Table of Contents

As filed with the Securities and Exchange Commission on December 5, 2011

No. 333-            

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Roundy's Parent Company, Inc.*
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation or organization)
  5411
(Primary Standard Industrial
Classification Code Number)
  27-2337996
(I.R.S. Employer
Identification No.)

Roundy's Parent Company, Inc.
875 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Robert A. Mariano
Chief Executive Officer & President
Roundy's Parent Company, Inc.
875 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies of all communications, including communications sent to agent for service, should be sent to:

Dennis M. Myers, P.C.
Kirkland & Ellis LLP
300 North LaSalle
Chicago, Illinois 60654
(312) 862-2000

 

Craig F. Arcella
Cravath, Swaine & Moore LLP
825 Eighth Avenue
New York, New York 10019
(212) 474-1000



Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:     o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  o   Accelerated filer  o   Non-accelerated filer  ý
(Do not check if a
smaller reporting company)
  Smaller reporting company  o



CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
to be Registered

  Proposed Maximum
Aggregate
Offering Price(1)(2)

  Amount of
Registration Fee(3)

 

Common Stock, $0.01 par value per share

  $230,000,000   $26,358

 

(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.

(2)
Includes the offering price of shares of common stock that may be sold if the over-allotment option granted by the selling stockholders to the underwriters is exercised.

(3)
Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.



           The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

*
Prior to the completion of this offering, Roundy's Parent Company, Inc. will change its name to Roundy's, Inc.

Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED DECEMBER 5, 2011

             Shares

GRAPHIC

Common Stock



        We are selling                  shares of our common stock, and the selling stockholders are selling an additional                   shares of our common stock. We will not receive any of the proceeds from the shares of common stock sold by the selling stockholders.

        Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $             and $              per share. We will apply to list our common stock on                           under the symbol "         ".

        The underwriters have an option to purchase a maximum of                    additional shares from the selling stockholders to cover over-allotment of shares.

         Investing in our common stock involves risks. See "Risk Factors" beginning on page 11.

 
  Price to
Public
  Underwriting
Discounts and
Commissions
  Proceeds to
Company
  Proceeds to
Selling
Stockholders
 

Per Share

  $     $     $     $    

Total

  $     $     $     $    

        Delivery of the shares of common stock will be made on or about                        ,          .

         Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

        Moelis & Company LLC is acting as our financial advisor in connection with this offering. See "Underwriting."

Credit Suisse   J.P. Morgan

The date of this prospectus is                  , 2012.


LOGO


[Additional graphics to come.]


Table of Contents

TABLE OF CONTENTS

 
  Page

BASIS OF PRESENTATION

  iii

TRADEMARKS AND TRADENAMES

  iii

PROSPECTUS SUMMARY

  1

RISK FACTORS

  11

FORWARD-LOOKING STATEMENTS

  30

MARKET AND INDUSTRY DATA

  32

USE OF PROCEEDS

  33

DIVIDEND POLICY

  34

CAPITALIZATION

  35

DILUTION

  37

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

  39

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  44

BUSINESS

  65

MANAGEMENT

  79

EXECUTIVE COMPENSATION

  85

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

  101

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

  104

DESCRIPTION OF CERTAIN INDEBTEDNESS

  108

DESCRIPTION OF CAPITAL STOCK

  109

SHARES ELIGIBLE FOR FUTURE SALE

  113

MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS TO NON-U.S. HOLDERS

  115

UNDERWRITING

  119

NOTICE TO CANADIAN RESIDENTS

  124

LEGAL MATTERS

  126

EXPERTS

  126

WHERE YOU CAN FIND MORE INFORMATION

  126

INDEX TO FINANCIAL STATEMENTS

  F-1



         We have not authorized anyone to provide you with information or to make any representations other than those contained in this prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.




Dealer Prospectus Delivery Obligation

         Until                        , 2012 (25 days after the commencement of the offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

ii


Table of Contents


BASIS OF PRESENTATION

        Our fiscal year is the 52 or 53 week period ending on the Saturday nearest to December 31. For the last three completed calendar years, our fiscal year ended on January 3, 2009, January 2, 2010 and January 1, 2011. For ease of reference, we identify our fiscal years in this prospectus by reference to the calendar year ending nearest to such date. For example, "fiscal 2010" refers to our fiscal year ended January 1, 2011. Our fiscal years include 12 reporting periods, with an additional week in the eleventh reporting period for 53 week fiscal years. Fiscal 2009 and 2010 included 52 weeks and fiscal 2008 included 53 weeks.

        Roundy's Parent Company, Inc., the issuer of common stock in this offering, was incorporated and became the ultimate parent company to our business in April 2010. All of the financial information in this prospectus for periods prior to that time represents the results of operations of our prior parent company.

        Prior to the completion of this offering, Roundy's Parent Company, Inc. will change its name to Roundy's, Inc. and, unless the context otherwise requires or where otherwise indicated, all information in this prospectus gives effect to this change.


TRADEMARKS AND TRADENAMES

        This prospectus includes our trademarks and service marks, Roundy's®, Pick 'n Save® and Rainbow®, which are protected under applicable intellectual property laws and are the property of the issuer or its subsidiaries. This prospectus also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols. We do not intend our use or display of other parties' trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

iii


Table of Contents


PROSPECTUS SUMMARY

         This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. You should read this entire prospectus, including the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," before deciding to invest in our common stock. Some of the statements in this summary constitute forward-looking statements, with respect to which you should review the section of this prospectus entitled "Forward-Looking Statements." Except where the context otherwise requires or where otherwise indicated, (i) the terms "Roundy's" "we," "us," "our," "our Company" and "our business" refer to Roundy's, Inc., together with its consolidated subsidiaries as a combined entity and their respective predecessors, and (ii) "issuer" refers to Roundy's, Inc. as the issuer of the common stock of this offering, together with its predecessors, and exclusive of any of its subsidiaries.

Our Company

        We are a leading Midwest supermarket chain with a 139-year operating history. We have achieved leading market positions in our core markets and are the largest grocery retailer in the state of Wisconsin. As of November 1, 2011, we operated 158 grocery stores in Wisconsin, Minnesota and Illinois under the Pick 'n Save, Rainbow, Copps, Metro Market and Mariano's Fresh Market retail banners, which are served by our three strategically located distribution centers and our food processing and preparation commissary.

        Our business is characterized by the following key elements:

        These key elements of our business have enabled us to generate consistent operating results, including throughout the recent economic downturn. During fiscal 2008 (53 weeks), 2009 and 2010, we generated net sales of approximately $3.87 billion, $3.75 billion and $3.77 billion, respectively, and Adjusted EBITDA of approximately $239 million, $222 million and $223 million, respectively. During the same periods, our net income was approximately $49.4 million, $47.2 million and $46.2 million, respectively. For a discussion of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net

1


Table of Contents

income, see Note (5) to the tables included in "Summary Historical Consolidated Financial and Other Data."

Our Competitive Strengths

        We attribute our success in large part to the following competitive strengths:

        Leading Market Share with Local Market Expertise.     We hold leading positions in our core markets, and believe that our estimated weighted average market share of 44% across our Wisconsin markets is among the highest regional penetration rates of U.S. grocers. Our leading market share, regional scale and knowledge of local markets and customers provide us with significant competitive advantages. Our market positions for 2010 in each of our core markets are summarized below:

Core Market
  Number of
Stores (1)
  Market
Position (2)
  Approximate
Market Share (2)
 

Wisconsin:

                   
 

Milwaukee

    60     #1     55 %
 

Madison

    15     #1     33  
 

Racine

    6     #1     35  
 

Appleton

    5     #2     22  
 

Oshkosh-Neenah

    4     #1     39  

Minneapolis/St. Paul, Minnesota

    32     #3     12  

(1)
As of November 1, 2011.

(2)
Company estimate based upon data included in Metro Market Studies, Grocery Distribution Analysis and Guide, 2011 ; see "Market and Industry Data."

        Comprehensive Product Offering.     We believe our comprehensive product offering, which features a wide array of high quality perishables and prepared foods, distinguishes us from both smaller conventional supermarkets and supercenters. Perishable products, particularly natural and organic varieties, are in growing demand by customers due to an increased focus on healthy eating, and typically generate higher gross margins than non-perishable products. To capitalize on this growing demand, we have enhanced our product quality and selection in key perishable categories. We have also expanded our signature private label products, which we believe further differentiate our product offering from those of competitors.

        Modern Store Base and Distribution Network.     We maintain a modern store base through a combination of new stores, relocated stores and remodeled stores that provides our customers with an attractive shopping experience and enhances our ability to offer effective in-store merchandising. Over 80% of our store base has either been newly opened or remodeled over the past ten years, including over 50% of our store base over the past six years. We have also enhanced the efficiency of our distribution network through significant infrastructure investments, including the construction of a 1.1 million square foot, state-of-the-art distribution center in Oconomowoc, Wisconsin that opened in 2005. This distribution center supports the majority of our Wisconsin stores and all of our Chicago market stores, where it has capacity to support our continued expansion.

        Highly Productive Store Base with Strong Sales Volumes.     During fiscal 2010, our average weekly net sales per store were approximately $469,000, or approximately $24 million per store on an annual basis, and are consistently among the highest in the U.S. compared to other publicly reporting U.S. supermarket chains. Our strong per store volumes generate high inventory turnover, which enables us to maintain a broader product selection and fresher perishables than many of our competitors. In addition, our high volumes result in distribution efficiencies and reduced shrink (i.e., spoiled, damaged, stolen or out-of-date inventory) and enable us to leverage our store-level fixed costs, such as store labor

2


Table of Contents


and occupancy costs. As a result, these operating efficiencies give us a greater ability to offer competitive prices while maintaining our attractive operating margins.

        Consistent Financial Performance.     Over the last decade, we have been able to maintain stable operating margins and cash flow generation, including throughout the recent economic downturn. The strength and stability of our financial performance results from our value positioning, efficient operating structure and distinctive merchandising strategies, especially those involving private label and perishable products. In addition, we continue to support our operating margins and cash flow generation by implementing cost reduction measures, including initiatives to reduce shrink and improve labor productivity throughout our operations. These initiatives have further improved our efficient cost structure and have enabled us to make targeted investments to lower our everyday retail prices over the past several years in order to strengthen our consumer value proposition and support sales growth.

        Experienced Management Team with Proven Track Record.     Our executive management team, led by our President, Chief Executive Officer and Chairman, Robert Mariano, and our Executive Vice President and Chief Financial Officer, Darren Karst, has significant experience in the supermarket industry. Prior to joining our company, Messrs. Mariano and Karst held comparable positions at Dominick's, the second largest supermarket chain in the Chicago metropolitan area. During their tenure, Dominick's equity value increased from approximately $385 million based on its 1996 initial public offering to approximately $1.2 billion in 1998 based on the acquisition price paid for Dominick's by Safeway. Messrs. Mariano and Karst are supported by a deep management team comprised of industry veterans across all key functional areas such as merchandising, store operations, category management, human resources, marketing and information technology. Our executive management team averages over 24 years of experience within the food retail industry.

Our Strategy

        We plan to pursue several strategies to continue to expand our store base and market share and maintain our stable financial performance, including:

        Maintain Strong Operating Margins.     We intend to maintain our strong operating margins through both an aggressive pursuit of cost-saving strategies and a continued focus on shifting our sales mix toward higher margin products. In addition to improving profitability and cash flow generation, future cost savings will provide us with the flexibility to continue targeted investments to lower our everyday retail prices as necessary to maintain or expand our market share. Our cost improvement and gross margin expansion initiatives are focused on generating labor savings, reducing shrink, and expanding our offering of perishables, prepared foods and private label products, which typically generate higher operating margins compared to our other products.

        Increase Same-Store Sales.     We intend to pursue same-store sales growth by continuing to focus on price competitiveness, improving our marketing efforts and enhancing and expanding our private label, perishable and prepared food offerings, all in order to increase both the number and the size of customer transactions. For example, we are in the early stages of evaluating a new marketing and merchandising strategy involving our loyalty cards for customer-specific promotions based on demographics and shopping history. We also continuously evaluate our store base for relocation and remodel opportunities, which have historically contributed to positive sales growth.

        Continue to Expand into Contiguous Chicago Market.     We entered the Chicago market in July 2010 through the opening of our first Mariano's Fresh Market store in Arlington Heights, Illinois. As of November 1, 2011, we have opened four stores in the Chicago market, which, since opening, have generated higher average weekly net sales per store compared to stores in our other markets. Given its favorable competitive dynamics and attractive demographics, including a large population and average household income that exceeds the national average, we believe the Chicago market provides us with a

3


Table of Contents


compelling expansion opportunity. We expect to open four to five stores per year in the Chicago market over the next five years, and have secured six leases for future stores in attractive locations as of November 1, 2011.

        Efficiently Allocate Capital.     We believe that a prudent and diligent approach to capital allocation can create significant value for stockholders. The combination of our strong and stable operating margins, rigorous approach to capital spending, and effective working capital management allows us to generate consistent cash flow. While we are dedicated to maintaining our modern store base and distribution network, and intend to continue to expand our Mariano's Fresh Market banner and selectively open new stores in existing markets, we believe that our significant cash flow generation will enable us to pay dividends and reduce our indebtedness when appropriate.

Summary Risk Factors

        We are subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects. You should carefully consider these risks, including the risks discussed in the section entitled "Risk Factors," beginning on page 11 of this prospectus, before investing in our common stock. Risks relating to our business include, among others:

Conversion

        Prior to the completion of this offering, we will complete an internal recapitalization pursuant to which our outstanding participating preferred stock will be converted on a share-for-share basis into shares of common stock and, immediately thereafter, we will effect a one-for-                        stock split. For ease of reference, we collectively refer to the conversion of all of our outstanding preferred stock into common stock and the related one-for-                        stock split as the "Conversion." Upon completion of the Conversion, our authorized capital stock will consist of                         shares of common stock, par value $0.01 per share, and 5,000,000 shares of undesignated preferred stock, par value $0.01 per share. See "Description of Capital Stock."

Corporate Information

        The issuer was originally incorporated as a Delaware corporation in April 2010 in connection with a recapitalization transaction that was completed on April 29, 2010, pursuant to which we borrowed approximately $150 million under a new second lien credit facility, the net proceeds of which were distributed to our equity holders. At the same time, we amended our first lien credit facility, which resulted in a modification to the interest rate. For ease of reference, we hereinafter refer to these transactions throughout this prospectus as the "Recapitalization Transaction." Our corporate headquarters are located at 875 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. Our telephone number is (414) 231-5000. Our website address is http://www.roundys.com. The information on our website is not deemed, and you should not consider such information, to be part of this prospectus.

4


Table of Contents


THE OFFERING

Common stock offered by us

              shares.

Common stock offered by the selling stockholders

 

            shares.

Total common stock offered

 

            shares.

Common stock to be outstanding immediately after this offering

 

            shares.

Option to purchase additional shares from the selling stockholders

 

            shares.

Use of proceeds

 

We estimate that our net proceeds from this offering will be approximately $            million, assuming an initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use all of the net proceeds that we receive from this offering, together with proceeds from a debt refinancing transaction, to repay all of our outstanding borrowings and other amounts owing under our existing credit facilities. We will not receive any proceeds from the sale of the shares being sold by the selling stockholders. See "Use of Proceeds."

Risk factors

 

Investing in shares of our common stock involves a high degree of risk. See "Risk Factors" beginning on page 11 of this prospectus for a discussion of factors you should carefully consider before investing in shares of our common stock.

Dividend policy

 

We currently intend to declare quarterly dividends of approximately $            per share after the completion of this offering. We currently expect the first quarterly dividend will be for the            quarter of 2012 and will be prorated for the portion of the            quarter of 2012 subsequent to the completion of this offering. Whether we will declare such dividends, however, and their timing and amount, will be subject to approval and declaration by our board of directors and will depend on a variety of factors, including our financial results, cash requirements and financial condition, our ability to pay dividends under our debt financing agreements and any other applicable contracts, and other factors deemed relevant by our board of directors.

 

Because the issuer is a holding company, its cash flow and ability to pay dividends are dependent upon the financial results and cash flows of its operating subsidiaries, and the distribution or other payment of cash to it in the form of dividends or otherwise.

Proposed symbol

 

"            ."

5


Table of Contents

        Unless otherwise indicated, all information in this prospectus relating to the number of shares of common stock outstanding immediately after this offering:

    reflects our repurchase of an aggregate of 847.3217 shares of our common stock on November 30, 2011 in exchange for the cancellation of previously outstanding loans to certain of our directors and executive officers;

    gives effect to the Conversion, which is comprised of the conversion of our participating preferred stock into common stock and the one-for-                        stock split;

    assumes the effectiveness of our amended and restated certificate of incorporation and amended and restated bylaws;

    excludes an aggregate of                        shares of our common stock reserved for future grants under the 2012 Equity Incentive Plan, which we intend to adopt in connection with this offering; and

    assumes (i) no exercise by the underwriters of their option to purchase up to                        additional shares from the selling stockholders; and (ii) an initial public offering price of $            per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus.

6


Table of Contents


SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

        The following tables summarize our financial data as of the dates and for the periods indicated. We have derived the summary consolidated financial data for the fiscal years ended January 3, 2009, January 2, 2010 and January 1, 2011 from our audited consolidated financial statements for such years and for the thirteen and thirty-nine weeks ended October 2, 2010 and October 1, 2011 from our unaudited consolidated financial statements for such periods. Our audited consolidated financial statements as of January 2, 2010 and January 1, 2011 and for the fiscal years ended January 3, 2009, January 2, 2010 and January 1, 2011 have been included in this prospectus. Our unaudited consolidated financial statements as of October 1, 2011 and for the thirteen and thirty-nine weeks ended October 2, 2010 and October 1, 2011 have been included in this prospectus and, in the opinion of management, include all adjustments (inclusive only of normally recurring adjustments) necessary for a fair presentation. Results of operations for an interim period are not necessarily indicative of results for a full year.

        The as adjusted balance sheet data set forth below as of October 1, 2011 gives effect to: (i) the Conversion; (ii) our issuance and sale of                        shares of common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us; and (iii) a debt refinancing transaction to repay all of our outstanding borrowings and other amounts owing under our existing credit facilities, in each case as if such transactions had occurred on such date.

        The summary historical consolidated data presented below should be read in conjunction with the sections entitled "Risk Factors," "Selected Historical Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the related notes and other financial data included elsewhere in this prospectus.

7


Table of Contents

 
  Fiscal Year (1)   Thirteen Weeks
Ended
  Thirty-Nine Weeks
Ended
 
 
  2008   2009   2010   October 2,
2010
  October 1,
2011
  October 2,
2010
  October 1,
2011
 
 
   
   
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands, except for per share data and amounts relating to square feet)
 

Statement of Income Data:

                                           

Net sales

  $ 3,867,146   $ 3,745,774   $ 3,766,988   $ 939,047   $ 976,881   $ 2,818,647   $ 2,873,262  

Costs and Expenses:

                                           

Cost of sales

    2,820,828     2,726,672     2,748,919     685,903     713,699     2,048,603     2,090,086  

Operating and administrative

    891,028     876,510     868,972     219,041     224,455     653,139     663,808  

Interest, including amortization of deferred financing costs

    52,232     34,097     66,943     18,124     18,126     48,729     54,571  

Interest expense on account of dividends on preferred stock (2)

    14,376     14,799     2,716             2,716      

Loss on debt extinguishment (3)

        5,879                      
                               

    3,778,464     3,657,957     3,687,550     923,068     956,280     2,753,187     2,808,465  
                               

Income before income taxes

    88,682     87,817     79,438     15,979     20,601     65,460     64,797  

Provision for income taxes

    39,244     40,638     33,244     6,524     8,240     27,872     25,919  
                               

Net income

  $ 49,438   $ 47,179   $ 46,194   $ 9,455   $ 12,361   $ 37,588   $ 38,878  
                               

Net earnings per common share (4):

                                           
 

Basic and diluted

  $   $   $ 296   $ 91   $ 119   $ 214   $ 374  
 

Pro forma basic and diluted

                                           

Weighted average number of common shares outstanding (4):

                                           
 

Basic

    95,320     94,413     93,715     93,569     93,584     93,758     93,584  
 

Diluted

    105,806     104,886     104,154     104,008     104,023     104,197     104,023  
 

Pro forma basic and diluted

                                           

Other Financial Data:

                                           

Adjusted EBITDA (5)

  $ 238,849   $ 221,898   $ 223,093   $ 52,559   $ 56,657   $ 172,458   $ 172,722  

Depreciation and amortization (6)

  $ 79,277   $ 79,275   $ 72,331   $ 18,030   $ 17,091   $ 54,278   $ 51,515  

Capital expenditures

  $ 76,467   $ 76,436   $ 62,932   $ 16,780   $ 10,638   $ 45,380   $ 48,578  

Gross margin (7)

   
27.1

%
 
27.2

%
 
27.0

%
 
27.0

%
 
26.9

%
 
27.3

%
 
27.3

%

Adjusted EBITDA margin (8)

    6.2 %   5.9 %   5.9 %   5.6 %   5.8 %   6.1 %   6.0 %

Selected Operating Data (Unaudited):

                                           

Average net sales per store per week (9)

  $ 473   $ 468   $ 469   $ 465   $ 478   $ 469   $ 471  

Net sales per average selling square foot per period (10)

  $ 605   $ 596   $ 592   $ 146   $ 149   $ 445   $ 444  

Number of stores at end of period

    152     154     155     155     157     155     157  

Total square feet at end of period

    9,132,363     9,278,848     9,465,582     9,465,582     9,599,910     9,465,582     9,599,910  

Average store size:

                                           
 

Average total square feet

    60,082     60,363     60,792     60,859     61,217     60,699     61,168  
 

Average selling square feet

    40,667     40,852     41,201     41,289     41,743     41,105     41,613  

Change in same-store sales for period (11)

    0.6 %   (1.2 )%   (0.8 )%   (0.4 )%   1.7 %   (0.7 )%   0.2 %

 

 
  As of October 1, 2011  
 
  Actual   As Adjusted  
 
  (unaudited)
 
 
  (dollars in thousands)
 

Balance Sheet Data:

             

Cash and cash equivalents

  $ 107,012   $    

Total assets

    1,531,515        

Total debt and capital lease obligations

    876,176        

Total shareholders' equity

    192,018        

(1)
Fiscal 2009 and 2010 included 52 weeks and fiscal 2008 included 53 weeks.

