July 10, 2013

Kroger expanding supermarket empire

The company buys the regional grocer Harris Teeter Supermarkets for $2.44 billion in cash.

The Associated Press

NEW YORK - Kroger, already the country's largest traditional supermarket operator, is expanding its reach in key southeastern and mid-Atlantic states by snapping up regional grocer Harris Teeter Supermarkets Inc.

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Kroger has acquired Harris Teeter Supermarkets, which has 212 stores in eight states in the Southeast and mid-Atlantic region.

The Associated Press

The $2.44 billion cash deal reflects Kroger's growth plans at a time when supermarkets are fighting competition from big-box retailers such as Target Corp. and Wal-Mart Stores Inc., as well as drugstores and dollar stores that are expanding their food sections.

Harris Teeter has 212 stores in eight states. That includes locations in Delaware, Florida, Maryland and Washington, D.C., where Kroger currently does not have a presence.

Kroger says it doesn't plan to close any stores as a result of the acquisition. But in the regions where there is some overlap, it may be asked by the Federal Trade Commission to sell stores to other operators to maintain a competitive landscape, said Mike Schlotman, Kroger's chief financial officer. After Kroger's last major purchase of Fred Meyer in 1999, he said the agency asked it to sell eight stores.

Harris Teeter stores will keep their names and personalities, as with the nearly two dozen other regional chains owned by Kroger, including Ralphs in Southern California, Fred Meyer in the Pacific Northwest and Fry's in Phoenix, the company said.

"I don't see a lot of change that we would make to Harris Teeter," Schlotman said. "It already has a large fresh and prepared section -- that's one of the things they're good at."

That focus on fresh and prepared foods is what makes the deal so attractive to Kroger. While they're not on the level of Whole Foods supermarkets, Harris Teeter stores tend to be in more affluent neighborhoods and are more profitable because they have bigger fresh food sections.

Kroger, meanwhile, has been expanding the ranks of its "Fresh Fare" stores, which have bigger sections for produce, meat, seafood and prepared foods. These categories tend to have higher profit margins than the rest of the store, Schlotman said.

Notably, Harris Teeter also offers a "click and collect" service in about half its stores that lets people shop online then pick up their groceries curbside or at the front of the store.

"It's very popular in Europe, and now we get the chance to understand the process with someone that has it in place," Schlotman said.

Harris Teeter, along with Ralphs, will be one of Kroger's largest chains by store count.

 

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