Fresh Market to Feast on a $345 Million IPO

Fresh Market IPO
Fresh Market IPO

Specialty food retailer Fresh Market has filed to go public and will raise up to $345 million. The underwriters include Bank of America Merrill Lynch (BAC), J.P. Morgan (JPM) and Goldman Sachs (GS).

Back in 1982, Ray and Beverly Berry opened Fresh Market, a high-quality, European-style grocery store in North Carolina. The floor plan of their first store was fairly small -- at 14,000 square feet -- and the focus was on perishable gourmet goods.

Their timing was spot-on as business boomed and the company grew quickly. From 2005 to 2009, Fresh Market increased its store base from 53 to 92 locations and sales grew from $459.7 million to $861.9 million. Even during the past challenging year, Fresh Market posted an 8% increase in sales and net income of $53.1 million, up 43.4% from the year before.

Still More Growth?

To achieve this growth, Fresh Market has certainly built a differentiated shopping experience that creates customer loyalty and strong word-of-mouth publicity. For example, the product choices include hand-trimmed steaks, hand-stacked produce that has colorful displays and French-style baguettes that are baked each morning. Because of such premium offerings, Fresh Market is able to get high gross margins, which are at 32.1%.

To pull this off, the company has had to develop a sophisticated infrastructure. This includes comprehensive planning, inventory management, product sourcing, and even employee training.

But can Fresh Market keep up the growth? While there are certainly risks, the company still has lots of room for expansion. Based on the research of The Buxton Company, the U.S. market can support at least 500 Fresh Market stores -- there are currently operations in only 17 states.

The Offering

In the IPO, all the proceeds will go to current shareholders -- which include the Berry family as well as officers. Generally, this would be a concern. But then again, Fresh Market generates a large amount of cash flows that should be enough to continue the growth plan.

Besides, Fresh Market has strong competitive advantages in a market that continues to grow, especially as more and more people look to healthier foods. So all in all, Fresh Market should have little trouble attracting investors for its IPO.