(2)
During certain of the periods presented, the liquidation value and unpaid dividends on our participating preferred stock were subject to mandatory payment on September 30, 2012. As a result, we classified our participating preferred stock as a liability on our balance sheet during those periods and recorded the accumulated and unpaid dividends on such preferred stock as interest expense in our statements of income. Dividends on each share of our preferred stock accrued on a daily

8


Table of Contents

    basis at a rate of 12.0% per annum of the liquidation value thereof plus all accumulated and unpaid dividends thereon until the date on which the liquidation value of such share was reduced to zero on account of distributions made on its account and all accrued dividends in respect of such share were paid in full. As a result of the distributions we have made on account of our preferred stock, all of the preferred stock ceased to accrue dividends and its liquidation value was reduced to zero on April 29, 2010. At that time, we reclassified our participating preferred stock as permanent equity on our balance sheet. For additional information regarding the terms of our existing preferred stock, see Note 11 to our audited consolidated financial statements and Note 13 to our unaudited consolidated financial statements included elsewhere in this prospectus.

(3)
On October 30, 2009, we amended our first lien credit facility, which extended a portion of our term loan and modified our interest rate structure. As a result of this amendment, we recognized a loss on debt extinguishment of $5.9 million.

(4)
Net earnings per common share (basic and diluted) and the weighted average number of shares used to compute net earnings per common share (basic and diluted) for fiscal 2008, 2009 and 2010 and the thirteen and thirty-nine weeks ended October 2, 2010 and October 1, 2011 on an actual basis have been calculated without giving effect to the Conversion. Pro forma net earnings per common share (basic and diluted) and the weighted average number of shares give effect to the Conversion and issuance and sale of shares in this offering. Prior to the April 29, 2010 payment of the liquidation value and unpaid dividends on our preferred stock, common shareholders did not share in net income unless earnings exceeded the remaining unpaid dividends and liquidation value. Accordingly, the common stock earnings per share prior to April 29, 2010 was zero, as the unpaid dividends and liquidation value exceeded net income. For the period from April 30, 2010 through January 1, 2011, net income of $30.9 million was used to calculate earnings per share for common shareholders. For additional information as to how we calculated net earnings per common share, see Note 14 to our audited consolidated financial statements and Note 15 to our unaudited consolidated financial statements included elsewhere in this prospectus.

(5)
We present Adjusted EBITDA, a non-GAAP measure, in this prospectus to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than measures under U.S. generally accepted accounting principles ("GAAP") can provide alone. Our board of directors and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for employees, including our senior executives.


We define Adjusted EBITDA as earnings before interest expense, interest expense associated with preferred stock, provision for income taxes, depreciation and amortization, LIFO charges, amortization of deferred financing costs and loss on debt extinguishment. Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness, tax structures, and methodologies in calculating LIFO expense that other companies have are different from ours, we omit these amounts to facilitate investors' ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of owned property, and because in our experience, whether a store is new or one that is fully or mostly depreciated does not necessarily correlate to the contribution that such store makes to operating performance. We believe that investors, analysts and other interested parties consider Adjusted EBITDA an important measure of our operating performance. Adjusted EBITDA should not be considered as an alternative to net income as a measure of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.


Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. The limitations of Adjusted EBITDA include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect income tax payments we may be required to make; and (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.


To properly and prudently evaluate our business, we encourage you to review our audited consolidated financial statements included elsewhere in this prospectus and the reconciliation from net income to Adjusted EBITDA, the most directly comparable financial measure presented in accordance with GAAP, set forth in the table below. All of the items included in the reconciliation from net income to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess

9


Table of Contents

    our operating performance if the measures are presented without these items because their financial impact may not reflect on-going operating performance.

   
  Fiscal Year (a)   Thirteen Weeks
Ended
  Thirty-Nine Weeks
Ended
 
   
  2008   2009   2010   October 2,
2010
  October 1,
2011
  October 2,
2010
  October 1,
2011
 
   
   
   
   
  (unaudited)
  (unaudited)
 
   
  (dollars in thousands)
 
 

Net income

  $ 49,438   $ 47,179   $ 46,194   $ 9,455   $ 12,361   $ 37,588   $ 38,878  
 

Interest expense

    50,435     32,281     64,037     17,281     17,279     46,625     51,939  
 

Interest expense on account of dividends on preferred stock

    14,376     14,799     2,716             2,716      
 

Amortization of deferred financing costs

    1,797     1,816     2,906     843     847     2,104     2,632  
 

Provision for income taxes

    39,244     40,638     33,244     6,524     8,240     27,872     25,919  
 

Depreciation and amortization expense

    79,277     79,275     72,331     18,030     17,091     54,278     51,515  
 

LIFO charges (b)

    4,282     31     1,665     426     839     1,275     1,839  
 

Loss on debt extinguishment (c)

        5,879                      
                                 
 

Adjusted EBITDA

  $ 238,849   $ 221,898   $ 223,093   $ 52,559   $ 56,657   $ 172,458   $ 172,722  
                                 

    (a)
    Fiscal 2009 and 2010 included 52 weeks and fiscal 2008 included 53 weeks.

    (b)
    We calculate the cost of a portion of our inventories on a last-in-first-out ("LIFO") basis. As a result, we incur a non-cash LIFO charge that represents the current year difference between inventories calculated on a LIFO basis and the current cost of inventories valued on a first-in-first-out ("FIFO") basis.

    (c)
    See Note (3) above.

(6)
Excludes the amortization of deferred financing costs.

(7)
We calculate gross margin by subtracting cost of sales from net sales and dividing by our net sales for each of the applicable periods.

(8)
We calculate Adjusted EBITDA margin by dividing our Adjusted EBITDA by our net sales for each of the applicable periods. We present Adjusted EBITDA margin because it is used by management as a performance measure of Adjusted EBITDA generated from net sales. See Note (5) above for further information regarding how we calculate Adjusted EBITDA, which is a non-GAAP measure.

(9)
We calculate average net sales per store per week by dividing net sales by the average number of stores open during the applicable weeks.

(10)
The amount for fiscal 2008 has been decreased to reflect a 52 week year so as to be comparable to fiscal 2009 and 2010.

(11)
Represents the percentage change in our same-store sales as compared to the prior comparable period. Our practice is to include sales from a store in same-store sales beginning on the first day of the fifty-third week following the store's opening. When a store that is included in same-store sales is remodeled or relocated, we continue to consider sales from that store to be same-store sales. This practice may differ from the methods that other food retailers use to calculate same-store or "comparable" sales. As a result, data in this prospectus regarding our same-store sales may not be comparable to similar data made available by other food retailers.

10


Table of Contents


RISK FACTORS

         Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with the financial and other information contained in this prospectus, before you decide to purchase shares of our common stock. If any of the following risks actually occur, our business, financial condition, results of operations, cash flow and prospects could be materially and adversely affected. As a result, the trading price of our common stock could decline and you could lose all or part of your investment in our common stock. Before deciding whether to invest in our common stock, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and related notes.

Risks Relating to Our Business

We operate in a highly competitive industry.

        The food retail industry as a whole, and our marketing areas in Wisconsin, Minneapolis/St. Paul and Chicago, are highly competitive. We compete with various types of retailers, including national, regional and local conventional supermarkets, national and regional supercenters, membership warehouse clubs, and other alternative food retailers, such as natural foods stores, smaller specialty stores and farmers' markets. Our principal competitors include retailers with traditional supermarket and "big box" formats. Some of these competitors have attempted to increase market share by expanding their footprints in our marketing areas. For example, the number of Walmart stores with full grocery line offerings in Wisconsin has increased from 18 as of June 1, 2002 to 68 as of November 1, 2011. This competitor expansion creates a more difficult competitive environment for us. We also face limited competition from restaurants and fast-food chains. In addition, other established food retailers could enter our markets, increasing competition for market share.

We rely on a combination of product offerings, pricing, customer service, store format and location to compete.

        We compete with other food retailers primarily on the basis of product selection and quality, price, customer service, store format and location or a combination of these factors. Pricing in particular is a significant driver of consumer choice in our industry and we regularly engage in price competition. To the extent that our competitors lower prices, our ability to maintain gross profit margins and sales levels may be negatively impacted. We expect competitors to continue to apply pricing and other competitive pressures. Some of our competitors have greater resources than we do and do not have unionized work forces, which may result in lower labor and benefit costs. These competitors could use these advantages to take measures, including reducing prices, which could materially adversely affect our competitive position, our financial condition and results of operations.

        In addition to price competitiveness, our success depends on our ability to offer products that appeal to our customers' preferences. Failure to offer such products, or to accurately forecast changing customer preferences, could lead to a decrease in the number of customer transactions at our stores and a decrease in the amount customers spend when they visit our stores. We also attempt to create a convenient and appealing shopping experience for our customers in terms of customer service, store format and location. If we do not succeed in offering attractively priced products that consumers want to buy or are unable to provide a convenient and appealing shopping experience, our sales, operating margins and market share may decrease, resulting in reduced profitability.

Economic conditions that impact consumer spending could materially affect our business.

        Ongoing economic uncertainty continues to negatively affect consumer confidence and discretionary spending. Our results of operations may be materially affected by changes in economic conditions nationwide or in the regions in which we operate that impact consumer confidence and spending, including discretionary spending. This risk may be exacerbated if customers choose lower-cost

11


Table of Contents


alternatives to our product offerings in response to economic conditions. In particular, a decrease in discretionary spending could adversely impact sales of certain of our higher margin product offerings. Future economic conditions affecting disposable consumer income, such as employment levels, business conditions, changes in housing market conditions, the availability of credit, interest rates, tax rates and fuel and energy costs, could reduce overall consumer spending or cause consumers to shift their spending to lower-priced competitors. In addition, inflation or deflation can impact our business. Food deflation could reduce sales growth and earnings, while food inflation, combined with reduced consumer spending, could reduce gross profit margins. As a result, our results of operations could be materially adversely affected.

The geographic concentration of our stores creates an exposure to local economies and regional downturns that may materially adversely affect our financial condition and results of operations.

        As of November 1, 2011, we operated 122 stores in Wisconsin, making Wisconsin our largest market with 77% of our stores. Of our Wisconsin stores, 60, or nearly half, are located in Milwaukee. We also have 32 stores located in Minneapolis/St. Paul. Our business is closely linked to local economic conditions in those areas and, as a result, we are vulnerable to economic downturns in those regions. In addition, any other factors that negatively affect these areas could materially adversely affect our revenues and profitability. These factors could include, among other things, changes in regional demographics, population and employer base. Any of these factors may disrupt our businesses and materially adversely affect our financial condition and results of operations.

We may be unable to maintain or improve levels of same-store sales, which could harm our business and cause our stock price to decline.

        We may not be able to maintain or improve our current levels of same-store sales. Our same-store sales have fluctuated in the past and will likely fluctuate in the future. A variety of factors affect our same-store sales, including:

        Adverse changes in these factors may cause our same-store sales results to be materially lower than in recent periods, which would harm our business and could result in a decline in the price of our common stock.

We may be unable to maintain our operating margins, which could adversely affect the price of our common stock.

        We intend to maintain our operating margins in an environment of increased competition through various initiatives, including expansion of our private label offerings, increased sales of perishables and prepared foods, improved ordering, tracking and allocation systems, and strategic remodels and

12


Table of Contents


relocations of our stores, as well as continued cost discipline focused on improving labor productivity and reducing shrink. If competitive pressures cause us to lower our prices, our operating margins may decrease. If customers do not adopt our increased private label, perishable or prepared food offerings, these higher margin items will not improve our operating margins. If we do not adequately refine and improve our various ordering, tracking and allocation systems, we may not be able to increase sales and reduce inventory shrink. Any failure to achieve gains in labor productivity may adversely impact our operating margins. As a result, our operating margins may stagnate or decline, which could adversely affect the price of our stock.

We may not be able to successfully implement our expansion into the Chicago market, which could limit our prospects for future growth.

        Our ability to continue to expand into the Chicago market with a new format of stores under our Mariano's Fresh Market banner is an important component of our business strategy. Successful execution of this expansion depends upon, among other things:

        We, or our third party vendors, may not be able to adapt our distribution, management information and other operating systems to adequately supply products to new stores at competitive prices so that we can operate the stores in a successful and profitable manner. Additionally, our expansion into the Chicago market will place increased demands on our operational, managerial and administrative resources. These increased demands could cause us to operate our existing business less effectively, which in turn could cause deterioration in the financial performance of our existing stores.

        In addition, new stores build their sales volume and their customer base over time and, as a result, generally have lower gross margin rates and higher operating expenses, as a percentage of sales, than our more mature stores. If our Chicago market stores do not generate sufficient revenue or operate with acceptable margins, or if we experience an overall decline in performance, we may slow or discontinue our expansion plans, or we may decide to close stores in Chicago or elsewhere. We believe that the competitive dynamics in Chicago are currently favorable for our entrance into the market, but to the extent these conditions change, on account of competitors reacting to our entrance or otherwise, our growth may be inhibited. If we fail to successfully implement our expansion into Chicago, our growth prospects will be materially limited and could result in a decline in the price of our common stock.

Our stores rely heavily on sales of perishable products, and ordering errors or product supply disruptions may have an adverse effect on our profitability and operating results.

        We have a significant focus on perishable products. Sales of perishable products accounted for approximately 32% of our total sales in fiscal 2010. We rely on various suppliers and vendors to provide and deliver our product inventory on a continuous basis. We could suffer significant perishable

13


Table of Contents


product inventory losses in the event of the loss of a major supplier or vendor, disruption of our distribution network, extended power outages, natural disasters or other catastrophic occurrences. We have implemented certain systems to ensure our ordering is in line with demand. We cannot assure you, however, that our ordering systems will always work efficiently, in particular in connection with the opening of new stores, which have no, or a limited, ordering history. If we were to over-order, we could suffer inventory losses, which would negatively impact our operating results. Furthermore, we could suffer significant product inventory losses in the event of the loss of a major supplier or vendor, disruption of our distribution network, extended power outages, natural disasters or other catastrophic occurrences.

Increased commodity prices and availability may impact profitability.

        Many of our products include ingredients such as wheat, corn, oils, milk, sugar, proteins, cocoa and other commodities. Commodity prices worldwide have been increasing. While commodity price inputs do not typically represent the substantial majority of our product costs, any increase in commodity prices may cause our vendors to seek price increases from us. Although we typically are able to mitigate vendor efforts to increase our costs, we may be unable to continue to do so, either in whole or in part. In the event we are unable to continue mitigating potential vendor price increases, we may in turn consider raising our prices, and our customers may be deterred by any such price increases. Our profitability may be impacted through increased costs to us which may impact gross margins, or through reduced revenue as a result of a decline in the number and average size of customer transactions.

We may be unable to protect or maintain our intellectual property, which could result in customer confusion and adversely affect our business.

        We believe that our intellectual property has substantial value and has contributed significantly to the success of our business. In particular, our trademarks, including our registered Roundy's, Pick 'n Save and Rainbow trademarks, are valuable assets that reinforce our customers' favorable perception of our stores.

        From time to time, third parties have used names similar to ours, have applied to register trademarks similar to ours and, we believe, have infringed or misappropriated our intellectual property rights. We respond to these actions on a case-by-case basis. The outcomes of these actions have included both negotiated out-of-court settlements as well as litigation.

Severe weather, natural disasters and adverse climate changes may materially adversely affect our financial condition and results of operations.

        Severe weather conditions and other natural disasters in areas where we have stores or distribution facilities or from which we obtain the products we sell may materially adversely affect our retail or distribution operations or our product offerings and, therefore, our results of operations. Such conditions may result in physical damage to, or temporary or permanent closure of, one or more of our stores or distribution facilities, an insufficient work force in our markets, and/or temporary disruption in the supply of products, including delays in the delivery of goods to our stores or a reduction in the availability of products in our stores. In addition, adverse climate conditions and adverse weather patterns, such as drought or flood, that impact growing conditions and the quantity and quality of crops may materially adversely affect the availability or cost of certain products within our supply chain. Any of these factors may disrupt our businesses and materially adversely affect our financial condition, results of operations and cash flows.

Our business could be harmed by a failure of our information technology or administrative systems.

        We rely on our information technology and administrative systems to effectively manage our business data, communications, supply chain, order entry and fulfillment and other business processes. The failure of our information technology or administrative systems to perform as we anticipate could

14


Table of Contents


disrupt our business and result in transaction errors, processing inefficiencies and the loss of sales and customers, causing our business to suffer. In addition, our information technology and administrative systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, systems failures, viruses and security breaches, including breaches of our transaction processing or other systems that could result in the compromise of confidential customer data. Any such damage or interruption could have a material adverse effect on our business, cause us to face significant fines, customer notice obligations or costly litigation, harm our reputation with our customers, require us to expend significant time and expense developing, maintaining or upgrading our information technology or administrative systems, or prevent us from paying our suppliers or employees, receiving payments from our customers or performing other information technology or administrative services on a timely basis.

If we experience a data security breach and confidential customer information is disclosed, we may be subject to penalties, and experience negative publicity, which could affect our customer relationships and have a material adverse effect on our business.

        We and our customers could suffer harm if customer information were accessed by third parties due to a security failure in our systems. The collection of data and processing of transactions require us to receive and store a large amount of personally identifiable data. This type of data is subject to legislation and regulation in various jurisdictions. Recently, data security breaches suffered by well-known companies and institutions have attracted a substantial amount of media attention, prompting state and federal legislative proposals addressing data privacy and security. If some of the current proposals are adopted, we may be subject to more extensive requirements to protect the customer information that we process in connection with the purchases of our products. We may become exposed to potential liabilities with respect to the data that we collect, manage and process, and may incur legal costs if our information security policies and procedures are not effective or if we are required to defend our methods of collection, processing and storage of personal data. Future investigations, lawsuits or adverse publicity relating to our methods of handling personal data could adversely affect our business, results of operations, financial condition and cash flows due to the costs and negative market reaction relating to such developments.

Energy costs are a significant component of our operating expenses, and increasing energy costs, unless offset by more efficient usage or other operational responses, may impact our profitability.

        We utilize natural gas and electricity in our stores and distribution centers and gasoline and diesel fuel in the trucks that deliver products to our stores. Increases in energy costs, whether driven by increased demand, decreased or disrupted supply or an anticipation of any such events, will increase the costs of operating our stores and distribution network and may increase the costs of our products. We may not be able to recover these rising costs through increased prices charged to our customers, and any increased prices may exacerbate the risk of customers choosing lower-cost alternatives. In addition, if we are unsuccessful in protecting against these increases in energy costs through long-term energy contracts, improved energy procurement, improved efficiency and other operational improvements, the overall costs of operating our stores will increase which would impact our profitability.

We may experience negative effects to our reputation from real or perceived quality or health issues with our food products, which could have an adverse effect on our operating results.

        We believe that a reputation for providing our customers with fresh, high-quality food products is an important component of our customer value proposition. Concerns regarding the safety or quality of our food products or of our food supply chain could cause consumers to avoid purchasing certain products from us, or to seek alternative sources of food, even if the basis for the concern is outside of our control. Food products containing contaminants could be inadvertently distributed by us and, if processing at the consumer level does not eliminate them, these contaminants could result in illness or

15


Table of Contents


death. Adverse publicity about these concerns, whether or not ultimately based on fact, and whether or not involving products sold at our stores, could discourage consumers from buying our products and have an adverse effect on our operating results. Furthermore, the sale of food products entails an inherent risk of product liability claims, product recall and the resulting negative publicity. Any such claims, recalls or adverse publicity with respect to our private-label products may have an even greater negative effect on our sales and operating results, in addition to generating adverse publicity for our private label brand.

        Any lost confidence in us on the part of our customers would be difficult and costly to re-establish. Any such adverse effect could significantly reduce our brand value. Issues regarding the safety of any food items sold by us, regardless of the cause, could have a substantial and adverse effect on our sales and operating results.

The loss of key employees could negatively affect our business.

        A key component of our success is the experience of our key employees, including our President, Chief Executive Officer and Chairman, Robert Mariano, our Executive Vice President and Chief Financial Officer, Darren Karst and our Executive Vice President—Operations, Donald Rosanova. These employees have extensive experience in our industry and are familiar with our business, systems and processes. In addition, Messrs. Mariano and Karst are key to our strategy of expansion into the Chicago market, due to their experience with, and understanding of, food retailing in that region. The loss of services of one or more of our key employees could impair our ability to manage our business effectively. We do not maintain key person insurance on any employee.

Prolonged labor disputes with unionized employees and increases in labor costs could adversely affect us.

        Our largest operating costs are attributable to labor costs and, therefore, our financial performance is greatly influenced by increases in wage and benefit costs, including pension and health care costs. As a result, we are exposed to risks associated with a competitive labor market and, more specifically, to any disruption of our unionized work force.

        As of November 1, 2011, approximately 49% of our employees were represented by unions and covered by collective bargaining or similar agreements that are subject to periodic renegotiation. Our renegotiation of expiring collective bargaining agreements and negotiation of new collective bargaining agreements may not prove successful, may result in a significant increase in labor costs, or may result in a disruption to our operations. We expect that we would incur additional costs and face increased competition if we lost customers during a work stoppage or labor disturbance.

        As of November 1, 2011, we had an aggregate of 38 collective bargaining agreements in effect, covering 49% of our employees, all of which are scheduled to expire between 2012 and 2016. In addition, certain of our employees at our Rainbow stores and our Stevens Point distribution center are currently operating under collective bargaining agreements, which expired by their terms on March 8, 2011 and March 31, 2011, respectively, and have not yet been replaced.

        In the renegotiation of our current contracts and the negotiation of our new contracts, rising health care and pension costs and the nature and structure of work rules will be important issues. The terms of the renegotiated collective bargaining agreements could create either a financial advantage or disadvantage for us as compared to our major competitors and could have a material adverse effect on our results of operations and financial condition. Our labor negotiations may not conclude successfully and work stoppages or labor disturbances could occur. A prolonged work stoppage affecting a substantial number of stores could have a material adverse effect on our financial condition, results of operations and cash flows. We also expect that in the event of a work stoppage or labor disturbance, we could incur additional costs and face increased competition for customers.

16


Table of Contents


The terms of our new senior credit facility may restrict our current and future operations, which could adversely affect our ability to respond to changes in our business and to manage our operations.

        Concurrent with the completion of this offering, we expect to enter into a new senior credit facility, which will include a number of customary restrictive covenants. These covenants could impair our financing and operational flexibility and make it difficult for us to react to market conditions and satisfy our ongoing capital needs and unanticipated cash requirements. Specifically, such covenants may restrict our ability and, if applicable, the ability of our subsidiaries to, among other things:

        In addition, our new senior credit facility will require us to maintain specified financial ratios.

