Regional Grocery Fresh Market's Smart IPO Move

(MoneyWatch)  Few national retailers have dared try to go public in the past couple of years, as the general industry slump cooled investors to their stories. Now, in what is basically a no-lose proposition, a thriving 95-store regional upscale grocery chain, Fresh Market, will test the recovery by asking Wall Street for $345 million.

Here's why Fresh Market's move is a canny one, even if their IPO dreams don't come true:

• Sharing strong financials builds employee confidence. The required SEC filing is the privately held company's first chance to publicly brag on exactly how it's continued to thrive through the downturn. Fresh Market has added stores steadily in the past few years, and sales rose 8 percent in 2009 to more than $860 million. Making that information public should boost employee morale and possibly help the company attract more top-quality grocery managers for its ongoing expansion -- they're adding nine stores this year.
• Great publicity. What they're doing is so unprecedented right now, it's bound to grab them lots of attention. It may introduce new customers to their stores. The only retailers to go public since the beginning of 2009 were much larger -- discounter Dollar General (DG), 500-store teen-fashion retailer rue21 (RUE), and 400-store Vitamin Shoppe (VSI). By comparison, Fresh Market's 20,000-square foot stores are still mostly on the East Coast, with a smattering of units in major Midwest towns. They are the first consumer company to try an IPO in 2010, a gutsy move for a small regional chain.
• Roadshow research. Stumping for their IPO, Fresh Market could meet investors who might back them in a private placement if the IPO doesn't go. It could also give them a chance to see some new markets they're not in yet while they're on tour.
• M&A buyer grooming. If the IPO doesn't work out, Fresh Market has surely gotten the attention of sector leader Whole Foods Market (WFMI) and other gourmet/natural grocery players. If owners the Berry family are looking to cash out, their odds of finding a competitor to buy them just got a whole lot better.

The one fly in the ointment: Fresh Market's comparable-store sales were down a bit at 1.1 percent. On the plus side, that reverses a 1.5 percent same-store drop in 2008, so even that number tells a positive story about the company beating back the economic downturn.

The IPO isn't entirely without precedent in the world of grocery -- Wild Oats Markets had just 35 stores when it went public in 1996. With the IPO market just starting to recover, Fresh Market will benefit from being the trailblazer here.

Photo via Flickr user NatalieMaynor