrop, 62, is chairman, president and CEO of Ukrop's. His brother, James E. Ukrop, who turns 72 this month, is a former chairman. Each owns a 49 percent stake in the company, according to a filing with the U.S. Securities and Exchange Commission. The remaining 2 percent is owned by a trust for their six children.

"Whenever you have a family business, one issue that is always involved is what you have coming up in the younger generations in terms of their capabilities and interests," Urban said. "Do they want to keep this going or do they have other fish to fry?"

Contact Louis Llovio at (804) 649-6348 or or Emily C. Dooley at (804) 649-6016 or .