        Our ability to comply with the covenants and other terms of our new senior credit facility will depend on our future operating performance. If we fail to comply with such covenants and terms, we would be required to obtain waivers from our lenders or agree with our lenders to an amendment of the facility's terms to maintain compliance under such facility. If we are unable to obtain any necessary waivers and the debt under our new senior credit facility is accelerated, it would have a material adverse effect on our financial condition and future operating performance.

Our plans to remodel or relocate certain of our existing stores and build new stores in the Chicago market require us to spend capital, which must be allocated among various projects. Failure to use our capital efficiently could have an adverse effect on our profitability.

        We plan to remodel or relocate certain of our existing stores, and to open additional Mariano's Fresh Market stores in the Chicago market. These initiatives will use cash generated by our operations. If this cash is not allocated efficiently among these various projects, or if any of these initiatives prove to be unsuccessful, we may experience reduced profitability and we could be required to delay, significantly curtail or eliminate planned store openings, remodels or relocations.

We have significant debt service obligations and may incur additional indebtedness in the future which could adversely affect our financial health and our ability to react to changes to our business.

        We intend to use all of the net proceeds that we receive from this offering, together with indebtedness incurred pursuant to a debt refinancing transaction, to repay all of our outstanding borrowings and other amounts owing under our existing credit facilities. We will, however, continue to have significant debt service obligations following the completion of this offering. Our indebtedness, or any additional indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our liquidity position. If we cannot generate sufficient cash flow from

17


Table of Contents


operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of such actions on a timely basis, on terms satisfactory to us or at all. Our level of indebtedness has important consequences to you and your investment in our common stock.

        For example, our level of indebtedness may:

        We cannot assure you that our business will generate sufficient cash flow from operations or that future financing will be available to us in amounts sufficient to enable us to make payments on our indebtedness or to fund our operations.

Failure to attract, train and retain qualified store-level and distribution-level employees could adversely affect our ability to carry out strategic initiatives and ultimately impact our financial performance.

        The retail food industry is labor intensive. Our ability to meet our labor needs, including our needs for specialized workers, such as pharmacists, while controlling wage and labor-related costs, is subject to numerous external factors, including the availability of a sufficient number of qualified persons in the work force in the markets in which we are located, unemployment levels within those markets, unionization of the available work force, prevailing wage rates, changing demographics, health and other insurance costs and changes in employment legislation. Failure to do so could adversely affect our results of operations.

The cost of providing employee benefits continues to increase and is subject to factors outside of our control.

        We sponsor three defined benefit pension plans, two of which are frozen with respect to benefit accruals and the third of which is closed to new participants. Even though the vast majority of our employees are not accruing additional pension benefits under these plans, these pension plans are not fully funded. Our funding requirements vary based upon plan asset performance, interest rates and actuarial assumptions. Poorer than assumed asset performance and continuing low interest rates would likely cause our required funding contributions to increase in the future. As of January 1, 2011, the accumulated benefit obligation and fair value of plan assets for these three Company-sponsored defined benefit plans were $158 million and $140 million, respectively. As of January 2, 2010, the accumulated benefit obligation and fair value of plan assets for these three plans were $147 million and $123 million, respectively.

        In addition, we participate in four underfunded multiemployer pension plans on behalf of our union-affiliated employees, and we are required to make contributions to these plans under our collective bargaining agreements. Each of these four multiemployer pension plans is currently underfunded in part due to increases in the costs of benefits provided or paid under these plans as well as lower returns on plan assets. The unfunded liabilities of these four plans may result in increased

18


Table of Contents


future payments by us and other participating employers. In 2009, the largest multiemployer plan in which we participate was deemed by its plan actuary to be "critically underfunded," prompting federally mandated increases in our contributions to it. Going forward, our required contributions to these multiemployer plans could increase as a result of many factors, including the outcome of collective bargaining with the unions, actions taken by trustees who manage the plans, government regulations, the actual return on assets held in the plans and the payment of a withdrawal liability if we choose to exit a plan. We expect meaningful increases in contribution expense as a result of required incremental plan contributions to reduce underfunding. Currently, we have five expired collective bargaining agreements being negotiated, and our funding of a related multiemployer pension plan is one of the subjects being renegotiated for one of those agreements. Our risk of future increased payments may be greater if other participating employers withdraw from the plan and are not able to pay the total liability assessed as a result of such withdrawal, or if the pension plan adopts surcharges and/or increased pension contributions as part of a rehabilitation plan. For example, in recent years our plan underfunding has increased due to the withdrawal of participating employers that, because of their financial distress, were unable to pay contributions or their portion of the unfunded pension liability.

        Pursuant to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Pension Benefit Guaranty Corporation (the "PBGC") has the right, subject to satisfaction of certain statutory requirements, to involuntarily terminate our defined benefit pension plans (thus accelerating funding obligations), or enter into an alternative arrangement with us to prevent such termination. In March 2010, we were contacted by the PBGC expressing concern regarding the impact of the Recapitalization Transaction on our largest defined benefit pension plan. We subsequently entered into an amendment to our existing agreement with the PBGC that required us to make additional contributions to our defined benefit pension plan, one of which we were required to make no later than April 29, 2010 and one on each of the first two anniversaries thereafter, and for us to increase and continue the credit support in the form of the existing letter of credit with respect to our obligations under such agreement. We cannot assure you that the PBGC will not seek to increase or accelerate our funding requirements under our defined benefit plans in the event our operating performance declines or we otherwise increase our indebtedness.

        We also provide health benefits to substantially all of our full-time employees and to certain part-time employees depending on average hours worked. Even though employees generally pay a portion of the cost, our cost of providing these benefits has increased steadily over the last several years. We anticipate future increases in the cost of health benefits, partly, but not entirely, as a result of the implementation of federal health care reform legislation. If we are unable to control healthcare and pension costs, we may experience increased operating costs, which may adversely affect our financial condition and results of operations.

Variability in self-insurance liability estimates could significantly impact our results of operations.

        We self-insure for workers' compensation, general liability, automobile liability and employee health care benefits up to a set retention level, beyond which we maintain excess insurance coverage. Liabilities are determined using actuarial estimates of the aggregate liability for claims incurred and an estimate of incurred but not reported claims, on an undiscounted basis. Our accruals for insurance reserves reflect certain actuarial assumptions and management judgments, which are subject to a high degree of variability. The variability is caused by factors external to us such as: historical claims experience; medical inflation; legislative changes to benefit levels; trends relating to jury verdicts; and claim settlement patterns. Any significant variation in these factors could cause a material change to our reserves for self-insurance liabilities and may adversely affect our financial condition and results of operations.

19


Table of Contents


Various aspects of our business are subject to federal, state and local laws and regulations. Our compliance with these regulations may require additional capital expenditures and could materially adversely affect our ability to conduct our business as planned.

        We are subject to federal, state and local laws and regulations relating to zoning, land use, environmental protection, work place safety, public health, community right-to-know, alcoholic beverage sales, tobacco sales and pharmaceutical sales. In particular, the states of Wisconsin, Minnesota and Illinois and several local jurisdictions regulate the licensing of supermarkets, including alcoholic beverage license grants. In addition, certain local regulations may limit our ability to sell alcoholic beverages at certain times. A variety of state programs regulate the production and sale of milk, including the price of raw milk, through federal market orders and price support programs. We are also subject to laws governing our relationship with employees, including minimum wage requirements, overtime, working conditions, disabled access and work permit requirements. Compliance with new laws in these areas, or with new or stricter interpretations of existing requirements, could reduce the revenue and profitability of our stores and could otherwise materially adversely affect our business, financial condition or results of operations. Additionally, a number of federal, state and local laws impose requirements or restrictions on business owners with respect to access by disabled persons. Our compliance with these laws may result in modifications to our properties, or prevent us from performing certain further renovations.

        Our pharmacy business is subject to, and influenced by, certain government laws and regulations, including those administered and enforced by Medicare, Medicaid, the Drug Enforcement Administration (the "DEA"), the Consumer Product Safety Commission, the U.S. Federal Trade Commission and the U.S. Food and Drug Administration. For example, the conversion of various prescription drugs to over-the-counter medications, a decrease in the rate at which new prescription drugs become available or the failed introduction of new prescription drugs into the market could materially adversely affect our pharmacy sales. The withdrawal of certain drugs from the market may also materially adversely affect our pharmacy business. Changes in third party reimbursement levels for prescription drugs, including changes in Medicare or state Medicaid programs, could also reduce our margins and have a material adverse effect on our business. In order to dispense controlled substances, we are required to register our pharmacies with the DEA and to comply with security, recordkeeping, inventory control and labeling standards.

        In addition, our pharmacy business is subject to local regulations in the states where our pharmacies are located, applicable Medicare and Medicaid regulations and state and federal prohibitions against certain payments intended to induce referrals of patients or other health care business. Failure to properly adhere to these and other applicable regulations could result in the imposition of civil, administrative and criminal penalties including suspension of payments from government programs; loss of required government certifications; loss of authorizations to participate in, or exclusion from, government reimbursement programs such as Medicare and Medicaid; loss of licenses; significant fines or monetary penalties for anti-kickback law violations, submission of false claims or other failures to meet reimbursement program requirements and could materially adversely affect the continued operation of our business. Our pharmacy business is also subject to the Health Insurance Portability and Accountability Act, including its obligations to protect the confidentiality of certain patient information and other obligations. Failure to properly adhere to these requirements could result in the imposition of civil as well as criminal penalties.

20


Table of Contents

Certain risks are inherent in providing pharmacy services, and our insurance may not be adequate to cover any claims against us.

        Pharmacies are exposed to risks inherent in the packaging and distribution of pharmaceuticals and other healthcare products, such as risks of liability for products which cause harm to consumers. Although we maintain professional liability insurance and errors and omissions liability insurance, we cannot guarantee that the coverage limits under our insurance programs will be adequate to protect us against future claims, or that we will be able to maintain this insurance on acceptable terms in the future, or at all. Our results of operations, financial condition or cash flows may be materially adversely affected if in the future our insurance coverage proves to be inadequate or unavailable, or there is an increase in the liability for which we self-insure, or we suffer harm to our reputation as a result of an error or omission.

Threats or potential threats to security or the occurrence of a widespread health epidemic may materially adversely affect our financial condition and results of operations.

        Our business may be severely impacted by wartime activities, threats or acts of terror or a widespread regional, national or global health epidemic, such as pandemic flu. Such activities, threats or epidemics may materially adversely impact our business by disrupting production and delivery of products to our supermarkets or to our independent retail customers, by affecting our ability to appropriately staff our supermarkets and by causing customers to avoid public gathering places or otherwise change their shopping behaviors.

        Additionally, data theft, information espionage or other criminal activity directed at the retail industry or computer or communications systems may materially adversely affect our businesses by causing us to implement costly security measures in recognition of actual or potential threats, by requiring us to expend significant time and expense developing, maintaining or upgrading our information technology systems and by causing us to incur significant costs to reimburse third parties for damages. Such activities may also materially adversely affect our financial condition, results of operations and cash flows by reducing consumer confidence in the marketplace and by modifying consumer spending habits.

Litigation may materially adversely affect our business, financial condition and results of operations.

        Our operations are characterized by a high volume of customer traffic and by transactions involving a wide variety of product selections. These operations carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in many other industries. Consequently, we may be a party to individual personal injury, product liability and other legal actions in the ordinary course of our business, including litigation arising from food-related illness. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend future litigation may be significant. There may also be adverse publicity associated with litigation that may decrease consumer confidence in our businesses, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may materially adversely affect our businesses, financial condition, results of operations and cash flows.

Proposed changes to financial accounting standards could require our store leases to be recognized on the balance sheet.

        In addition to our significant level of indebtedness, we have significant obligations relating to our current operating leases. Proposed changes to financial accounting standards could require such leases to be recognized on the balance sheet. As of January 1, 2011, we had undiscounted operating lease

21


Table of Contents


commitments of approximately $1.613 billion, scheduled through 2032, related primarily to our stores. These leases are classified as operating leases and disclosed in Note 10 to our audited consolidated financial statements, but are not reflected as liabilities on our consolidated balance sheets. As of November 1, 2011, substantially all our stores were subject to leases, which have terms up to 20 years, and during fiscal 2010 our operating lease expense was approximately $100 million.

        In August 2010, the Financial Accounting Standards Board ("FASB") and the International Accounting Standards Board ("IASB") issued a joint discussion paper highlighting proposed changes to financial accounting standards for leases. Currently, Accounting Standards Codification 840 ("ASC 840"), Leases (formerly Statement of Financial Accounting Standards 13, Accounting for Leases) requires that operating leases are classified as an off-balance sheet transaction and only the current year operating lease expense is accounted for in the income statement. In order to determine the proper classification of our stores as either operating leases or capital leases, we must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of an asset as well as select an appropriate discount rate to be used in discounting future lease payments. These estimates are utilized by management in making computations as required by existing accounting standards that determine whether the lease is classified as an operating lease or a capital lease. Substantially all of our store leases have been classified as operating leases, which results in rental payments being charged to expense over the terms of the related leases. Additionally, operating leases are not reflected in our consolidated balance sheets, which means that neither a leased asset nor an obligation for future lease payments is reflected in our consolidated balance sheets. The proposed changes to ASC 840 would require that substantially all operating leases be recognized as assets and liabilities on our balance sheet. The right to use the leased property would be capitalized as an asset and the present value of future lease payments would be accounted for as a liability. The proposed changes are currently being reviewed by FASB, IASB and others, and are expected to be finalized in 2012. The effective date, which has not been determined, could be as early as 2013 and may require retrospective adoption. While we have not quantified the impact this proposed standard would have on our financial statements, if our current operating leases are instead recognized on the balance sheet, it will result in a significant increase in the liabilities reflected on our balance sheet and in the interest expense and depreciation and amortization expense reflected in our income statement, while reducing the amount of rent expense. This could potentially decrease our net income.

Our high level of fixed lease obligations could adversely effect our financial performance.

        Our high level of fixed lease obligations will require us to use a significant portion of cash generated by our operations to satisfy these obligations, and could adversely impact our ability to obtain future financing to support our capital expenditures or other operational investments. We will require substantial cash flows from operations to make our payments under our operating leases. If we are not able to make the required payments under the leases, the lenders or owners of the stores may, among other things, repossess those assets, which could adversely affect our ability to conduct our operations. In addition, our failure to make payments under our operating leases could trigger defaults under other leases or under agreements governing our other indebtedness, which could cause the counterparties under those agreements to accelerate the obligations due thereunder.

Risks Relating to this Offering and Ownership of Our Common Stock

We are controlled by investment funds managed by affiliates of Willis Stein, whose interests in our business may be different from yours.

        Upon completion of this offering, funds controlled by Willis Stein and Partners, LLC ("Willis Stein") will own, or control through our Investor Rights Agreement, approximately                        shares, or        %, of our outstanding common stock. As such, affiliates of Willis Stein will have significant influence over our reporting and corporate management and affairs, and will be able to

22


Table of Contents


control virtually all matters requiring stockholder approval. For so long as affiliates of Willis Stein own or control more than 50% of our outstanding shares of common stock, they will be able to control the election of our board of directors. Pursuant to the Investor Rights Agreement, Willis Stein has the ability to designate the majority of our board of directors for the first year following this offering. During such time, we expect that representatives of Willis Stein will constitute a majority of each committee of our board of directors (other than the audit committee) and that the chairman of each of the committees (other than the audit committee) will be a representative of Willis Stein, and these arrangements could extend beyond the one-year period contemplated by the Investor Rights Agreement (although, at such time as we are not a "controlled company" under the corporate governance standards, our committee membership will comply with all applicable requirements of those standards).

        Affiliates of Willis Stein will effectively control actions to be taken by us and our board of directors, including amendments to our certificate of incorporation and bylaws and approval of significant corporate transactions, including mergers and sales of substantially all of our assets. The directors designated by affiliates of Willis Stein will have the authority, subject to the terms of our indebtedness and the rules and regulations of the exchange on which we will list our common stock, to cause us to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions. Our certificate of incorporation will provide that the doctrine of "corporate opportunity" will not apply to Willis Stein, or any of our directors who are associates of, or affiliated with, Willis Stein, in a manner that would prohibit them from investing in competing businesses or doing business with our clients or guests. It is possible that the interests of Willis Stein and its affiliates may in some circumstances conflict with our interests and the interests of our other stockholders, including you. See "Certain Relationships and Related Party Transactions—Investor Rights Agreement."

We will be a "controlled company" within the meaning of the rules of the exchange on which we will list our common stock and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.

        Upon completion of this offering, Willis Stein will control a majority of our voting common stock. As a result, we will be a "controlled company" within the meaning the corporate governance standards of the exchange on which we will list our common stock. Under the rules of such stock exchange, a company of which more than 50% of the voting power is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements, including:

        Following this offering, we intend to utilize the "controlled company" exemption from these corporate governance requirements. As a result, we will not have a majority of independent directors nor will our nominating and corporate governance committee and compensation committee consist entirely of independent directors. Further, we will not be required to have an annual performance evaluation of the nominating and corporate governance committee and compensation committee.

23


Table of Contents

Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the exchange on which we will list our common stock.

Conflicts of interest may arise because some of our directors are representatives of our controlling stockholders.

        Messrs. Larson, Stein and Willis, who are representatives of Willis Stein, serve on our board of directors. As discussed above, Willis Stein and entities controlled by them may hold equity interests in entities that directly or indirectly compete with us, and companies in which they currently invest may begin competing with us. As a result of these relationships, when conflicts between the interests of Willis Stein, on the one hand, and the interests of our other stockholders, on the other hand, arise, these directors may not be disinterested. Although our directors and officers have a duty of loyalty to us under Delaware law and our certificate of incorporation, transactions that we enter into in which a director or officer has a conflict of interest are generally permissible so long as (1) the material facts relating to the director's or officer's relationship or interest as to the transaction are disclosed to our board of directors and a majority of our disinterested directors, or a committee consisting solely of disinterested directors, approves the transaction, (2) the material facts relating to the director's or officer's relationship or interest as to the transaction are disclosed to our stockholders and a majority of our disinterested stockholders approves the transaction or (3) the transaction is otherwise fair to us. Under our amended and restated certificate of incorporation, representatives of Willis Stein will not be required to offer to us any transaction opportunity of which they become aware and could take any such opportunity for themselves or offer it to other companies in which they have an investment, unless such opportunity is offered to them solely in their capacity as a director of ours.

An active, liquid trading market for our common stock may not develop following this offering, which could limit your ability to sell your shares of our common stock at an attractive price, or at all.

        Prior to this offering, there has been no public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market in our common stock or how liquid that market might become. An active public market for our common stock may not develop or be sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you, or at all. The market price for shares of our common stock may decline below the initial public offering price, and you may not be able to resell your shares of common stock at or above the initial public offering price.

Market volatility may affect our stock price and the value of your investment.

        Following the completion of this offering, the market price for our common stock is likely to be volatile, in part because our shares have not been previously traded publicly. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot predict or control, including:

24


Table of Contents

        In addition, the stock market in general has experienced substantial price and volume volatility that is often seemingly unrelated to the operating performance of particular companies. These broad market fluctuations may cause the trading price of our common stock to decline. In the past, securities class action litigation has often been brought against a company after a period of volatility in the market price of its common stock. We may become involved in this type of litigation in the future. Any securities litigation claims brought against us could result in substantial expenses and the diversion of our management's attention from our business.

If you purchase shares of common stock sold in this offering, you will incur immediate and substantial dilution.

        If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution in the amount of $            per share, because the assumed initial public offering price of $            per share, which is the midpoint of the price range listed on the cover page of this prospectus, is substantially higher than the pro forma net tangible book value per share of our outstanding common stock. In addition, you may also experience additional dilution upon future equity issuances or the exercise of stock options to purchase common stock granted to our employees, executive officers, consultants and directors under our stock option and equity incentive plans. For additional information, see "Dilution."

We cannot assure you that we will declare dividends or have the available cash to make dividend payments.

        We intend to pay quarterly cash dividends in an amount equal to $            per share following the completion of this offering. Whether we will do so, however, and the timing and amount of those dividends, will be subject to approval and declaration by our board of directors and will depend upon on a variety of factors, including the financial results, cash requirements and financial condition of the company, our ability to pay dividends under the credit agreement governing our new senior secured credit facilities and any other applicable contracts, and other factors deemed relevant by our board of directors. Any dividends declared and paid will not be cumulative.

        Because the issuer of common stock in this offering is a holding company with no material assets (other than the equity interests of its direct subsidiary), its cash flow and ability to pay dividends will be dependent upon the financial results and cash flows of its operating subsidiaries and the distribution or other payment of cash to it in the form of dividends or otherwise. The direct and indirect subsidiaries of the issuer are separate and distinct legal entities and have no obligation to make any funds available to the issuer.

25


Table of Contents

Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.

        Upon completion of this offering, there will be                        shares of our common stock outstanding. Of these,                          shares being sold in this offering (or                        shares if the underwriters exercise their over-allotment option in full) will be freely tradable immediately after this offering (except for any shares purchased by our affiliates, if any) and                        shares will be subject to lock-up agreements for 180 days after the date of this prospectus. A large portion of our shares are held by a small number of persons and investment funds. Sales by these stockholders of a substantial number of shares after this offering could significantly reduce the market price of our common stock. Moreover, Willis Stein has rights, subject to some conditions, to require us to file registration statements covering the shares they currently hold, or to include these shares in registration statements that we may file for ourselves or other stockholders.

        We also intend to register all common stock that we may issue under our 2012 Incentive Plan. Effective upon the completion of this offering, an aggregate of                                    shares of our common stock will be reserved for future issuance under the 2012 Incentive Plan. Once we register these shares, which we plan to do shortly after the completion of this offering, they can be freely sold in the public market upon issuance, subject to the lock-up agreements referred to above. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our common stock.

Our future operating results may fluctuate significantly and our current operating results may not be a good indication of our future performance. Fluctuations in our quarterly financial results could affect our stock price in the future.

        Our revenues and operating results have historically varied from period-to-period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control. If our quarterly financial results or our predictions of future financial results fail to meet the expectations of securities analysts and investors, our stock price could be negatively affected. Any volatility in our quarterly financial results may make it more difficult for us to raise capital in the future or pursue acquisitions that involve issuances of our stock. Our operating results for prior periods may not be effective predictors of our future performance.

        Factors associated with our industry, the operation of our business and the markets for our products may cause our quarterly financial results to fluctuate, including:

26


Table of Contents

        Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our quarterly financial and other operating results, including fluctuations in our key metrics. This variability and unpredictability could result in our failing to meet our internal operating plan or the expectations of securities analysts or investors for any period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could fall substantially and we could face costly lawsuits, including securities class action suits. In addition, a significant percentage of our operating expenses are fixed in nature and based on forecasted revenue trends. Accordingly, in the event of revenue shortfalls, we are generally unable to mitigate the negative impact on margins in the short term.

Anti-takeover provisions in our charter documents and Delaware law might discourage or delay attempts to acquire us that you might consider favorable.

        Our amended and restated certificate of incorporation and amended and restated bylaws will contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors. These provisions include:

27


Table of Contents

        In addition, we will be governed by the provisions of Section 203 of the Delaware General Corporation Law (the "DGCL") which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer rejected by our board were considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

        These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.

Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

        We are not currently required to comply with the rules of the Securities and Exchange Commission (the "SEC") implementing Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC's rules implementing Section 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Though we will be required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff. Testing and maintaining internal control can divert our management's attention from other matters that are important to the operation of our business.

        Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal controls over financial reporting until the year following our first annual report required to be filed with the SEC. At such time, our independent registered public accounting firm may issue a report that is adverse, in the event it is not satisfied with the level at which our controls are documented, designed or operating. If we are unable to conclude that we have effective

28


Table of Contents


internal control over financial reporting, our independent registered public accounting firm is unable to provide us with an unqualified report as required by Section 404 or we are required to restate our financial statements, we may fail to meet our public reporting obligations and investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

We will incur significant increased costs as a result of operating as a public company, and our management will be required to divert attention from operational and other business matters to devote substantial time to public company requirements.

        As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be required to comply with the requirements of the Sarbanes-Oxley Act, as well as rules and regulations subsequently implemented by the SEC and the exchange where we will list our common stock, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. In that regard, we currently have a limited internal audit function, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.

Our business and stock price may suffer as a result of our lack of public company operating experience. In addition, if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

        We have been a privately-held company since being acquired by Willis Stein and certain members of management in June 2002. Our recent lack of public company operating experience may make it difficult to forecast and evaluate our future prospects. If we are unable to execute our business strategy, either as a result of our inability to effectively manage our business in a public company environment or for any other reason, our business, prospects, financial condition and results of operations may be harmed.

        In addition, as a new public company we do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

29


Table of Contents


FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this prospectus are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "forecast," "continue," "plan," "intend," "believe," "may," "will," "should," "can have," "likely" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected store openings, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

30


Table of Contents

        We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

        We caution you that the important factors described in the sections in this prospectus entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" may not be all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

31


Table of Contents


MARKET AND INDUSTRY DATA

        Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate is based on information from independent industry and research organizations, such as the Food Marketing Institute, Willard Bishop and other third-party sources (including industry publications, surveys and forecasts), and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets, which we believe to be reasonable. Management has derived statewide market share data based on various sources, including Metro Market Studies, Grocery Distribution Analysis and Guide, 2011 . We have not independently verified any third-party information. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors." These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

        In this prospectus, we refer to our estimated weighted average market share in Wisconsin of 44%. We calculate this estimate by multiplying our market shares based on sales volumes, as reported in the Metro Market Studies, Grocery Distribution Analysis and Guide, 2011 , in each of our reported Wisconsin markets (excluding Kenosha) by the respective number of our stores in each market, and dividing that amount by our total stores in all such markets. We exclude the market of Kenosha (where we operate three stores) because the Metro Market Studies, Grocery Distribution Analysis and Guide, 2011 aggregates Kenosha with Chicago market data. We use the number of our stores in each market, as opposed to our net sales, to calculate our estimated weighted average market share so that we can better compare our weighted average market share to that of other food retailers where store data is available but sales data may not be. Approximately half of our Wisconsin stores are in Milwaukee, where our market share is approximately 55%.

32


Table of Contents


USE OF PROCEEDS

        We estimate that the net proceeds to us from our issuance and sale of                        shares of common stock in this offering will be approximately $             million, assuming an initial public offering price of $            per share, which is the midpoint of the price range listed on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

        A $1.00 increase (decrease) in the assumed initial public offering price of $            per share would increase (decrease) our net proceeds from this offering by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

        We intend to use all of the net proceeds that we receive from this offering, together with proceeds from a debt refinancing transaction, to repay all of our outstanding borrowings under our existing first lien credit facility and second lien credit facility, including all accrued interest thereon and any related prepayment premiums.

        As of October 1, 2011, the outstanding indebtedness under our first lien credit facility was $689 million and the outstanding indebtedness under our second lien credit facility was $150 million. We used the net proceeds from our borrowings under the second lien credit facility to fund a dividend to our equity holders in the Recapitalization Transaction. As of October 1, 2011, the weighted average interest rate for borrowings under the first lien credit facility was 6.75% per annum and the interest rate for the second lien credit facility was 10% per annum. Our outstanding borrowings under the term loan portion of our existing first lien credit facility are due in quarterly installments of approximately $1.7 million from December 2011 to September 2013 and a one-time payment of the remaining balance is due in November 2013. Our outstanding borrowings under our second lien credit facility are due in April 2016.

        If we obtain more proceeds from this offering, we will incur less indebtedness in the debt refinancing transaction. If we obtain fewer proceeds, we will incur more indebtedness in the debt refinancing transaction.

        Affiliates of Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC, two of the underwriters in this offering, are lenders under our existing credit facilities and therefore will receive a portion of the net proceeds of this offering. See "Underwriting."

        We will not receive any of the proceeds from the sale of shares by the selling stockholders, including the shares to be sold by the selling stockholders if the underwriters exercise their over-allotment option.

33


Table of Contents


DIVIDEND POLICY

        We currently intend to declare quarterly dividends of approximately $            per share on all outstanding shares of common stock. We currently expect the first quarterly dividend will be for the            quarter of 2012 and will be prorated for the portion of the            quarter of 2012 subsequent to the closing of this offering. The declaration of this and any other dividends, and, if declared, the amount of any such dividend, will be subject to our actual future earnings and capital requirements and to the discretion of our board of directors. Our board of directors may take into account such matters as general business conditions, our financial results, capital requirements, contractual, legal and regulatory restrictions and such other factors as our board of directors may deem relevant. For example, our ability to pay cash dividends on our common stock will be subject to our continued compliance with the terms of any indebtedness incurred in our debt refinancing transaction, including our new senior credit facility.

        Because the issuer is a holding company, its cash flow and ability to pay dividends are dependent upon the financial results and cash flows of its operating subsidiaries, and the distribution or other payment of cash to it in the form of dividends or otherwise. We expect to cause the operating subsidiaries of the issuer to pay distributions to the issuer to fund its expected dividend payments, subject to applicable law and any restrictions contained in its subsidiaries' current or future debt agreements. See "Risk Factors—Risks Related to this Offering and Ownership of our Common Stock—We cannot assure you that we will declare dividends or have the available cash to make dividend payments."

        We paid cash dividends to holders of our equity securities in an aggregate amount of $150.0 million in fiscal 2010 in connection with the Recapitalization Transaction, including approximately $79.2 million on account of our common stock. We have not paid any dividends on account of our common stock during fiscal 2008, 2009 or 2011.

34


Table of Contents


CAPITALIZATION

        The following table sets forth our cash and cash equivalents and our consolidated capitalization as of October 1, 2011 on:

        You should read the following table in conjunction with the sections entitled "Use of Proceeds," "Selected Historical Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.

 
  As of October 1, 2011  
 
  Actual   As Adjusted  
 
  (unaudited)
 
 
  (dollars in thousands)
 

Cash and cash equivalents (1)

  $ 107,012   $    
           

Long-term debt (including current maturities):

             

Existing first lien credit facility:

             
 

Revolving credit facility

  $   $    
 

Term loan (1)

    689,413        

Second lien credit facility (2)

    147,728        

New senior credit facility (3)

           

Capitalized lease obligations

    37,341        

Other debt

    1,694        
           
 

Total debt

    876,176        

Shareholders' equity (4):

             

Common stock, $0.01 par value, 200,000 shares authorized; 93,584.6983 shares issued and outstanding, actual;                         shares authorized and                         shares issued and outstanding, as adjusted

    1        

Participating preferred stock, $0.01 par value, 20,000 shares authorized; 10,438.905 shares issued and outstanding, actual; no shares authorized, issued or outstanding, as adjusted

    1,044        

Preferred stock, $0.01 par value per share; no shares authorized, issued or outstanding, actual; 5,000,000 shares authorized, no shares issued or outstanding, as adjusted

           

Additional paid-in capital (5)

    3,837        

Retained earnings

    213,270        

Accumulated other comprehensive loss

    (21,903 )      

Shareholder notes receivable (6)

    (4,231 )      
           
 

Total shareholders' equity

    192,018        
           
   

Total capitalization

  $ 1,068,194   $    
           

(1)
Subsequent to October 1, 2011, we used approximately $54.0 million of our existing cash to make a scheduled principal payment on the term loan portion of our existing first lien credit facility.

(2)
Net of unamortized original issue discount of approximately $2.3 million as of October 1, 2011.

35


Table of Contents

(3)
We expect that the revolving credit facility under our new senior credit facility will provide for aggregate borrowings of at least $             million. We do not expect to have any outstanding borrowings under our revolving credit facility upon completion of the offering. Outstanding letters of credit will reduce our availability under the revolving credit facility. We had outstanding letters of credit of approximately $27.7 million as of October 1, 2011.

(4)
The number of shares of authorized and outstanding common stock as of October 1, 2011 on an actual basis have not been adjusted to give effect to the Conversion.

(5)
On an as adjusted basis, additional paid-in capital includes adjustments for (i) the conversion of our preferred stock into common stock in the amount of $            , and (ii) our issuance and sale of                         shares of common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(6)
Represents loans to certain of our executive officers and directors. All of these loans were cancelled on November 30, 2011 in exchange for our repurchase of part of the common stock originally purchased with the associated loan proceeds. See "Certain Relationships and Related Party Transactions—Loans to Directors and Executive Officers."

        A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus, would decrease (increase) the pro forma as adjusted amount for the term loan under our new senior credit facility by approximately $             million and would increase (decrease) the pro forma as adjusted amount of additional paid-in capital and total shareholders' equity by the same amount, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        The number of shares of common stock to be outstanding after this offering is based on shares outstanding as of October 1, 2011. This number excludes shares of our common stock reserved for future grants under the 2012 Incentive Plan, which we expect to adopt in connection with this offering.

36


Table of Contents


DILUTION

        After giving effect to the Conversion, our pro forma net tangible book value as of October 1, 2011 would have been approximately $             million, or approximately $            per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less the amount of our total liabilities, divided by the number of shares of common stock outstanding at October 1, 2011, prior to the sale of                        shares of our common stock offered in this offering, but assuming the completion of our Conversion. Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by investors in this offering and the net tangible book value per share of our common stock outstanding immediately after this offering.

        After giving effect to the completion of the Conversion and the sale of                        shares of our common stock in this offering, based upon an assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated expenses payable by us in connection with this offering, our pro forma as adjusted net tangible book value as of October 1, 2011 would have been approximately $             million, or $            per share of common stock. This represents an immediate increase in pro forma net tangible book value of $            per share to existing stockholders and immediate dilution of $            per share to new investors purchasing shares of common stock in this offering at the initial public offering price.

        The following table illustrates this per share dilution:

Assumed initial public offering price per share

        $    

Pro forma net tangible book value (deficit) per share as of October 1, 2011 (which gives effect to the Conversion)

  $          

Increase in net tangible book value per share attributable to new investors

             
             

Pro forma as adjusted net tangible book value (deficit) per share as of October 1, 2011 (which gives effect to the Conversion and this offering)

             
             

Dilution per share to new investors

        $    
             

        The following table summarizes, as of October 1, 2011, on a pro forma as adjusted basis giving effect to the Conversion and the sale of                        shares of common stock in this offering, the number of shares of our common stock purchased from us, the aggregate cash consideration paid to us and the average price per share paid to us by existing stockholders and to be paid by new investors purchasing shares of our common stock from us in this offering. The table assumes an initial public offering price of $            per share, the midpoint of the price range set forth on the cover of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering.

 
  Shares Purchased   Total Consideration   Average
Price
Per
Share
 
 
  Number   Percentage   Amount   Percentage  

Existing stockholders

          % $         % $    

New investors

                        $    
                         

Total

        100 % $       100 % $    
                         

        A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the total consideration paid by investors participating in this offering by $             million, or increase (decrease) the percentage of total consideration paid by investors participating in this offering by      %,

37


Table of Contents


assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        Except as otherwise indicated, the discussion and tables above assume no exercise of the underwriters' option to purchase additional shares. If the underwriters' option to purchase additional shares is exercised in full, our existing stockholders would own approximately        % and our new investors would own approximately        % of the total number of shares of our common stock outstanding after this offering.

        The tables and calculations above are based on shares of common stock outstanding as of October 1, 2011 (after giving effect to the Conversion) and exclude shares of our common stock reserved for future grants under the 2012 Incentive Plan, which we expect to adopt in connection with this offering.

        To the extent that any options or other equity incentive grants are issued in the future with an exercise price or purchase price below the initial public offering price, new investors will experience further dilution.

38


Table of Contents


SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

        The following tables summarize our financial data as of the dates and for the periods indicated. We have derived the selected consolidated financial data for the fiscal years ended December 30, 2006, December 29, 2007, January 3, 2009, January 2, 2010 and January 1, 2011 from our audited consolidated financial statements for such years and for the thirteen and thirty-nine weeks ended October 2, 2010 and October 1, 2011 from our unaudited consolidated financial statements for such periods. Our audited consolidated financial statements as of January 2, 2010 and January 1, 2011 and for the fiscal years ended January 3, 2009, January 2, 2010 and January 1, 2011 have been included in this prospectus. Our unaudited consolidated financial statements as of October 1, 2011 and for the thirteen and thirty-nine weeks ended October 2, 2010 and October 1, 2011 have been included in this prospectus and, in the opinion of management, include all adjustments (including only of normally recurring adjustments) necessary for a fair presentation. Results of operations for an interim period are not necessarily indicative of results for a full year.

        The selected historical consolidated data presented below should be read in conjunction with the sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the related notes thereto and other financial data included elsewhere in this prospectus.

39


Table of Contents

 
  Fiscal Year   Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  2006   2007   2008   2009   2010   October 2,
2010
  October 1,
2011
  October 2,
2010
  October 1,
2011
 
 
   
   
   
   
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands, except for per share data and amounts relating to square feet)
 

Statement of Income Data:

                                                       

Net sales

  $ 3,620,681   $ 3,798,864   $ 3,867,146   $ 3,745,774   $ 3,766,988   $ 939,047   $ 976,881   $ 2,818,647   $ 2,873,262  

Costs and Expenses:

                                                       

Cost of sales

    2,659,081     2,774,960     2,820,828     2,726,672     2,748,919     685,903     713,699     2,048,603     2,090,086  

Operating and administrative

    819,748     879,865     891,028     876,510     868,972     219,041     224,455     653,139     663,808  

Interest, including amortization of deferred financing costs

    71,710     74,907     52,232     34,097     66,943     18,124     18,126     48,729     54,571  

Interest expense on account of dividends on preferred stock (1)

    11,349     12,773     14,376     14,799     2,716             2,716      

Facility closure and asset impairment costs (adjustment) (2)

    18,613     (1,453 )                            

Loss on debt extinguishment (3)

                5,879                      
                                       

    3,580,501     3,741,052     3,778,464     3,657,957     3,687,550     923,068     956,280     2,753,187     2,808,465  
                                       

Income before income taxes

    40,180     57,812     88,682     87,817     79,438     15,979     20,601     65,460     64,797  

Provision for income taxes

    19,673     26,639     39,244     40,638     33,244     6,524     8,240     27,872     25,919  
                                       

Net income

  $ 20,507   $ 31,173   $ 49,438   $ 47,179   $ 46,194   $ 9,455   $ 12,361   $ 37,588   $ 38,878  
                                       

Net earnings per common share (4):

                                                       
 

Basic and diluted

  $   $   $   $   $ 296   $ 91   $ 119   $ 214   $ 374  
 

Pro forma basic and diluted

                                                       

Weighted average number of common shares outstanding (4):

                                                       
 

Basic

    95,489     95,586     95,320     94,413     93,715     93,569     93,584     93,758     93,584  
 

Diluted

    105,975     106,072     105,806     104,886     104,154     104,008     104,023     104,197     104,023  
 

Pro forma basic and diluted

                                                       

Dividends declared per common share

  $   $   $   $   $ 846   $   $   $ 846   $  

Other Financial Data:

                                                       

Adjusted EBITDA (5)

  $ 216,896   $ 230,830   $ 238,849   $ 221,898   $ 223,093   $ 52,559   $ 56,657   $ 172,458   $ 172,722  

Depreciation and amortization (6)

  $ 73,112   $ 81,034   $ 79,277   $ 79,275   $ 72,331   $ 18,030   $ 17,091   $ 54,278   $ 51,515  

Capital expenditures

  $ 71,787   $ 69,378   $ 76,467   $ 76,436   $ 62,932   $ 16,780   $ 10,638   $ 45,380   $ 48,578  

Gross margin (7)

   
26.6%
   
27.0%
   
27.1%
   
27.2%
   
27.0%
   
27.0%
   
26.9%
   
27.3%
   
27.3%
 

Adjusted EBITDA margin (8)

    6.0%     6.1%     6.2%     5.9%     5.9%     5.6%     5.8%     6.1%     6.0%  

40


Table of Contents

 
  Fiscal Year   Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  2006   2007   2008   2009   2010   October 2,
2010
  October 1,
2011
  October 2,
2010
  October 1,
2011
 
 
   
   
   
   
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands, except for per share data and amounts relating to square feet)
 

Selected Operating Data (Unaudited):

                                                       

Average net sales per store per week (9)

  $ 465   $ 467   $ 473   $ 468   $ 469   $ 465   $ 478   $ 469   $ 471  

Net sales per average selling square foot per period (10)

  $ 595   $ 597   $ 605   $ 596   $ 592   $ 146   $ 149   $ 445   $ 444  

Number of stores at end of period

    147     153     152     154     155     155     157     155     157  

Total square feet at end of period

    8,800,150     9,182,932     9,132,363     9,278,848     9,465,582     9,465,582     9,599,910     9,465,582     9,599,910  

Average store size:

                                                       
 

Average total square feet

    59,780     60,081     60,082     60,363     60,792     60,859     61,217     60,699     61,168  
 

Average selling square feet

    40,626     40,697     40,667     40,852     41,201     41,289     41,743     41,105     41,613  

Change in same-store sales for period (11)

    (2.7)%     0.0%     0.6%     (1.2)%     (0.8)%     (0.4)%     1.7%     (0.7)%     0.2%  

Balance Sheet Data (at end of period)

                                                       

Cash and cash equivalents

  $ 37,001   $ 83,982   $ 92,448   $ 74,921   $ 36,435               $ 59,650   $ 107,012  

Total assets

    1,467,503     1,533,221     1,488,706     1,481,877     1,446,931                 1,474,837     1,531,515  

Total debt and capital lease obligations

    835,040     845,065     757,625     747,286     884,008                 886,576     876,176  

Preferred stock subject to mandatory payment

    102,819     115,592     129,968     69,156                          

Total shareholders' equity

    86,869     118,254     133,673     186,165     152,564                 146,275     192,018  

(1)
During certain of the periods presented, the liquidation value and unpaid dividends on our participating preferred stock were subject to mandatory payment on September 30, 2012. As a result, we classified our participating preferred stock as a liability on our balance sheet during those periods and recorded the accumulated and unpaid dividends on such preferred stock as interest expense in our statements of income. Dividends on each share of our preferred stock accrued on a daily basis at a rate of 12.0% per annum of the liquidation value thereof plus all accumulated and unpaid dividends thereon until the date on which the liquidation value of such share was reduced to zero on account of distributions made on its account and all accrued dividends in respect of such share were paid in full. As a result of the distributions we have made on account of our preferred stock, all of the preferred stock ceased to accrue dividends and its liquidation value was reduced to zero on April 29, 2010. At that time, we reclassified our participating preferred stock as permanent equity on our balance sheet. For additional information regarding the terms of our existing preferred stock, see Note 11 to our audited consolidated financial statements and Note 13 to our unaudited consolidated financial statements included elsewhere in this prospectus

(2)
On August 30, 2006, we closed three retail stores in the Minneapolis area. We recorded asset impairment costs of $5.9 million and facility closure costs of $12.7 million. Facility closure costs consist primarily of the present value of remaining future lease liabilities, net of expected sublease income. In fiscal 2007, we adjusted estimates for remaining future lease liabilities, which reduced the facility closure costs by approximately $1.5 million.

(3)
On October 30, 2009, we amended our first lien credit facility, which extended a portion of our term loan and modified our interest rate structure. As a result of this amendment, we recognized a loss on debt extinguishment of $5.9 million.

(4)
Net earnings per common share (basic and diluted) and the weighted average number of shares used to compute net earnings per common share (basic and diluted) for fiscal 2008, 2009 and 2010 and the thirteen and thirty-nine weeks ended October 2, 2010 and October 1, 2011 on an actual basis have been calculated without giving effect to the Conversion. Pro forma net earnings per common share (basic and diluted) and the weighted average number of shares give effect to the Conversion and issuance and sale of shares in this offering. Prior to the April 29, 2010 payment of the liquidation value and unpaid dividends on our preferred stock, common shareholders did not share in net income unless earnings exceeded the remaining unpaid dividends and liquidation value. Accordingly, the common stock earnings per share prior to April 29, 2010 was zero, as the unpaid dividends and liquidation value exceeded net income. For the period from April 30, 2010 through January 1, 2011, net income of $30.9 million was used to calculate earnings per share for common shareholders. For additional information as to how we calculated net earnings per

41


Table of Contents

(5)
We present Adjusted EBITDA, a non-GAAP measure, in this prospectus to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than GAAP measures can provide alone. Our board of directors and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for employees, including our senior executives.

42


Table of Contents

   
  Fiscal Year   Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
   
  2006   2007   2008   2009   2010   October 2,
2010
  October 1,
2011
  October 2,
2010
  October 1,
2011
 
   
   
   
   
   
   
  (unaudited)
  (unaudited)
 
   
  (dollars in thousands)
 
 

Net income

  $ 20,507   $ 31,173   $ 49,438   $ 47,179   $ 46,194   $ 9,455   $ 12,361   $ 37,588   $ 38,878  
 

Interest expense

    70,031     73,139     50,435     32,281     64,037     17,281     17,279     46,625     51,939  
 

Interest expense on account of dividends on preferred stock

    11,349     12,773     14,376     14,799     2,716             2,716      
 

Amortization of deferred financing costs

    1,679     1,768     1,797     1,816     2,906     843     847     2,104     2,632  
 

Provision for income taxes

    19,673     26,639     39,244     40,638     33,244     6,524     8,240     27,872     25,919  
 

Depreciation and amortization expense

    73,112     81,034     79,277     79,275     72,331     18,030     17,091     54,278     51,515  
 

LIFO charges (a)

    1,932     4,304     4,282     31     1,665     426     839     1,275     1,839  
 

Loss on debt extinguishment (b)

                5,879                      
 

Facility closure and asset impairment costs (c)

    18,613                                  
                                         
 

Adjusted EBITDA

  $ 216,896   $ 230,830   $ 238,849   $ 221,898   $ 223,093   $ 52,559   $ 56,657   $ 172,458   $ 172,722  
                                         

    (a)
    We calculate the cost of a portion of our inventories on a LIFO basis. As a result, we incur a non-cash LIFO charge that represents the current year difference between inventories calculated on a LIFO basis and the current cost of inventories valued on a FIFO basis.

    (b)
    See Note (3) above.

    (c)
    See Note (2) above.
(6)
Excludes the amortization of deferred financing cost.

(7)
We calculate gross margin by subtracting cost of sales from net sales and dividing by our net sales for each of the applicable periods.

(8)
We calculated Adjusted EBITDA margin by dividing our Adjusted EBITDA by our net sales for each of the applicable periods. We present Adjusted EBITDA margin because it is used by management as a performance measure of Adjusted EBITDA generated from net sales. See Note (5) above for further information regarding how we calculate Adjusted EBITDA, which is a non-GAAP measure.

(9)
We calculated average net sales per store per week by dividing net sales by the average number of stores open during the applicable periods.

(10)
The amount for fiscal 2008 has been decreased to reflect a 52 week year so as to be comparable to fiscal 2009 and 2010.

(11)
Represents the percentage change in our same-store sales as compared to the prior comparable period. Our practice is to include sales from a store in same-store sales beginning on the first day of the fifty-third week following the store's opening. When a store that is included in same-store sales is remodeled or relocated, we continue to consider sales from that store to be same-store sales. This practice may differ from the methods that other food retailers use to calculate comparable or "same-store" sales. As a result, data in this prospectus regarding our same-store sales may not be comparable to similar data made available by other food retailers.

43


Table of Contents


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         You should read the following discussion and analysis in conjunction with the information set forth under "Selected Historical Consolidated Financial and Other Data" and our consolidated financial statements and the notes to those statements included elsewhere in this prospectus. The statements in this discussion regarding our expectations of future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under "Risk Factors" and "Forward-Looking Statements." Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

        We are a leading Midwest supermarket chain with a 139-year operating history. We have achieved leading market positions in our core markets and are the largest grocery retailer in the state of Wisconsin. As of November 1, 2011, we operated 158 grocery stores in Wisconsin, Minnesota and Illinois under the Pick 'n Save, Rainbow, Copps, Metro Market and Mariano's Fresh Market retail banners, which are served by our three strategically located distribution centers and our food processing and preparation commissary.

        Our net sales have remained stable over our last three completed fiscal years, despite recent economic challenges. During this period, we have pursued pricing and merchandising improvement initiatives, as well as our Chicago expansion strategy. We also completed our exit from third party wholesale distribution, begun in 2002, with wholesale distribution sales decreasing from $63 million in fiscal 2008 to $15 million in fiscal 2010. As of October 1, 2011, we continue to serve as the primary wholesaler for one independent Pick 'n Save store. Approximately $75 million of our fiscal 2008 net sales were attributable to a 53rd week in that fiscal period. Beginning in fiscal 2009, our net sales reflect the impact of our acquisition, completed on December 11, 2009, of substantially all of the assets related to 20 pharmacies located in our stores that were previously owned by a third party for approximately $16.6 million. In more recent periods, our net sales have improved as compared to prior comparable periods due primarily to sales generated from stores opened or replaced during fiscal 2010 and 2011. For the thirteen weeks and thirty-nine weeks ended October 1, 2011, our net sales increased by $37.8 million and $54.6 million, respectively, as compared to the prior comparable periods in fiscal 2010.

        Since fiscal 2008, we have been able to maintain attractive and consistent operating margins and cash flows generated as a result of our value positioning, efficient operating structure and distinctive merchandising strategies, especially those involving private label and perishable goods. In addition, we implemented several cost reduction measures during this period to help support our operating margins and cash flow, including initiatives to reduce shrink and improve labor productivity throughout our operations. These initiatives, together with our efficient cost structure, have enabled us to continue to make targeted investments to lower our everyday retail prices in an effort to improve our competitive position within our markets.

        Going forward, we plan to continue to maintain our market leadership and focus on growing same-store sales, opening new stores and increasing our cash flow. We intend to pursue same-store sales growth by continuing to focus on price competitiveness, improving our marketing efforts, selectively remodeling and relocating existing stores and enhancing and expanding our private label, perishable and prepared food offerings. In addition, we intend to opportunistically open new stores in our core markets, and intend to continue our expansion into the Chicago market with plans to open four to five stores per year in the Chicago market over the next five years. As of November 1, 2011, we have opened four stores in the Chicago market. Given its favorable competitive dynamics and attractive

44


Table of Contents


demographics, including a large population and above average household income, we believe the Chicago market provides us with a compelling expansion opportunity. We also plan to continue to support our operating margins and cash flow generation by implementing cost reduction measures, including initiatives to reduce shrink and improve labor productivity throughout our operations and by focusing on higher margin products.

Factors Affecting Our Operating Results

        Various factors affect our operating results during each period, including:

General Economic Conditions and Changes in Consumer Behavior

        The overall economic environment and related changes in consumer behavior have a significant impact on our business. In general, positive conditions in the broader economy promote customer spending in our stores, while economic weakness results in a reduction of customer spending. Macroeconomic factors that can affect customer spending patterns, and thereby our results of operations, include employment rates, business conditions, changes in the housing market, the availability of credit, interest rates, tax rates and fuel and energy costs.

        Although economic weakness caused by the recent economic recession has decreased overall consumer spending, we believe, based on information from the Food Marketing Institute, that many consumers are spending less of their overall food budget on meals away from home and more at food retailers. As a result, we believe that the impact of the current economic slowdown on our recent operating results has at least been partially mitigated by increased consumer preferences for meals at home. The recent economic environment has also led consumers to become more price sensitive and, as a result, consumers are increasingly purchasing private label products that offer a better value than national brands. Because private label items have a lower price point than national brands, as our private label sales mix increases, our overall net sales are reduced but our gross profit and gross margin improve.

        Our core markets also feature relatively stable local economies with diversified employer bases and stable to modestly growing populations. Although our markets have been impacted by the economic downturn, unemployment rates in Wisconsin and Minneapolis are lower than the national average.

Inflation and Deflation Trends

        Inflation and deflation can impact our financial performance. During inflationary periods, our financial results can be positively impacted in the short term as we sell lower-priced inventory in a higher price environment. Over the longer term, the impact of inflation is largely dependent on our ability to pass through inventory price increases to our customers, which is subject to competitive market conditions. In recent inflationary periods, we have generally been able to pass through most cost increases. For example, our operating results in fiscal 2008 were positively impacted by the inflationary environment, largely driven by higher commodity prices. Conversely, during deflationary periods our operating results are generally adversely affected. In fiscal 2009, for example, the food retail sector began experiencing deflation, as input costs declined and price competition among retailers intensified, pressuring sales across the industry. In fiscal 2010, food deflation moderated and, beginning in early fiscal 2011, we began to experience inflation in some commodity driven categories, which has had a slight negative impact on our gross margins as price competition has partially limited our ability to immediately pass through higher prices on certain products.

Cost Management Initiatives

        Our recent operating results reflect the impact of our ongoing initiatives to lower our operating costs to support our margins. For example, we have improved our labor productivity, as measured by

45


Table of Contents


items sold per labor hour, over our last three completed fiscal years by approximately 5% annually, and expect to continue to implement initiatives to lower future labor costs. In particular, we expect we will achieve additional labor savings by reducing unproductive labor hours through continued implementation of lean initiatives, including a focus on improving organizational efficiency, work processes and store layouts.

        We have also undertaken a number of initiatives to control and reduce product shrink (e.g., spoiled, damaged, stolen or out-of-date inventory). For example, in fiscal 2010, we began to implement the Periscope software system, a data collection, production planning and product ordering tool that we expect to generate improvements in shrink in most of our perishable departments. This system provides store management with the necessary tools to forecast daily product requirements based on historical customer purchasing data, allowing managers to optimize inventory ordering and production planning relative to customer demand. We are currently in the process of implementing the data collection and production planning components of Periscope and expect to implement the ordering component in the next two to three years.

Targeted Investments in Everyday Low Prices

        Our recent operating results have been impacted by our price cutback initiative that we began to implement in fiscal 2007 in order to improve our pricing compared to conventional supermarket and supercenter competitors. Through this initiative we have lowered our everyday prices on approximately 5,500 to 6,000 key value items in highly competitive and price sensitive markets. As of November 1, 2011, we had implemented this program in a majority of our stores. As a result, a substantial portion of our existing store network has absorbed the impact of the price cutback initiative, and we expect to expand it to other stores depending on local competitive conditions. In addition, we expect to continue to implement local advertising campaigns to highlight price cutbacks. These promotional activities may pressure operating margins during the periods when they are implemented, but can have a significant impact in driving net sales growth.

Store Openings and Store Closings

        Our operating results in any particular period are impacted by the timing of new store openings and store closings. For example, we typically incur higher than normal employee costs at the time of a new store opening associated with set-up and other opening costs. During the first several weeks following a new store opening, operating margins are also affected by promotional discounts and other marketing costs and strategies associated with new store openings, as well as higher shrink and costs related to hiring and training new employees. A new store in our core markets can take a year or more to achieve a level of operating profitability comparable to our company-wide average for existing stores, with a slightly longer time horizon anticipated with respect to our new Chicago stores.

        In addition, many of our new store openings in existing markets have had a near term negative impact on our same-store sales as a result of cannibalization from existing stores in close proximity. Over the longer term, we believe that any such cannibalization will be more than offset by future net sales growth and expanded market share. When we close underperforming stores, we expense the present value of any remaining future lease liabilities, net of expected sublease income, which negatively impacts our operating results during the period of the closure.

        We also look for opportunities to relocate existing stores to improve location, lease terms or store layout. Relocated stores typically achieve a level of operating profitability comparable to our company-wide average for existing stores more quickly than new stores.

46


Table of Contents

        Changes in our store base during the periods presented are summarized below:

 
  Fiscal Year   Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
 
  2008   2009   2010   October 2,
2010
  October 1,
2011
  October 2,
2010
  October 1,
2011
 

Stores at beginning of period

    153     152     154     153     156     154     155  

New stores opened

        3     1     1     1     1     2  

Relocated stores opened

    5     4     5     2     2     5     4  

Stores closed but relocated

    (5 )   (4 )   (5 )   (1 )   (2 )   (5 )   (4 )

Stores closed but not relocated

    (1 )                        

Stores acquired

        1                      

Stores sold

        (2 )                    
                               

Stores at end of period

    152     154     155     155     157     155     157  
                               

Expanded Private Label Offering

        Delivering high quality private label products is a key component of our pricing and merchandising strategy, as we believe it builds and deepens customer loyalty, enhances our value proposition, generates higher gross margins relative to national brands and improves the breadth and selection of our product offering. A strong private label offering has become an increasingly important competitive advantage in the food retail industry, given consumers' growing focus on value and greater willingness to purchase private label products over national brands.

        Our portfolio of private label items has increased from approximately 1,600 items at the end of fiscal 2005 to approximately 5,100 as of October 1, 2011, with the percentage of sales from private label items increasing from 8.4% to 19.9% during this same period. Because private label items have a lower price point than national brands, as our private label sales mix increases, our overall net sales are reduced but our gross profit and gross margin improve.

Developments in Competitive Landscape

        The U.S. food retail industry is highly competitive. Our competitors include national, regional and local conventional supermarkets, national and regional supercenters, membership warehouse clubs, and alternative food retailers, such as natural foods stores, smaller specialty stores and farmers' markets. In any particular financial period, our results of operations may be impacted by changes to the competitive landscape in one or more of our markets, including as a result of existing competitors expanding their presence or new competitors entering our markets. For example, in recent years we have faced increased competition from the continued expansion of supercenters, such as Walmart throughout our Wisconsin markets and SuperTarget in the Minneapolis/St. Paul area. In certain cases, the impact of these competitive supercenter openings has caused our net sales to decline in the near term. However, the longer term impact of supercenter openings on our overall net sales and market share is more difficult to predict and is dependent on a number of factors in a particular market, including strength of competition, the competitive response by us and other food retailers, and consumer shopping preferences. At times, smaller regional and independent grocers are displaced by supercenter openings, creating an opportunity for us to gain market share.

        Our competitors will often implement significant promotional activities in an effort to gain market share, in particular in connection with new store openings. In order to remain competitive and maintain our market share, we sometimes elect to implement competing promotional activities, which may result in near term pressure on our operating margins unless we are able to implement corresponding cost saving initiatives. Changes in the competitive landscape in our markets may also impact our level of

47


Table of Contents


capital expenditures in the event we decide to remodel or relocate an existing store to improve our competitive position.

Interest Expense Associated with Preferred Stock

        During the periods presented prior to April 29, 2010, the liquidation value and unpaid dividends on our participating preferred stock were subject to mandatory payment on September 30, 2012. As a result, we classified our participating preferred stock as a liability on our balance sheet during those periods and recorded the accumulated and unpaid dividends on such preferred stock as interest expense in our statements of income. Dividends on each share accrued on a daily basis at a rate of 12.0% per annum of the liquidation value thereof plus all accumulated and accrued dividends thereon until the date on which the liquidation value of such preferred stock was reduced to zero on account of distributions made on its account and all unpaid dividends in respect of such share were paid in full. As a result of the distributions we have made on account of our preferred stock, all of the preferred stock ceased to accrue dividends and its liquidation value was reduced to zero on April 29, 2010. At that time, we reclassified our participating preferred stock as permanent equity on our balance sheet. For additional information regarding the terms of our existing preferred stock, see Note 11 to our audited consolidated financial statements and Note 13 to our unaudited consolidated financial statements included elsewhere in this prospectus.

Changes in Interest Expense and Loss on Debt Extinguishment

        Our interest expense in any particular period is impacted by our overall level of indebtedness during that period and changes in the interest rates payable on such indebtedness. As a result of certain financing activities, the average interest rate we pay on our indebtedness has increased over the last three fiscal years. In October 2009, we entered into an amendment of our first lien credit facility, which extended a portion of our first lien term loans and modified our interest rate structure. As a result of the October 2009 credit facility amendment, we recognized a loss on debt extinguishment of $5.9 million. In April 2010, we borrowed $150 million under a second lien credit facility in the Recapitalization Transaction, and entered into an additional amendment to our first lien credit facility that further modified our interest rate structure. We intend to use all of the net proceeds we receive from this offering to reduce our outstanding indebtedness and, as a result, expect that after the completion of this offering our interest expense will be lower than in recent periods.

Transaction-Related Charges

        We intend to use all of the net proceeds that we receive from this offering, together with indebtedness from a debt refinancing transaction, to repay all of our outstanding borrowings and other amounts owing under our existing credit facilities. In connection with such repayment, we will record a charge of approximately $             million to write off all of our unamortized deferred financing costs associated with such indebtedness and to reflect the related prepayment premiums. Going forward, our interest expense will include the amortization of the financing costs associated with our new debt financing arrangements.

How We Assess the Performance of Our Business

        In assessing the performance of our business, we consider a variety of performance and financial measures. These key measures include net sales and same-store sales, gross profit, operating and administrative expenses and Adjusted EBITDA.

48


Table of Contents

Net Sales and Same-Store Sales

        We evaluate net sales because it helps us measure the impact of economic trends and inflation or deflation, the effectiveness of our marketing, promotional and merchandising activities, the impact of new store openings and store closings, and the effect of competition over a given period. Net sales represent retail revenues less returns and allowances and sales promotions. We recognize retail revenues at the point of sale. We do not record sales taxes as a component of retail revenues as we consider ourselves a pass-through conduit for collecting and remitting sales taxes.

        We also consider same-store sales to be a key indicator in evaluating our performance. Same-store sales controls for the effects of new store openings, making it a useful measure for period-to-period comparisons. Our practice is to include sales from a store in same-store sales beginning 53 weeks following the store's opening. When a store that is included in same-store sales is remodeled or relocated, we continue to include sales from that store in same-store sales. This practice may differ from the methods that our competitors use to calculate same-store or "comparable" sales. As a result, data in this prospectus regarding our same-store sales may not be comparable to similar data made available by our competitors.

        Various factors may affect our net sales and same-store sales, including:

Gross Profit

        We use gross profit to measure the effectiveness of our pricing and procurement strategies as well as initiatives to increase sales of higher margin items and to reduce shrink. We calculate gross profit as net sales less cost of sales. Cost of sales includes product costs, inbound freight, warehousing costs, receiving and inspection costs, distribution costs, and depreciation and amortization expenses associated with our supply chain operations. The components of our cost of sales may not be identical to those of our competitors. As a result, data in this prospectus regarding our gross profit may not be comparable to similar data made available by our competitors.

        Our cost of sales is directly correlated with our overall level of sales. Gross profit as a percentage of net sales is affected by:

49


Table of Contents

Operating and Administrative Expenses

        We evaluate our operating and administrative expenses in order to identify areas where we can create savings, such as labor process improvements. Operating and administrative expenses consist primarily of personnel costs, sales and marketing expenses, depreciation and amortization expenses as well as other expenses associated with facilities unrelated to our supply chain network, internal management expenses and expenses for accounting, information systems, legal, business development, human resources, purchasing and other administrative departments.

        Store-level labor costs are generally the largest component of our operating and administrative expenses. Store-level expenses, including labor, rent, utilities and maintenance, generally decrease as a percentage of net sales as our net sales increase. Accordingly, higher sales volumes allow us to leverage our store-level fixed costs to improve our operating margin.

        The components of our operating and administrative expenses may not be identical to those of our competitors. As a result, data in this prospectus regarding our operating and administrative expenses may not be comparable to similar data made available by our competitors. We expect that our operating and administrative expenses will increase in future periods due to additional legal, accounting, insurance and other expenses we expect to incur as a result of being a public company.

Adjusted EBITDA

        We believe that Adjusted EBITDA is a useful performance measure and we use it to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business. We also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for employees, including our senior executives.

        We define Adjusted EBITDA as earnings before interest expense, interest expense associated with preferred stock, provision for income taxes, depreciation and amortization, LIFO charges, amortization of deferred financing costs, loss on debt extinguishment and, in fiscal 2006, facility closure and asset impairment costs. All of the omitted items are either (i) non-cash items or (ii) items that we do not consider in assessing our on-going operating performance. Because it omits non-cash items, we feel that Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect our operating performance. Because it omits the other items, we believe Adjusted EBITDA is also more reflective of our on-going operating performance.

        We determine the amount of the LIFO charges that we exclude in calculating Adjusted EBITDA by determining the base year values of beginning and ending inventories that we account for on a LIFO basis using cumulative price indexes as published by the Bureau of Labor Statistics and subtracting the current year difference between inventories calculated on a LIFO basis and the current cost of inventories valued on a FIFO basis.

Basis of Presentation

        Our fiscal year is the 52 or 53 week period ending on the Saturday nearest to December 31. For the last three completed calendar years, our fiscal year ended on January 3, 2009, January 2, 2010 and January 1, 2011. For ease of reference, we identify our fiscal years in this prospectus by reference to the calendar year ending nearest to such date. For example, "fiscal 2010" refers to our fiscal year ended January 1, 2011. Our fiscal years include 12 reporting periods, with an additional week in the eleventh reporting period for 53 week fiscal years. Fiscal 2009 and 2010 included 52 weeks and fiscal 2008 included 53 weeks.

50


Table of Contents

        The issuer was incorporated and became the ultimate parent company to our business in April 2010 in connection with the Recapitalization Transaction. Specifically, the issuer and our prior parent company were parties to a merger that was completed on April 15, 2010, whereby each outstanding share of preferred and common stock of our prior parent company was converted into one share of the issuer having the same rights, preferences and privileges. This transaction was a reorganization and no change in control resulted from these actions. Accordingly, all of the financial information in this prospectus for periods prior to the completion of such merger represents the results of operations of our prior parent company.

Results of Operations

Retail Store Network

        Our results of operations in any particular period are affected by the number of stores we have in operation during that period. The following table summarizes our store network as of the end of each of our last three fiscal years and our most recently completed interim period, as well as the comparable 2010 interim period.

 
  As of  
 
  January 3, 2009   January 2, 2010   January 1, 2011   October 2, 2010   October 1, 2011  

Number of Stores:

                               

Pick 'n Save

    94     95     94     94     93  

Rainbow

    31     32     32     32     32  

Copps

    26     26     26     26     26  

Metro Market

    1     1     2     2     3  

Mariano's Fresh Market

            1     1     3  
                       
 

Total

    152     154     155     155     157  
                       

Number of same-stores

    152     150     154     153     155  

Percentage of Net Sales Presentation

        The following table sets forth a summary of our consolidated statements of income as a percentage of our net sales. We have derived the data for fiscal 2008, 2009 and 2010 from the audited consolidated financial statements included elsewhere in this prospectus and for the thirteen and thirty-nine weeks

51


Table of Contents


ended October 2, 2010 and October 1, 2011, from the unaudited consolidated financial statements included elsewhere in this prospectus.

 
  Fiscal Year   Thirteen Weeks Ended   Thirty-Nine Weeks
Ended
 
 
  2008   2009   2010   October 2,
2010
  October 1,
2011
  October 2,
2010
  October 1,
2011
 

Statements of Income Data:

                                           

Net sales

    100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %

Costs and Expenses:

                                           

Cost of sales

    72.9     72.8     73.0     73.0     73.1     72.7     72.7  

Operating and administrative

    23.0     23.4     23.1     23.3     23.0     23.2     23.1  

Interest expense (including amortization of deferred financing costs)

    1.4     0.9     1.7     1.9     1.8     1.7     1.9  

Interest expense on account of dividends on preferred stock

    0.4     0.4     0.1             0.1      

Loss on debt extinguishment

        0.2                      
                               

Income before income taxes

    2.3     2.3     2.1     1.8     2.1     2.3     2.3  

Provision for income taxes

    1.0     1.1     0.9     0.7     0.8     1.0     0.9  
                               

Net income

    1.3 %   1.2 %   1.2 %   1.1 %   1.3 %   1.3 %   1.4 %
                               

Thirteen Weeks Ended October 1, 2011 Compared with Thirteen Weeks Ended October 2, 2010

        For ease of reference, we refer to the thirteen weeks ended October 1, 2011 as the "third quarter 2011" and we refer to the thirteen weeks ended October 2, 2010 as the "third quarter 2010" throughout this section.

        Net Sales.     Net sales were $976.9 million for the third quarter 2011, an increase of $37.8 million, or 4.0%, as compared to $939.0 million for the third quarter 2010. The increase was primarily due to approximately $21.2 million of net sales from the opening of three new stores during fiscal 2010 and 2011, and from an increase in same-store sales of 1.7%. Our same-store sales increase was due to an increase in average transaction size of 3.1%, offset by a slight decline in the number of customer transactions of 1.4%.

        Gross Profit.     Gross profit was $263.2 million for the third quarter 2011, an increase of $10.1 million, or 4.0%, from $253.1 million for the third quarter 2010. Gross profit, as a percentage of net sales, decreased slightly to 26.9% for the third quarter 2011 compared to 27.0% for the third quarter 2010, primarily due to continued investment in lower everyday retail prices.

        Operating and Administrative Expenses.     Operating and administrative expenses were $224.5 million for the third quarter 2011, an increase of $5.5 million, or 2.5%, from $219.0 million for the third quarter 2010, primarily attributable to increased net sales and store count. Operating and administrative expenses, as a percentage of net sales, decreased to 23.0% for the third quarter 2011 compared to 23.3% for the third quarter 2010. The decrease as a percentage of net sales is primarily due to reduced store payroll and employee benefit costs, resulting from labor productivity improvements.

        Interest Expense.     Interest expense, including the amortization of deferred financing costs, was $18.1 million for both the third quarter 2011 and 2010.

        Income Taxes.     Provision for income taxes was $8.2 million for the third quarter 2011, an increase of $1.7 million from $6.5 million for the third quarter 2010, as a result of higher income before income taxes. The effective income tax rate was 40.0% for the third quarter 2011 and 40.8% for the third quarter 2010. The decrease in the effective income tax rate was primarily due to different state income tax rates in states where we operate and the mix of our earnings in those states.

52


Table of Contents

        Net Income.     As a result of the factors described above, net income for the third quarter 2011 increased $2.9 million, or 31.1%, to $12.4 million from $9.5 million for the third quarter 2010.

Thirty-Nine Weeks Ended October 1, 2011 Compared with Thirty-Nine Weeks Ended October 2, 2011

        Net Sales.     Net sales were $2.87 billion for the thirty-nine weeks ended October 1, 2011, an increase of $54.6 million, or 1.9%, from $2.82 billion for the thirty-nine weeks ended October 2, 2010. The increase was primarily due to $54.3 million of net sales from new stores opened during 2010 and 2011, partially offset by the effect of competitor store openings. Additionally, same-store sales were 0.2% higher than the prior year period due to a 2.6% increase in the average transaction size, partially offset by a 2.4% decrease in the number of customer transactions. Same-store sales were also positively impacted by store relocations during the period.

        Gross Profit.     Gross profit for the thirty-nine weeks ended October 1, 2011 was $783.2 million, an increase of $13.2 million, or 1.7%, from $770.0 million for the thirty-nine weeks ended October 2, 2010, attributable to higher sales volumes. Gross profit, as a percentage of net sales, was 27.3% for the thirty-nine weeks ended October 1, 2011 and October 2, 2010.

        Operating and Administrative Expenses.     Operating and administrative expenses were $663.8 million for the thirty-nine weeks ended October 1, 2011, an increase of $10.7 million, or 1.6%, from $653.1 million for the thirty-nine weeks ended October 2, 2010. The increase in operating and administrative expenses was primarily due to higher store occupancy costs related to new stores and increased rent on relocated stores. Operating and administrative expenses, as a percentage of net sales, decreased to 23.1% for the thirty-nine weeks ended October 1, 2011 compared to 23.2% for the thirty-nine weeks ended October 2, 2010. The decrease as a percentage of net sales was primarily due to reduced store payroll and employee benefit costs, resulting from labor productivity improvements.

        Interest Expense.     Interest expense, including the amortization of deferred financing costs, was $54.6 million for the thirty-nine weeks ended October 1, 2011, an increase of $5.9 million, or 12.1%, from $48.7 million for the thirty-nine weeks ended October 2, 2010. The increase was primarily due to increased interest rates and increased overall level of indebtedness as a result of the Recapitalization Transaction in April 2010.

        Interest Expense Associated with Preferred Stock.     There was no interest expense on account of dividends on preferred stock for the thirty-nine weeks ended October 1, 2011, as compared to $2.7 million for the thirty-nine weeks ended October 2, 2010. The preferred stock ceased to accrue dividends on April 29, 2010.

        Income Taxes.     Provision for income taxes was $25.9 million for the thirty-nine weeks ended October 1, 2011, a decrease of $2.0 million from $27.9 million for the thirty-nine weeks ended October 2, 2010. The effective income tax rate was 40.0% for the thirty-nine weeks ended October 1, 2011 and 42.6% for the thirty-nine weeks ended October 2, 2010. The decrease in the effective income tax rate was primarily due to different state income tax rates in states where we operate and the mix of our earnings in those states as well as to the effect of the preferred stock ceasing to accrue dividends, which were non-deductible for tax purposes, on April 29, 2010.

        Net Income.     As a result of the factors described above, net income for the thirty-nine weeks ended October 1, 2011 increased $1.3 million, or 3.4%, to $38.9 million from $37.6 million for the thirty-nine weeks ended October 2, 2010.

Fiscal 2010 Compared with Fiscal 2009

        Net Sales.     Net sales were $3.77 billion for fiscal 2010, an increase of $21.2 million, or 0.6%, from $3.75 billion for fiscal 2009. This increase was primarily due to $82.7 million of net sales attributable to

53


Table of Contents

four new stores opened and one store acquired during fiscal 2009 and 2010. This increase was somewhat offset by the sale of one store, a decrease in wholesale sales and a 0.8% decrease in our same-store sales. The same-store sales decrease was due to a 1.6% decrease in the number of customer transactions offset by a 0.8% increase in the average transaction size, and was impacted by the cannibalization of sales at certain of our existing stores resulting from opening new stores in close proximity to existing stores. In addition, our same-store sales were positively impacted by the acquisition of 20 pharmacies.

        Gross Profit.     Gross profit was $1.02 billion for fiscal 2010, a slight decrease of $1.0 million, or 0.1%, from $1.02 billion for fiscal 2009. Gross profit, as a percentage of net sales, was 27.0% for fiscal 2010, compared to 27.2% for fiscal 2009. The decrease in gross profit as a percentage of net sales was due primarily to price reductions related to our continued investment in lower everyday retail prices and increased expense related to promotional activity in certain of our markets, partially offset by reduced shrink.

        Operating and Administrative Expenses.     Operating and administrative expenses were $869.0 million for fiscal 2010, a decrease of $7.5 million, or 0.9%, from $876.5 million for fiscal 2009. Operating and administrative expenses, as a percentage of net sales, decreased to 23.1% for fiscal 2010, compared with 23.4% for fiscal 2009. The decrease was primarily due to labor and benefit cost improvements partially offset by an increase in occupancy costs, primarily due to new store openings and increased lease expense on store relocations.

        Interest Expense.     Interest expense, including the amortization of deferred financing costs, was $66.9 million for fiscal 2010, an increase of $32.8 million, from $34.1 million for fiscal 2009. The increase was primarily due to higher interest rates on our existing first lien credit facilities and increased indebtedness related to the Recapitalization Transaction.

        Interest Expense Associated with Preferred Stock.     Interest expense on account of dividends on preferred stock was $2.7 million for fiscal 2010, a decrease of $12.1 million, from $14.8 million for fiscal 2009. The preferred stock ceased to accrue dividends on April 29, 2010.

        Income Taxes.     Provision for income taxes was $33.2 million for fiscal 2010, a decrease of $7.4 million, from $40.6 million for fiscal 2009. The effective income tax rate was 41.8% for fiscal 2010 and 46.3% for fiscal 2009. The decrease in the effective income tax rate was primarily due to different state income tax rates in the states where we operate and the mix of our earnings in those states as well as to the effect of the preferred stock ceasing to accrue dividends, which were non-deductible for tax purposes, on April 29, 2010.

        Net Income.     As a result of the forgoing factors, net income was $46.2 million for fiscal 2010, a $1.0 million decrease from $47.2 million for fiscal 2009.

Fiscal 2009 Compared With Fiscal 2008

        Net Sales.     Net sales were $3.75 billion for fiscal 2009, a decrease of $121.4 million, or 3.1%, from $3.87 billion for fiscal 2008. The decrease was primarily attributable to the impact of an additional week in fiscal 2008, which resulted in additional net sales in 2008 of approximately $75 million, a $40.0 million decrease in wholesale sales resulting from the continued divestiture of our wholesale operations, the sale of two of our stores and a 1.2% decrease in same-store sales. The same-store sales decrease was due to a 1.7% decrease in the average customer transaction size, partially offset by a 0.5% increase in the number of transactions. The growth in the number of transactions was partially limited by cannibalized sales from in-market new store expansion.

        Gross Profit.     Gross profit was $1.02 billion for fiscal 2009, a decrease of $27.2 million, or 2.6%, from $1.05 billion for fiscal 2008, primarily attributable to reduced sales. Gross profit, as a percentage

54


Table of Contents


of net sales, was 27.2% for fiscal 2009 and 27.1% for fiscal 2008. The increase in gross profit as a percentage of net sales was due primarily to increased sales in our higher margin retail operations, as we continued to divest our wholesale operations, partially offset by price reductions related to our continued investment in lower everyday retail prices.

        Operating and Administrative Expenses.     Operating and administrative expenses were $876.5 million for fiscal 2009, a decrease of $14.5 million, or 1.6%, from $891.0 million for fiscal 2008. Operating and administrative expenses, as a percentage of net sales, increased to 23.4% for fiscal 2009, compared with 23.0% for fiscal 2008. The increase as a percentage of net sales was due primarily to reduced leveraging of fixed costs resulting from lower sales.

        Interest Expense.     Interest expense, including the amortization of deferred financing costs, was $34.1 million for 2009, a decrease of $18.1 million, from $52.2 million for 2008. The decrease was primarily due to a reduction in LIBOR.

        Interest Expense Associated with Preferred Stock.     Interest expense on account of dividends on preferred stock was $14.8 million for fiscal 2009, a slight increase of $0.4 million, from $14.4 million for fiscal 2008.

        Loss on Debt Extinguishment.     On October 30, 2009, we amended our first lien credit facility, which extended a portion of our term loan and modified our interest rate structure. This amendment was considered an extinguishment of a portion of the related indebtedness, and as a result of this amendment, we recognized a loss on debt extinguishment of $5.9 million.

        Income Taxes.     Provision for income taxes was $40.6 million for fiscal 2009, an increase of $1.4 million, from $39.2 million for fiscal 2008. The effective income tax rate was 46.3% for fiscal 2009 and 44.3% for fiscal 2008. The increase in the effective income tax rate was primarily due to different state income tax rates in the states where we operate and the mix of our earnings in those states.

        Net Income.     As a result of the forgoing factors, net income was $47.2 million for fiscal 2009, a $2.2 million decrease from $49.4 million for fiscal 2008.

Quarterly Results of Operations

        The following tables set forth unaudited quarterly consolidated statement of income data for all quarters of fiscal 2010 and for the first three quarters of fiscal 2011. We have prepared the statement of income data for each of these quarters on the same basis as the audited consolidated financial statements included elsewhere in this prospectus and, in the opinion of our management, each statement of income includes all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. This information should be read in conjunction with the audited consolidated financial statements and related notes

55


Table of Contents


included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of our operating results for any future period.

 
  Fiscal 2010   Fiscal 2011  
 
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
  First
Quarter
  Second
Quarter
  Third
Quarter
 
 
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands)
 

Statement of Income Data:

                                           

Net sales

  $ 922,400   $ 957,200   $ 939,047   $ 948,341   $ 916,016   $ 980,365   $ 976,881  

Costs and Expenses:

                                           

Cost of sales

    667,097     695,603     685,903     700,316     660,711     715,675     713,699  

Operating and administrative

    218,177     215,921     219,041     215,834     222,419     216,933     224,455  

Interest expense (including amortization of deferred financing costs)

    13,005     17,600     18,124     18,214     18,260     18,185     18,126  

Interest expense on account of dividends on preferred stock

    2,043     673                      
                               

Income before income taxes

  $ 22,078   $ 27,403   $ 15,979   $ 13,977   $ 14,626   $ 29,572   $ 20,601  

Provision for income taxes

    9,864     11,484     6,524     5,372     5,854     11,825     8,240  
                               

Net income

  $ 12,214   $ 15,919   $ 9,455   $ 8,605   $ 8,772   $ 17,747   $ 12,361  
                               

 

 
  Fiscal 2010   Fiscal 2011  
 
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
  First
Quarter
  Second
Quarter
  Third
Quarter
 
 
  (unaudited)
  (unaudited)
 
 
  (as a percentage of net sales)
 

Statement of Income Data:

                                           

Net sales

    100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %

Costs and Expenses:

                                           

Cost of sales

    72.3     72.7     73.0     73.8     72.1     73.0     73.1  

Operating and administrative

    23.7     22.6     23.3     22.8     24.3     22.1     23.0  

Interest expense (including amortization of deferred financing costs)

    1.4     1.8     1.9     1.9     2.0     1.9     1.8  

Interest expense on account of dividends on preferred stock

    0.2     0.1                      
                               

Income before income taxes

    2.4     2.8     1.8     1.5     1.6     3.0     2.1  

Provision for income taxes

    1.1     1.2     0.7     0.6     0.6     1.2     0.8  
                               

Net income

    1.3 %   1.6 %   1.1 %   0.9 %   1.0 %   1.8 %   1.3 %
                               

Seasonality

        The food retail industry and our net sales are affected by seasonality. Our average weekly net sales fluctuate during the year and are usually highest in the second and fourth quarters, when customers make holiday purchases.

Liquidity and Capital Resources

Overview

        Our principal sources of liquidity are cash flow generated from operations and borrowings under our revolving credit facility. Our principal uses of cash are to provide for working capital, finance capital expenditures, meet debt service requirements and pay stockholder dividends. The most significant components of our working capital are cash, inventories and accounts payable. Our working capital was $62.2 million at October 1, 2011, compared to $28.2 million at January 1, 2011. The increase was due primarily to increases in cash and inventories partially offset by an increase in accounts payable.

56


Table of Contents

        At October 1, 2011, we had $107.0 million of cash and cash equivalents and $67.3 million of availability under our revolving credit facility. We also had an aggregate of $837.1 million of outstanding indebtedness under term loans, no outstanding borrowings under our revolving credit facility and outstanding letters of credit of $27.7 million. Subsequent to October 1, 2011, we used approximately $54.0 million of our existing cash to make a scheduled principal payment on the term loan under our existing first lien credit facility.

        We intend to use all of the net proceeds that we receive from this offering, together with indebtedness incurred pursuant to a debt refinancing transaction, to repay all of our outstanding borrowings and other amounts owing under our existing credit facilities. We will, however, continue to have significant debt service obligations following the completion of this offering. We believe that our cash flow from operating activities, together with available borrowings under our new senior credit facility, will be sufficient to fund our anticipated working capital, planned capital expenditures and debt service requirements for at least the next twelve months. Our ability to continue to fund these items and pay quarterly dividends may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to reduce or delay our expected quarterly dividends or capital expenditures, sell assets, obtain additional debt or equity capital or refinance all or a portion of our debt.

Cash Flows

        A summary of operating, investing and financing activities is shown in the following table:

 
   
   
   
  Thirty-Nine Weeks Ended  
 
  Fiscal Year  
 
  October 2, 2010   October 1, 2011  
 
  2008   2009   2010  
 
   
   
   
  (unaudited)
 

 


 

(in thousands)


 

Net cash provided by operating activities

  $ 169,993   $ 175,362   $ 40,633   $ 49,079   $ 126,986  

Net cash used in investing activities

    (70,710 )   (93,689 )   (57,754 )   (45,693 )   (48,202 )

Net cash used in financing activities

    (90,817 )   (99,200 )   (21,365 )   (18,657 )   (8,207 )
                       

Increase (decrease) in cash and cash equivalents

  $ 8,466   $ (17,527 ) $ (38,486 ) $ (15,271 ) $ 70,577  
                       

Cash and cash equivalents at end of period

  $ 92,448   $ 74,921   $ 36,435   $ 59,650   $ 107,012  

        Net Cash Provided by Operating Activities.     Net cash provided by operating activities was $127.0 million for the thirty-nine weeks ended October 1, 2011, compared with $49.1 million for the comparable period in 2010. The increase in net cash provided by operating activities was due primarily to vendor payments that were made in late 2010, rather than early 2011. Net cash provided by operating activities was also impacted by a decrease in income taxes paid, offset by an increase in inventories and an increase in interest payments.

        Net cash provided by operating activities was $40.6 million during fiscal 2010 compared to $175.4 million during fiscal 2009. The decrease in net cash provided by operating activities in 2010 was due primarily to a decrease in accounts payable resulting from vendor payments that were made in late 2010, rather than early 2011 as well as an increase in interest payments.

        Net cash provided by operating activities was $175.4 million during fiscal 2009 compared to $170.0 million in during fiscal 2008. The increase in net cash provided by operating activities in 2009 was due primarily to a reduction in interest payments and an increase in accounts payable resulting

57


Table of Contents


from the timing of payments, partially offset by lower operating income, an increase in income tax paid and an increase in inventory.

        Net Cash Used in Investing Activities.     Net cash used in investing activities consists primarily of capital expenditures for opening new stores and relocating and remodeling existing stores, as well as investments in information technology, store maintenance and our supply chain.

        Net cash used in investing activities was $48.2 million for the thirty-nine weeks ended October 1, 2011. This primarily related to capital expenditures of $48.6 million, partially offset by $0.4 million of proceeds from asset sales.

        Net cash used in investing activities was $57.8 million during fiscal 2010. Net cash used during the period related primarily to capital expenditures of $62.9 million partially offset by $5.9 million of proceeds from asset sales.

        Net cash used in investing activities was $93.7 million during fiscal 2009. Net cash used during the period related primarily to capital expenditures of $76.4 million and the acquisition of substantially all of the assets related to 20 pharmacies located in our stores for approximately $16.6 million.

        Net cash used in investing activities was $70.7 million during fiscal 2008 primarily due to capital expenditures of $76.5 million, partially offset by $5.7 million of proceeds from asset sales.

        Net Cash Used in Financing Activities.     Net cash used in financing activities was $8.2 million for the thirty-nine weeks ended October 1, 2011 and consisted of repayments of debt and capital lease obligations.

        Net cash used in financing activities was $21.4 million during fiscal 2010. Net cash used in financing activities in 2010 was due primarily to payments of $10.6 million on our long-term debt and capital lease obligations and $7.9 million in financing costs. In addition, during 2010, we received net proceeds of $147.0 million from our second lien credit facility, which was used to fund $150.0 million in dividends to equity holders and payment of preferred stock liquidation value pursuant to the Recapitalization Transaction.

        Net cash used in financing activities was $99.2 million during fiscal 2009. Net cash used in financing activities in 2009 was due primarily to the payment of $75.0 million in dividends to equity holders and payment of liquidation value, $10.3 million of payments on our long-term debt and capital lease obligations and $9.7 million in financing costs.

        Net cash used in financing activities was $90.8 million during fiscal 2008. Net cash used in financing activities in fiscal 2008 was due primarily to payments of $87.4 million on our long-term debt and capital lease obligations.

Capital Expenditures

        We estimate that our total capital expenditures for fiscal 2011 will be approximately $60 to $65 million, related to new and relocated store expenditures and remodels of existing stores, as well as expenditures related to information technology, store maintenance and our supply chain. During the thirty-nine weeks ended October 1, 2011, we invested $48.6 million of the total capital expenditures projected for the year.

New Senior Credit Facility

        In connection with this offering, we anticipate entering into a new senior credit facility, which is expected to provide for a revolving credit facility of at least $             million. The new senior credit facility may also include term loans depending on market conditions and other financing alternatives available to us in connection with the debt refinancing we intend to complete concurrently with the

58


Table of Contents


closing of this offering. We are still in preliminary discussions with our potential arrangers and lenders with respect to the terms of the new senior credit facility and the specific form of the debt refinancing transaction. In general, we expect that the new senior credit facility will contain representations and warranties, financial and restrictive covenants, events of defaults and collateral arrangements that are customary for this type of financing. In this regard, we expect that the new senior credit facility will condition our ability to pay dividends on our common stock on our continued compliance with one or more financial ratios. The actual terms of our new senior credit facility will depend on the results of negotiations with our lenders. We expect that affiliates of certain of the underwriters will participate as arrangers and/or lenders under our new senior credit facility.

Existing Credit Facilities

        On October 30, 2009, we amended our first lien credit facility. Under the terms of this amendment, the maturities of approximately $649 million of the $704 million total outstanding term loans, and $95 million of the $125 million revolving credit facility were extended for two years from the original maturity dates. The extended term loan is repayable (i) in quarterly installments of approximately $1.8 million through September 2011, (ii) with a one-time payment of approximately $54 million in November 2011, (iii) in quarterly installments of approximately $1.7 million from December 2011 to September 2013, and (iv) with a one-time payment of the remaining balance in November 2013. The extended revolving credit facility matures in November 2012. Subsequent to our third quarter ending October 1, 2011, we repaid the $54 million due on the unextended portion of our first lien term loans.

        The extended term loan and the extended revolving credit facility bear interest based upon LIBOR or base rate options. Under the LIBOR option, the applicable rate is LIBOR plus 5.00%, subject to a minimum floor of 2.0% for purposes of determining LIBOR. Under the base rate option, the applicable rate of interest is the base rate plus 4.00%. Commitment fees of 0.6% accrue on the unutilized portion of the extended revolving credit facility.

        On April 16, 2010, we borrowed $150 million under our second lien credit facility in the Recapitalization Transaction. These loans mature in April 2016 and bear interest based upon LIBOR or base rate options. Under the LIBOR option for the second lien loans, the applicable rate is LIBOR plus 8.0%, subject to a minimum floor of 2% for purposes of determining LIBOR. Under the base rate option for the second lien loans, the applicable rate is the base rate plus 7.0%.

        Our existing credit facilities contain various restrictive covenants which: (i) prohibit us from prepaying other indebtedness, (ii) require us to maintain specified financial ratios, such as (a) a minimum fixed charge coverage ratio, (b) a maximum ratio of senior debt to EBITDA and (c) a maximum ratio of total debt to EBITDA; and (iii) limit our capital expenditures. In addition, the credit facilities prohibit us from declaring or paying any dividends if we fail to perform our obligations under or fail to meet the conditions of the credit facilities or if payment creates a default under the credit facilities. As of October 1, 2011, we were in compliance with our financial covenants for all of our indebtedness.

        We intend to use all of the net proceeds that we receive from this offering, together with proceeds from a debt refinancing transaction, to repay all of our outstanding borrowings and other amounts owing under our existing credit facilities. See "Use of Proceeds" and "Description of Certain Indebtedness."

59


Table of Contents

Off-Balance Sheet Items

General

        We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business. With the exception of operating lease and pension obligations, we do not have any off-balance sheet arrangements or relationships with entities that are not consolidated into or disclosed in our financial statements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources. In addition, we do not engage in trading activities involving non-exchange traded contracts.

Multiemployer Plans

        We are a party to four underfunded multiemployer pension plans on behalf of our union-affiliated employees. This underfunding has increased in part due to increases in the costs of benefits provided or paid under these plans as well as lower returns on plan assets. The unfunded liabilities of these plans may result in increased future payments by us and other participating employers. Going forward, our required contributions to these multiemployer plans could increase as a result of many factors, including the outcome of collective bargaining with the unions, actions taken by trustees who manage the plans, government regulations, the actual return on assets held in the plans and the payment of a withdrawal liability if we choose to exit a plan. We expect meaningful increases in contribution expense as a result of required incremental plan contributions to reduce underfunding. Our risk of future increased payments may be greater if other participating employers withdraw from the plan and are not able to pay the total liability assessed as a result of such withdrawal, or if the pension plan adopts surcharges and/or increased pension contributions as part of a rehabilitation plan.

Contractual Obligations

        The following table of material debt and lease commitments at January 1, 2011 summarizes the effect these obligations are expected to have on our cash flow in the future periods as set forth in the table below (dollars in thousands):

 
  Total   Less than
1 Year
  1 - 3 Years   3 - 5 Years   More than
5 Years
 

Long-term debt (1)

  $ 886,655   $ 64,367   $ 642,899   $ 10,551   $ 168,838  

Interest (1)

    230,268     65,030     123,617     34,061     7,560  

Operating leases

    1,612,705     106,720     217,499     211,906     1,076,580  

Sublease income

    (22,371 )   (5,287 )   (7,074 )   (3,405 )   (6,605 )
                       
 

Total commitments

  $ 2,707,257   $ 230,830   $ 976,941   $ 253,113   $ 1,246,373  
                       

(1)
Includes principal and interest payments for our outstanding indebtedness and capital lease obligations. See Note 7 to the consolidated financial statements. Interest payments have been estimated based on the coupon rate for fixed rate obligations or the rate in effect at January 1, 2011 for variable rate obligations. Interest obligations exclude amounts which have been accrued through January 1, 2011.

60


Table of Contents

        The following reflects our contractual obligations as of January 1, 2011 on an adjusted basis after giving effect to this offering and a debt refinancing transaction to repay all of our outstanding borrowings and other amounts owing under our existing credit facilities (dollars in thousands):

 
  Total   Less than
1 Year
  1 - 3 Years   3 - 5 Years   More than
5 Years
 

Long-term debt (1)

  $     $     $     $     $    

Interest (1)

                               

Operating leases

    1,612,705     106,720     217,499     211,906     1,076,580  

Sublease income

    (22,371 )   (5,287 )   (7,074 )   (3,405 )   (6,605 )
                       
 

Total commitments

  $     $     $     $     $    
                       

(1)
Includes principal and interest payments for our debt financing arrangements and outstanding capital lease obligations. We have estimated the future interest payments based on expected terms of the debt refinancing transaction.

        As of January 1, 2011, we have $7.7 million of unrecognized tax benefits. We believe it is reasonably possible that tax audit resolutions could reduce our unrecognized tax benefits by $3.6 million in the next 12 months. These amounts have been excluded from the contractual obligations table because a reasonably reliable estimate of the period of cash settlement with the respective taxing authorities cannot be determined due to uncertainty regarding the timing of future cash outflows associated with these liabilities.

        All of our purchase obligations are cancelable and therefore not included in the above tables.

        We had outstanding letters of credit that total approximately $27.4 million at January 1, 2011.

        We are required to make contributions to our defined benefit plans. These contributions are required under the minimum funding requirements of ERISA. Our estimated minimum required contributions to our defined benefit plans are approximately $12.8 million, of which we made aggregate payments of $11.8 million through October 1, 2011 for fiscal 2011, and approximately $8.9 million for fiscal 2012. Our estimated fiscal 2011 payments under our multiemployer pension plans total approximately $12.0 million, of which we have made aggregate payments of $9.0 million through October 1, 2011. Due to uncertainties regarding significant assumptions involved in estimating future required contributions to our defined benefit plans, such as interest rate levels, the amount and timing of asset returns and the impact of proposed legislation, we are not able to reasonably estimate our aggregate future required contributions beyond 2012.

Quantitative and Qualitative Disclosure About Market Risk

        Our market risks relate primarily to changes in interest rates. Our existing credit facilities bear floating interest rates that are tied to LIBOR or alternate base rates and, therefore, our statements of income and our cash flows will be exposed to changes in interest rates. A one percentage point increase in LIBOR above the 2% minimum floor would cause an increase to the interest expense on our borrowings under our credit facilities of approximately $7.8 million. We historically have not engaged in interest rate hedging activities related to our interest rate risk.

        At October 1, 2011, we had cash and cash equivalents of $107.0 million, of which we subsequently used approximately $54.0 million to make a scheduled principal payment on the term loan under our existing first lien credit facility. These amounts are held primarily in cash and money market funds. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates.

        We do not have any foreign currency or any other material derivative financial instruments.

61


Table of Contents

Critical Accounting Policies and Estimates

        The preparation of our financial statements in conformity with GAAP requires us to make estimates, assumptions and judgments that affect amounts of assets and liabilities reported in the consolidated financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the year. We believe our estimates and assumptions are reasonable; however, future results could differ from those estimates.

        Critical accounting policies reflect material judgment and uncertainty and may result in materially different results using different assumptions or conditions. We identified the following critical accounting policies and estimates: inventories, income taxes, discounts and vendor allowances, allowance for losses on receivables, closed facility commitments, reserves for self-insurance, employee benefit plans, goodwill and impairment of long-lived assets. For a detailed discussion of accounting policies, please refer to the notes to the consolidated financial statements.

Inventories

        Inventories are recorded at the lower of cost or market. Substantially all of our inventory consists of finished goods. Cost is calculated on a FIFO and a LIFO basis for approximately 63% and 37%, 62% and 38%, and 63% and 37%, of our inventories at October 1, 2011, January 1, 2011 and January 2, 2010, respectively. We use the link chain method for computing dollar value LIFO, whereby the base year values of beginning and ending inventories are determined using price indexes published by the Bureau of Labor Statistics. We use a combination of the retail inventory method ("RIM") and weighted average cost method to determine the current cost of inventory before any LIFO reserve is applied. Under RIM, the current cost of inventories and gross margins are calculated by applying a cost-to-retail ratio to the current retail value of inventories. The weighted average cost method is used for our supply chain and perishable store inventories and the RIM method is used for all other inventories. If the FIFO method had been used to determine cost of inventories for which the LIFO method is used, our inventories would have been higher by approximately $19.7 million, $17.9 million, and $16.2 million as of October 1, 2011, January 1, 2011 and January 2, 2010, respectively.

Income Taxes

        We pay income taxes based on tax statutes, regulations and case law of the various jurisdictions in which we operate. At any one time, multiple tax years are subject to audit by the various taxing authorities. Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

        We recognize an income tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The income tax benefit recognized in our financial statements from such a position is measured based on the largest estimated benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

Discounts and Vendor Allowances

        Purchases of product at discounted costs are recorded in inventory at the discounted cost until sold. Volume and other program allowances are accrued as a receivable when it is reasonably assured they will be earned and reduce the cost of the related inventory for product on hand or cost of sales

62


Table of Contents


for product already sold. Vendor allowances received to fund advertising and certain other expenses are recorded as a reduction of our expense for such related advertising or other expense, if such vendor allowances reimburse us for specific, identifiable and incremental costs incurred by us in selling the vendor's product. Any excess reimbursement over our cost is classified as a reduction to cost of sales.

Allowances for Losses on Receivables

        Management makes estimates of the uncollectibility of its accounts and notes receivable portfolios. In determining the adequacy of the allowances, management analyzes its accounts based on historical collection experience, aging of receivables and other economic and industry factors. It is possible that the accuracy of the estimation process could be materially impacted by different judgments as to collectability based on the information considered and further deterioration of accounts.

Closed Facility Commitments

        In prior years, we leased store sites which we have subleased to qualified independent retailers at rates that are generally equal to the rent paid by us. We also lease store sites for our retail operations. Under the terms of the original lease agreements, we remain primarily liable for any properties that are subleased as well as our own retail stores. Should a retailer be unable to perform under the sublease or should we close underperforming stores, we would record a charge to earnings for the discounted cost of the remaining term of the lease and related costs, less any anticipated sublease income. Should the number of defaults by sublessees or store closures increase, or the actual sublease income be less than estimated, the remaining lease commitments we must record could have a material adverse effect on our operating results and cash flows. Early settlements of lease obligations with the landlord and the discount rate used to calculate the estimated liability will also impact recorded balances or future results.

Reserves for Self-Insurance

        We are primarily self-insured for potential liabilities for workers' compensation, general liability and employee health care benefits. It is our policy to record the liability based on claims filed and a consideration of historical claims experience, demographic factors and other actuarial assumptions for those claims incurred but not yet reported. Any projection of losses concerning these claims is subject to a considerable degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns.

Employee Benefit Plans

        Certain of our employees are covered by noncontributory defined benefit pension plans. GAAP requires that we recognize in our consolidated balance sheet a liability for pension plans which are underfunded or unfunded, or an asset for defined benefit plans which are overfunded. GAAP also requires that we measure the benefit obligations and fair value of plan assets that determine our defined benefit plans' funded status as of our fiscal year end date. We currently use a December 31 measurement date. We record, as a component of accumulated other comprehensive income/(loss), actuarial gains or losses that have not yet been recognized.

        The determination of our obligation and expense for Company-sponsored pension plans is dependent upon assumptions we select for use by actuaries in calculating those amounts. Those assumptions are described in Note 8 to our consolidated financial statements and include the discount rate and expected long-term rate of return on plan assets. Actual returns on plan assets and changes in the interest rates used to determine the discount rate may significantly impact pension expense and cash contributions in the future.

63


Table of Contents

Goodwill

        Goodwill is reviewed for impairment on an annual basis (as of the first day of the third quarter), or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Fair value is determined based on the discounted cash flows and comparable market values of the reporting unit. If the fair value of the reporting unit is less than its carrying value, the fair value of the implied goodwill is calculated as the difference between the fair value of the reporting unit and the fair value of the underlying assets and liabilities, excluding goodwill. An impairment charge is recorded for any excess of the carrying value over the implied fair value.

        Determining market values using a discounted cash flow method requires that we make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate market rates. Our judgments are based on historical experience, current market trends and other information. In estimating future cash flows, we rely on internally generated forecasts for operating profits and cash flows, including capital expenditures. Based on our annual review during fiscal 2008, 2009, and 2010, no goodwill impairment charge was required to be recorded.

Impairment of Long-Lived Assets Other Than Goodwill

        Long-lived assets are reviewed for potential impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying value of such assets to the undiscounted future cash flows expected to be generated by such assets. If the carrying value of an asset exceeds its estimated undiscounted future cash flows, an impairment provision is recognized to the extent that the carrying amount of the asset exceeds its fair value. We consider factors such as historic or forecasted operating results, trends and future prospects, current market value, significant industry trends and other economic and regulatory factors in performing these analyses. Using different assumptions and definitions could result in a change in our estimates of cash flows and those differences could produce materially different results.

Recent Accounting Pronouncements

        In June 2011, FASB amended its rules regarding the presentation of comprehensive income. The objective of this amendment is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. Specifically, this amendment requires that all non-owner changes in shareholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new rules will become effective during interim and annual periods beginning after December 15, 2011. Because the standard only affects the display of comprehensive income and does not affect what is included in comprehensive income, the standard will not have a material effect on our consolidated financial statements.

        In September 2011, FASB amended its standards regarding disclosure requirements for employers participating in multiemployer pension and other postretirement benefit plans ("multiemployer plans") to improve transparency and increase awareness of the commitments and risks involved with participation in multiemployer plans. The amended disclosures require employers participating in multiemployer plans to provide additional quantitative and qualitative disclosures to provide users with more detailed information regarding an employer's involvement in multiemployer plans. The new rules will be effective for our fiscal year ending December 31, 2011 and will result in enhanced disclosures, but will not otherwise have an impact on our consolidated financial statements.

64


Table of Contents


BUSINESS

Overview

        We are a leading Midwest supermarket chain with a 139-year operating history. We have achieved leading market positions in our core markets and are the largest grocery retailer in the state of Wisconsin. We provide our customers with a compelling one-stop shopping experience featuring a high level of customer service in our attractive and convenient stores. Our product assortment includes high quality perishables and a broad selection of national brand and private label products at competitive prices. Many of our product categories include natural and organic options, catering to our customers' focus on healthier eating choices. As of November 1, 2011, we operated 158 grocery stores in Wisconsin, Minnesota and Illinois under the Pick 'n Save, Rainbow, Copps, Metro Market and Mariano's Fresh Market retail banners, which are served by our three strategically located distribution centers and our food processing and preparation commissary.

        The table below sets forth certain information regarding our store network as of November 1, 2011:

Retail
Banner:
  GRAPHIC   GRAPHIC   GRAPHIC   GRAPHIC   GRAPHIC

Principal Geographic Market:

 

Primarily Milwaukee and Eastern Wisconsin

 

Minneapolis/St. Paul

 

Madison and Northern Wisconsin

 

Milwaukee

 

Chicago

Number of Stores:

 

93

 

32

 

26

 

3

 

4

        Our business is characterized by the following key elements:

65


Table of Contents

        These key elements of our business have enabled us to generate consistent operating results, including throughout the recent economic downturn. During fiscal 2008 (53 weeks), 2009 and 2010, we generated net sales of approximately $3.87 billion, $3.75 billion and $3.77 billion, respectively, and Adjusted EBITDA of approximately $239 million, $222 million and $223 million, respectively. During the same periods, our net income was approximately $49.4 million, $47.2 million and $46.2 million, respectively. For a discussion of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see Note (5) to the tables included in "Summary Historical Consolidated Financial and Other Data."

Our Competitive Strengths

        We attribute our success in large part to the following competitive strengths:

        Leading Market Share with Local Market Expertise.     We hold leading positions in our core markets, and believe that our estimated weighted average market share of 44% across our Wisconsin markets is among the highest regional penetration rates of U.S. grocers. See "Market and Industry Data" for a discussion of our market share sources and calculation methodology. Our market positions for 2010 in each of our core markets are summarized below:

Core Market
  Number of
Stores (1)
  Market
Position (2)
  Approximate
Market Share (2)
 

Wisconsin:

                   
 

Milwaukee

    60     #1     55 %
 

Madison

    15     #1     33  
 

Racine

    6     #1     35  
 

Appleton

    5     #2     22  
 

Oshkosh-Neenah

    4     #1     39  

Minneapolis/St. Paul, Minnesota

    32     #3     12  

(1)
As of November 1, 2011.

(2)
Company estimate based upon data included in Metro Market Studies, Grocery Distribution Analysis and Guide, 2011 ; see "Market and Industry Data."

        Our leading market share, regional scale and knowledge of local markets and customers provide us with significant competitive advantages, which include:

    effective merchandising, pricing and advertising strategies customized to local demographics and consumer preferences;

    prime store locations secured on attractive terms through local real estate expertise and relationships;

    efficiencies in distribution, logistics, purchasing, and marketing activities;

    strong customer recognition, traffic and loyalty; and

    increased flexibility to respond effectively to competitive activity.

        Comprehensive Product Offering.     We believe our comprehensive product offering, which features a wide array of high quality perishables and prepared foods, distinguishes us from both smaller

66


Table of Contents

conventional supermarkets and supercenters. Perishable products, particularly natural and organic varieties, are in growing demand by customers due to an increased focus on healthy eating, and typically generate higher gross margins than non-perishable products. To capitalize on this growing demand, we have enhanced our product quality and selection in key perishable categories such as produce, meat and seafood, deli products, bakery products, and prepared foods, including our expanded line of Chef's Collection specialty prepared foods. We have also expanded our Roundy's Select signature private label products, which we believe further differentiate our product offering from those of competitors. In addition, our Mariano's Fresh Market stores recently opened in Chicago feature an enhanced selection of premium perishables at competitive prices, as well as other premium amenities that include an Italian coffee shop serving our private label gelato, a wood-fired pizza oven and a sit-down sushi bar.

        Modern Store Base and Distribution Network.     We maintain a modern store base through a combination of new stores, relocated stores and remodeled stores that provides our customers with an attractive shopping experience and enhances our ability to offer effective in-store merchandising. Our store remodels are designed to enhance the customer shopping experience by improving the layout of our stores, and to more effectively merchandize our product offering by upgrading and modernizing in-store visual displays. Over 80% of our store base has either been newly opened or remodeled over the past ten years, including over 50% of our store base over the past six years. We have also enhanced the efficiency of our distribution network through significant infrastructure investments, including the construction of a 1.1 million square foot, state-of-the-art distribution center in Oconomowoc, Wisconsin that opened in 2005. This distribution center supports the majority of our Wisconsin stores and all of our Chicago market stores, where it has capacity to support our continued expansion. Over 95% of the stores serviced by this facility are located within a radius of 100 miles.

        Highly Productive Store Base with Strong Sales Volumes.     During fiscal 2010, our average weekly net sales per store were approximately $469,000, or approximately $24 million per store on an annual basis, and are consistently among the highest in the U.S. compared to other publicly reporting U.S. supermarket chains. Our strong per store volumes generate high inventory turnover, which enables us to maintain a broader product selection and fresher perishables than many of our competitors. In addition, our high volumes result in distribution efficiencies and reduced shrink (i.e., spoiled, damaged, stolen or out-of-date inventory) and enable us to leverage our store-level fixed costs, such as store labor and occupancy costs. As a result, these operating efficiencies give us a greater ability to offer competitive prices while maintaining our attractive operating margins.

        Consistent Financial Performance.     Over the last decade, we have been able to maintain stable operating margins and cash flow generation, including throughout the recent economic downturn. The strength and stability of our financial performance results from our value positioning, efficient operating structure and distinctive merchandising strategies, especially those involving private label and perishable products. In addition, we continue to support our operating margins and cash flow generation by implementing cost reduction measures, including initiatives to reduce shrink and improve labor productivity throughout our operations. These initiatives have further improved our efficient cost structure and have enabled us to make targeted investments to lower our everyday retail prices over the

67


Table of Contents

past several years in order to strengthen our consumer value proposition and support sales growth. The stability of our historical operating margins is demonstrated in the table below:

 
  Fiscal Year   Thirty-Nine Weeks Ended  
 
  2006   2007   2008   2009   2010   October 2,
2010
  October 1,
2011
 

Gross margin (1)

    26.6 %   27.0 %   27.1 %   27.2 %   27.0 %   27.3 %   27.3 %

Adjusted EBITDA margin (2)

    6.0 %   6.1 %   6.2 %   5.9 %   5.9 %   6.1 %   6.0 %

(1)
Net sales less cost of sales divided by net sales.

(2)
Adjusted EBITDA divided by net sales. See Note (5) to the tables under "Summary Historical Consolidated Financial and Other Data" for further information regarding how we calculate Adjusted EBITDA, which is a non-GAAP measure.

        Experienced Management Team with Proven Track Record.     Our executive management team, led by our President, Chief Executive Officer and Chairman, Robert Mariano, and our Executive Vice President and Chief Financial Officer, Darren Karst, has significant experience in the supermarket industry. Prior to joining our company, Messrs. Mariano and Karst held comparable positions at Dominick's, the second largest supermarket chain in the Chicago metropolitan area. During their tenure, Dominick's equity value increased from approximately $385 million based on its 1996 initial public offering to approximately $1.2 billion in 1998 based on the acquisition price paid for Dominick's by Safeway. Messrs. Mariano and Karst are supported by a deep management team comprised of industry veterans across all key functional areas such as merchandising, store operations, category management, human resources, marketing and information technology. Our executive management team averages over 24 years of experience within the food retail industry.

Our Strategy

        We plan to pursue several strategies to continue to expand our store base and market share and maintain our stable financial performance, including:

        Maintain Strong Operating Margins.     We intend to maintain our strong operating margins through both an aggressive pursuit of cost-saving strategies and a continued focus on shifting our sales mix toward higher margin products. In addition to improving profitability and cash flow generation, future cost savings will provide us with the flexibility to continue targeted investments to lower our everyday retail prices as necessary to maintain or expand our market share. Additionally, we continue to focus on improving the sales mix of higher gross margin product offerings, including perishables, prepared foods and private label products, which we expect to improve our profitability. Our cost improvement and operating margin expansion initiatives include:

    Labor Productivity Improvement.   Over the past three years, we have improved labor productivity, as measured by items sold per labor hour, by approximately 5% annually. We expect to achieve further labor savings from efficiencies derived through process improvements and other key labor-saving initiatives.

    Shrink Reduction.   We are undertaking a number of initiatives to control and reduce shrink, which can have a meaningful impact on our profitability. For example, we are in the early stages of implementing the Periscope software system, a data collection, production planning and product ordering tool that we expect to generate significant improvements in inventory management, thereby reducing shrink in our perishable departments.

    Focus on Higher Margin Products.   We plan to continue to expand our offering of perishables, prepared foods and private label products, which typically generate higher gross margins compared to our other products. We have increased our portfolio of private label items from approximately 1,600 items at the end of 2005 to approximately 5,100 as of October 1, 2011, with

68


Table of Contents

      the percentage of sales from private label items increasing from 8.4% to 19.9% over that period, and we expect to continue to increase private label penetration over the next several years.

        Increase Same-Store Sales.     We intend to pursue same-store sales growth by continuing to focus on price competitiveness, improving our marketing efforts and enhancing and expanding our private label, perishable and prepared food offerings, all in order to increase both the number and the size of customer transactions. For example, we are in the early stages of evaluating a new marketing and merchandising strategy involving our loyalty cards for customer-specific promotions based on demographics and shopping history. We will continue to respond proactively to evolving consumer preferences in order to generate customer loyalty and increase store traffic and average transaction size. We also continuously evaluate our store base for relocation and remodel opportunities, which have historically contributed to positive sales growth.

        Continue to Expand into Contiguous Chicago Market.     We entered the Chicago market in July 2010 through the opening of our first Mariano's Fresh Market store in Arlington Heights, Illinois. As of November 1, 2011, we have opened four stores in the Chicago market, which, since opening, have generated higher average weekly net sales per store compared to stores in our other markets. Given its favorable competitive dynamics and attractive demographics, including a large population and average household income that exceeds the national average, we believe the Chicago market provides us with a compelling expansion opportunity. We are focusing our growth efforts on the most densely populated areas of the city and on specific surrounding suburbs that we believe are under-served by existing food retailers. We expect to open four to five stores per year in the Chicago market over the next five years, and have secured six leases for future stores in attractive locations as of November 1, 2011. Under these lease agreements, we will not begin to incur rent charges on a new store until it is opened. We may also explore opportunities to accelerate our growth in this market through selective acquisitions.

        We believe we are well positioned to continue to expand into the Chicago market due to the following key factors:

    we have introduced an innovative format that provides an outstanding customer experience with exceptional produce and perishables, highly competitive prices, superior customer service and an inviting ambiance;

    our Oconomowoc distribution center in Southeastern Wisconsin is located less than 100 miles from the Chicago metropolitan area and has the capacity to support a substantially increased presence in the Chicago market, allowing us to achieve operating efficiencies with minimal infrastructure investment; and

    our senior management team has in-depth knowledge of the Chicago market as a result of their management positions at Dominick's in the mid-to-late 1990s.

        Efficiently Allocate Capital.     We believe that a prudent and diligent approach to capital allocation can create significant value for stockholders. The combination of our strong and stable operating margins, rigorous approach to capital spending, and effective working capital management allows us to generate consistent cash flow. While we are dedicated to maintaining our modern store base and distribution network, and intend to continue to expand our Mariano's Fresh Market banner in the Chicago market and opportunistically open new stores in our core markets, we believe that our significant cash flow generation will enable us to pay dividends and reduce our indebtedness when appropriate.

69


Table of Contents

Industry Overview and Trends

        The U.S. retail grocery market includes a variety of distribution channels, from small grocery shops and convenience stores to supermarkets, specialty and natural food stores, warehouse stores and supercenters. According to Willard Bishop's June 2011 publication, The Future of Food Retailing , the U.S. retail market for groceries and consumables was approximately $1 trillion in 2010. We operate in the supermarket channel, which accounted for nearly 50% of the retail grocery market in 2010, with approximately $480 billion in sales.

        Key trends impacting our markets include:

        Increasing Focus on the Customer Shopping Experience.     Supermarkets are focused on enhancing the consumer's shopping experience as a point of differentiation. Many conventional supermarkets are focusing capital expenditures on the remodeling of existing stores, while reducing new store openings. In addition, supermarkets are striving to be more responsive to consumer preferences through their consumer interactions and product offerings. According to the Food Marketing Institute, 93% of grocery stores offer prepared foods, 88% have floral departments, 81% carry ethnic foods and 80% carry natural and organic foods.

        Growing Importance of Prepared Foods.     Prepared meal solutions have become an increasingly important offering by food retailers as consumers have reduced their spending on meals away from home in response to recent economic pressures. We believe, based on data in the 2011 Food Marketing Institute study, The Food Retailing Industry Speaks , that more than two-thirds of grocery stores have reported an increase in sales of supermarket-prepared foods, and more than 60% of supermarkets include meal solutions in their product offering.

        Increasing Private Label Offerings.     Consumers have continued to turn to private label products as part of their focus on value. Supermarkets are increasingly developing and promoting private label brands to distinguish themselves from their competitors and promote customer loyalty, as well as to enhance margins.

        Focus on Perishables.     A growing consumer focus on healthy eating has prompted food retailers to provide an enhanced offering of fresh foods and natural and organic products. Increased demand for perishables has led to additional supply, improving the distribution and selection of these products.

        Emphasis on Convenience.     Over the last decade, convenience of store location and format has emerged as one of the central drivers of consumer shopping decisions. Contributing to this effect, high fuel prices have encouraged consumers to seek shopping locations in close proximity to their homes over long trips to more remote retailers. Other industry trends, such as increasing demand for prepared and perishable foods, reward convenient store locations with high frequency shopping patterns.

        Regional Economic Stability.     Although the upper Midwest was impacted by the recent economic downturn, unemployment rates in our core markets remain lower than the national average, according to the Bureau of Labor Statistics. In September 2011, the national unemployment rate was 9.1%, compared to 7.8% in Wisconsin and 6.0% in Minneapolis/St. Paul/Bloomington.

        Attractive Chicago Market.     Chicago is the third-largest metropolitan market in the U.S., with a total population of approximately 9.6 million in 2009 according to the U.S. Census Bureau. In 2010, the median family income in the Chicago metropolitan area was $74,700, compared to the U.S. national average of $64,400, according to the U.S. Department of Housing and Urban Development. We believe the Chicago food retail market is characterized by relatively high-priced conventional grocery stores exhibiting limited merchandising innovation. The top two supermarket chains in Chicago have generally lost market share in recent years, while the remainder of the market is highly fragmented and

70


Table of Contents


characterized by a large number of independent operators. As a result, we believe there is a significant market opportunity for differentiated operators catering to the demands and tastes of local consumers.

History

        We were founded in 1872 as a privately owned food wholesaling company. In 1952, we were sold to certain of our customers and thereafter operated under the Roundy's corporate name as a retailer-owned cooperative, with food wholesaling operations largely focused in Wisconsin. We opened our first Pick 'n Save store in 1975 and built a base of company-owned and operated retail stores throughout the 1980s and 1990s.

        In June 2002, we were acquired by an investor group led by Willis Stein and our management team. At that time, we derived more than 50% of our sales from food wholesaling operations and the remainder from our company-operated retail stores. Following the acquisition, we accelerated our strategy of expanding our retail store base through selective acquisitions and organic growth, while divesting our wholesale operations. The substantial elimination of the wholesale business has helped to optimize our distribution network to better support our retail stores. In June 2005, we changed the corporate name of our operating subsidiary from Roundy's, Inc. to Roundy's Supermarkets, Inc. to reflect our focus as a retail supermarket chain.

Retail Store Network

        We operate retail grocery stores under our Pick 'n Save, Rainbow and Copps retail banners, and our Mariano's Fresh Market and Metro Market specialty retail banners. Our store base has grown through a combination of selective retail store acquisitions and the opening of new stores in existing and contiguous markets. As a result, our store count has increased from 60 at the time of our acquisition by Willis Stein in June 2002 to 158 as of November 1, 2011. The following table summarizes our store network as of the end of each of our last three fiscal years and our most recently completed interim period, as well as the comparable 2010 interim period:

 
  As of  
Number of Stores
  January 3, 2009   January 2, 2010   January 1, 2011   October 2, 2010   October 1, 2011  

Pick 'n Save

    94     95     94     94     93  

Rainbow

    31     32     32     32     32  

Copps

    26     26     26     26     26  

Metro Market

    1     1     2     2     3  

Mariano's Fresh Market

            1     1     3  
                       
 

Total

    152     154     155     155     157  
                       

        Our Pick 'n Save, Rainbow and Copps retail banners are operated as high volume, value oriented supermarkets that seek to offer attractive prices and the best value among conventional food retailers in a given market. Our value price strategy is complemented by weekly promotions, a broad assortment of high quality fresh produce and other perishable products, as well as a focus on providing a high level of customer service and conveniences. Substantially all stores have full-service deli, meat, seafood and bakery departments, and 97 stores feature full-service pharmacies.

    Pick 'n Save.   We operate Pick 'n Save stores primarily in the Milwaukee area, as well as in certain other Wisconsin markets, including Racine, Oshkosh, Kenosha, and Fond du Lac. We also serve as the primary wholesaler for one additional Pick 'n Save bannered store that we do not own.

    Rainbow.   We operate Rainbow stores in the Minneapolis/St. Paul area.

71


Table of Contents

    Copps.   We operate Copps stores primarily in the Madison area as well as in certain northern Wisconsin markets, including Green Bay and Appleton.

        Our Mariano's Fresh Market and Metro Market specialty food retail banners combine our value oriented conventional offering with an enhanced selection of full-service premium perishable and prepared food departments.

    Mariano's Fresh Market.   We entered the Chicago market in July 2010 through the opening of our first Mariano's Fresh Market store in Arlington Heights, Illinois. As of November 1, 2011, we have opened four stores in the Chicago market and have secured six leases for future stores in attractive locations. Mariano's Fresh Market brings an innovative format to the Chicago market, providing an expanded variety of produce and other perishables at competitive prices, unique specialty departments and superior customer service within an inviting ambiance. We are targeting real estate locations in the greater Chicago metropolitan area for new store openings, focusing on the most densely populated areas of the city and selected surrounding suburban areas that we believe are under-served by existing food retailers.

    Metro Market.   We opened our first Metro Market store in August 2004 primarily to serve downtown Milwaukee apartment and condominium residents. The Metro Market store format features an expanded variety of produce, meat and prepared food offerings, coupled with exceptional customer service. We opened our second Metro Market store in March 2010 and our third in February 2011. Both of these additional locations are in affluent suburbs of Milwaukee. All Metro Market stores operate in-store pharmacies.

Products

        We offer our customers a wide variety of products, with a typical store stocking approximately 45,000 different items. Our stores sell most nationally advertised brands, as well as numerous products under our Roundy's Select, Roundy's and Clear Value private label brands. Our products can broadly be classified as non-perishable, perishable and non-food. In recent years, we have enhanced the quality and selection of key perishable products to meet growing customer demand due to an increased focus on healthy eating. Perishable product sales also typically generate higher gross margins than non-perishable products. As a result, the percentage of our net sales generated from perishable products has increased in recent periods as illustrated by the table below:

 
   
   
   
  Thirty-Nine Weeks Ended  
 
  Fiscal Year  
 
  October 2, 2010   October 1, 2011  
Product Type
  2008   2009   2010  

Non-perishable

    53.2 %   53.0 %   51.7 %   51.6 %   50.8 %

Perishable

    31.8     32.0     32.3     32.6     33.3  

Non-food

    15.0     15.0     16.0     15.8     15.9  
                       

Total

    100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
                       

        We generally classify our products into the following primary categories: grocery, frozen & dairy; produce; meat & seafood; bakery; deli, cheese & prepared foods; floral; beer, wine & spirits; pharmacy and health & beauty care. A brief description of the type of products we offer within each of these categories is set forth below.

    Grocery, Frozen & Dairy.   We offer a wide selection of grocery items at competitive prices, including both national and private label brands. Our frozen department offers everyday staples such as vegetables, juice, microwaveable dinners, pizza and ice cream. In our dairy department, our milk, yogurt, sour cream, cheese, ice cream and eggs generally are produced locally in Wisconsin to ensure our customers are offered the freshest tasting products. We also provide a broad selection of natural and organic products.

72


Table of Contents

    Produce.   We are committed to offering our customers the highest quality produce. We offer over 500 varieties of fresh fruit and vegetables sourced locally and from around the globe. Our stores offer an expansive assortment of USDA Certified organic produce. Our value-added produce offering includes fresh cut fruit, fresh squeezed orange juice and salad bars in many of our stores.

    Meat & Seafood.   We offer a distinctive selection of meat and fresh seafood, including natural and organic varieties, delivered with knowledgeable customer service. Our beef offering consists primarily of fresh cut Black Angus beef, and we also sell all-natural pork, lamb, veal, Italian sausage and bratwurst, and chicken. Our fresh seafood includes, for example, salmon, rainbow trout and locally harvested whitefish. In addition, we offer popular ready-to-bake selections in both our meat and seafood departments, such as our $4 and $6 Entrees.

    Bakery .  Our bakery department offers a wide selection of breads, rolls, pies, donuts, muffins, cookies and other goods baked in-store daily. Our Roundy's Select muffins are made with high quality ingredients, including Maine wild blueberries, Wisconsin cranberries, and spicy Korintje cinnamon. Roundy's breads range from traditional French and Italian loaves to select artisanal varieties.

    Deli, Cheese & Prepared Foods.   We believe we provide our customers with a "neighborhood deli" experience by offering fresh foods from high quality suppliers at competitive prices. Our deli selections include salads, sandwiches, hot and ready-to-serve meals to go, and fresh sliced deli meats. We also offer an abundant selection of local, domestic, and imported artisanal cheeses, including creamy brie, gruyere, hard shaving cheeses, fresh mozzarella, Parmigiano Reggiano, Pecorino Romano and sharp cheddars. We also offer many varieties of fresh soups, both in bulk on the soup bar and packaged to go. Our prepared foods include entrees such as meat loaf, stuffed shells, rotisserie chickens and ribs.

    Floral.   We are committed to providing our customers with the freshest roses, bouquets, arrangements, green plants and attractive seasonal favorites. Our flower market offers a broad variety of cut flowers and allows customers to create their own bouquets.

    Beer, Wine & Spirits.   We offer a wide selection of competitively priced beer, wine and spirits. Our beer selection includes over 70 domestic and international brands in multiple styles, including local and regional craft beers. We also offer a wide assortment of wines from North America and around the world, and a broad variety of spirits.

    Pharmacy.   Our pharmacies offer helpful and knowledgeable pharmacists, quality products and value-added services for our customers. We accept over 4,000 different prescription plans, and all of our pharmacists are licensed as immunizers and trained in medication therapy management.

    Health & Beauty Care.   Our stores provide a convenient location for everyday health and beauty needs. We stock a wide variety of healthcare products, from thermometers and bandages to toothpaste and floss. We also offer a wide selection of beauty, baby and general merchandise products that facilitates one-stop shopping.

Expanded Mariano's Fresh Market Offering

        Our Mariano's Fresh Market stores feature an expanded selection of products across many of our departments. The produce department maintains over 1,000 items on a daily basis, including, for example, over 20 varieties of tomatoes and 15 varieties of mushrooms. Mariano's Fresh Market stores also offer a wide selection of specialty meat and seafood products, including 15 different varieties of all-natural sausage, eight varieties of fresh ground pub burgers and tuna flown to our stores daily from Hawaii, as well as seasonal specials ranging from fresh Florida stone crabs to live Maine lobsters. The

73


Table of Contents

bakery offers "Bella" cupcakes with our signature butter creme icing from our own commissary. Additional prepared food offerings include an assortment of ethnic foods, authentic Neapolitan and pan-style pizzas baked in our stone hearth ovens, fresh sushi bars, and gelato at our Vero coffee bars. The beer, wine and spirits department at Mariano's Fresh Market stores also offers over 800 wines from around the world, and caters to the growing popularity of craft beers with an expansive selection of mix and match craft beer six-packs.

Private Label

        Our stores sell nationally advertised brands as well as numerous products under our various private label brands. We have been expanding the breadth of our private label offering over the last five years. Our premium Roundy's Select and mid-tier Roundy's private label lines feature quality levels that we believe equal or exceed national brands at competitive prices. Our Clear Value line offers entry-level private label products serving as our lowest price alternative to national brands. We have increased our portfolio of private label items from approximately 1,600 items at the end of 2005 to approximately 5,100 as of October 1, 2011, with the percentage of sales from private label items increasing from 8.4% to 19.9%, respectively.

        We opened our 116,000 square foot commissary in February 2006 to provide us with the capability to manufacture a wide range of food products with maximum flexibility within an efficient cost structure. The commissary is a multi-purpose food production facility and includes a complete food testing laboratory and an on-site product development department. The commissary provides us with numerous benefits, including greater quality control of specialty products and prepared foods and enhanced production and delivery flexibility, and is an important element of our strategy to grow sales of private label products, perishables and prepared foods.

Pricing

        Since 2007, we have implemented a price cutback program through which we have lowered our everyday prices on approximately 5,500 to 6,000 key value items in highly competitive and price sensitive markets to improve our pricing against that of our competitors. As of November 1, 2011, we had implemented our price cutback program in a majority of our stores. We plan to expand the program to other stores depending on local competitive conditions. We believe that communicating our price cutbacks and enhanced value proposition to customers is a critical part of our value strategy. To this end, we have improved our in-store and store-front communication and signage, including the use of "cut-back" tags comparing the new lower prices to prior prices, window banners and aisle markers to highlight certain deals. In addition, we have implemented aggressive advertising campaigns designed for specific markets. At our Mariano's Fresh Market stores, we employ a pricing strategy focused on consistent everyday low prices, which we believe differentiates us from our relatively higher priced competitors, complemented by a wide variety of international, specialty and "hard to find" products.

Competition

        The food retail industry is highly competitive. Our principal competitors include national conventional supermarkets such as SUPERVALU (operating under the Jewel/Osco and Cub Foods banners) and Safeway (operating under the Dominick's banner); national supercenters such as Costco, SuperTarget and Walmart; regional supercenters such as Woodman's; regional supermarkets such as Festival Foods, Piggly Wiggly and Strack & Van Til; alternative food retailers such as Aldi, Trader Joe's and Whole Foods; and local supermarkets, natural foods stores, smaller specialty stores and farmers' markets. In general, we compete with Aldi, Costco, Target and Walmart across all of our geographic

74


Table of Contents


markets. Our remaining principal competitors within each of our geographic markets vary to a significant degree and include the following:

    Wisconsin: Festival Foods, Piggly Wiggly and Woodman's;

    Minneapolis/St. Paul: Cub Foods and Lund's/Byerly's; and

    Chicago: Dominick's, Jewel/Osco, Strack & Van Til, Trader Joe's and Whole Foods.

        We compete with each of these stores on the basis of product selection and quality, price, customer service, store format and location or a combination of these factors. We believe we enjoy a strong competitive position within each of our core markets due to our competitive pricing, local market history that enables us to tailor our product offering to our customers, and our focus on customer service. In 2010, our stores maintained the number one market share position in the Milwaukee metropolitan area and several other large Wisconsin markets, including Madison, Racine, and Oshkosh-Neenah, as well as strong positions in our other core markets.

Marketing and Advertising

        We use circulars distributed through direct delivery or inserted into local newspapers as our primary medium for advertising. These circulars include representative products from a store's key departments, with special emphasis on up to 15 key items featured at competitive prices, and generally contain a themed promotion featuring approximately 15 additional items. We tailor our advertisements to specific local markets, which provides us with greater flexibility to target markets with different promotions and respond to local competitive activity. In addition, we advertise our promotional sales and promote our brand image through the use of local radio and television, as well as targeted direct mail in specific markets.

        We seek to increase customer loyalty and enhance our value proposition through our Roundy's Rewards and other loyalty cards. During fiscal 2010, customers using our loyalty cards across all markets accounted for approximately 83% of total sales and 70% of total transactions. During that period, customers using loyalty cards accounted for more than double the average sales volume per visit compared to customers not using loyalty cards. Our Roundy's Rewards and other loyalty cards improve customer loyalty by offering instant electronic discounts, promotional offers at checkout, fuel discounts in selected markets and check cashing privileges. In addition, our loyalty card enables us to track customer purchasing trends, which we can use to further tailor our marketing initiatives.

Distribution Network

        We distribute to our stores from three distribution facilities in Wisconsin, with an aggregate floor space of approximately 1.8 million square feet, located in Oconomowoc, Stevens Point and Mazomanie. Our state-of-the-art 1.1 million square foot distribution center in Oconomowoc opened in January 2005 and ships a full line of perishable and non-perishable food products. Over 95% of our stores served by the Oconomowoc distribution center are located within a radius of 100 miles. We believe our Oconomowoc facility also has sufficient excess capacity to service our continued expansion into the Chicago market. Our Stevens Point facility ships a full line of perishable and non-perishable food products to our stores in Minneapolis/St. Paul and Northern Wisconsin. In addition, our Mazomanie facility distributes health and beauty care products and general merchandise to our entire store network. We also own and maintain a fleet of tractors and trailers that we utilize in our distribution operations. We believe our existing distribution infrastructure can support retail growth well in excess of our near-term expansion plans.

75


Table of Contents

        The following shows the location and size of our distribution facilities:

Location
  Square Footage  

Oconomowoc, WI

    1,100,000  

Stevens Point, WI

    473,000  

Mazomanie, WI

    225,000  

Procurement

        We believe we have developed economies of scale and significant purchasing power with respect to our suppliers. As a result of our regional scale, we benefit from greater purchasing power than smaller competitors due to higher buying volumes and strong relationships with local suppliers. These efficiencies not only optimize our cost structure, but also support our retail pricing strategy, helping to establish customer loyalty and allowing for further differentiation from competitors. We are not dependent on any single or affiliated group of suppliers. Over the last three fiscal years, no single supplier represented more than 6% of our total purchases.

Properties

        We lease all of our properties from unaffiliated third parties, except for two of our stores and our Stevens Point distribution center, which we own. A typical store lease is for an initial 20-year term with four renewal options of five years each. We believe our portfolio of long-term leases is a valuable asset supporting our retail operations. We do not believe that any individual store property is material to our financial condition or results of operations.

        The following table shows the number of stores operated by geographic market as of November 1, 2011:

Geographic Market
  Number of
Stores
  Banners in Market

Wisconsin:

         
 

Milwaukee

    60   Pick 'n Save, Metro Market
 

Madison

    15   Pick 'n Save, Copps
 

Racine

    6   Pick 'n Save
 

Appleton

    5   Pick 'n Save, Copps
 

Oshkosh-Neenah

    4   Pick 'n Save, Copps
 

Other

    32   Pick 'n Save, Copps
         
   

Total Wisconsin

    122    

Minneapolis/St. Paul

    32   Rainbow

Chicago

    4   Mariano's Fresh Market
         
   

Total stores

    158    
         

        Our Oconomowoc distribution center operates under a long-term lease expiring in 2030 with five renewal options of five years each and our Mazomanie distribution center operates under a long-term lease expiring in 2012 with two renewal options of ten years each. Our commissary is located in Kenosha, Wisconsin and operates under a long-term lease expiring in 2020, with five renewal options of five years each. Our executive offices are located in a leased 115,000 square foot office facility in downtown Milwaukee, the lease for which expires in 2018, with three renewal options of five years each.

76


Table of Contents

Employees

        As of November 1, 2011, we had 17,761 employees, including 7,682 full-time employees and 10,079 part-time employees. The following table sets forth the number of our employees by functional area as of that date:

Functional Area
  Number of Employees   % of Total  

Retail operations

    16,199     91.2 %

Warehouse, transportation and commissary

    1,021     5.7  

Administrative

    541     3.1