By Nicole Paitsel
8:19 AM EDT, July 9, 2013
The Kroger Co. will buy Harris Teeter in a $2.5 billion deal, the company announced Tuesday.
Both grocery chains have a presence in Hampton Roads. Right now, Kroger executives are not saying exactly how the merger will change either grocery brand.
In a webcast to investors Tuesday morning, Michael Schlotman, Kroger’s chief financial officer, said Harris Teeter will continue to operate its stores as a subsidiary of The Kroger Co., much like its other brands, including the Midwest supercenter chain Fred Meyer and Dillon’s stores.
“We look forward to bringing together the best of Kroger and Harris Teeter while continuing to operate and grow the Harris Teeter brands,” David Dillon, Kroger’s chairman and CEO, said in a statement.
In January, reports surfaced that Harris Teeter was looking for a buyer.
The deal would be the fourth-largest supermarket acquisition in the past 10 years, according to Bloomberg. It is Kroger’s biggest takeover since it bought Fred Meyer in 1998 for $12 billion.
Kroger operates seven stores in the region, including one in York County in the Kiln Creek area. A new Kroger Marketplace, designed to offer home goods and groceries, will open in Virginia Beach on Wednesday, July 30. A second marketplace is under construction in Suffolk.
The company operates about two dozen banners under The Kroger Co. umbrella and has 2,419 stores in 31 states. The addition of Harris Teeter will add a Kroger presence to Maryland, Delaware and Florida.
There are 13 Harris Teeter stores in Hampton Roads, with locations in Williamsburg, Newport News and Suffolk. The grocery chain currently has 212 stores in eight states and the District of Columbia.
Hampton Roads is one of only four areas in which Harris Teeter and Kroger stores overlap, said Schlotman. Charlottesville, Nashville, Tenn., and Raleigh, N.C., are other areas where both brands exist. Since the deal is still pending approval from the Federal Trade Commission, it is unclear whether changes will have to be made in those markets. But current market share for both companies is relatively small in Hampton Roads, Schlotman said.
According to a market analysis by Food World, Harris Teeter ranks third in market share among traditional supermarkets in the Hampton Roads region, reporting $284 million in sales in 2013, an increase from $267 million in 2012. Its market share increased from 11 percent to 12 percent.
Kroger holds about 5 percent of the market in Hampton Roads. Other traditional grocery stores include Food Lion, Farm Fresh, Martin’s (formerly Ukrop’s), Trader Joe’s and Whole Foods. Groceries are also available at military commissaries and at the big-box retailers Target and Walmart.
Kroger headquarters will remain in Cincinnati, and Harris Teeter will keep its headquarters in Matthews, N.C. Under the merger with Harris Teeter, The Kroger Co. will operate 2,631 supermarkets in 34 states and the District of Columbia.
Kroger plans to finance the deal with debt, as well as assume about $100 million in debt from Harris Teeter, according to a written company statement.Schlotman said the company expects to achieve an annual cost savings of approximately $40 million to $50 million over the next three to four years, primarily through expanded purchasing power.
Harris Teeter brought in about $4.5 billion in revenue in the 2012 fiscal year. Kroger reported $96 billion.
Changes in store?
Schlotman would not make specific remarks about in-store changes, and a public relations spokeswoman said they could not comment at this time on any plans for the Hampton Roads area.
Traditionally, Kroger is known for keeping brands in tact after acquisitions, David Livingston, a Wisconsin-based supermarket analyst, said in a phone interview.
“This is a lateral move for Kroger. Harris Teeter is in a declining mode,” he said. “I don’t think there will be a whole lot of changes. The changes will be minor and subtle. Kroger is smart. They can keep the status quo going for Harris Teeter.”
In a call to investors, Schlotman mentioned Harris Teeter’s “Click and Collect” Internet application as a possible model for the entire company. The program allows shoppers to purchase groceries online and pick them up at a store.
“We essentially have a free incubator for this project now, as it comes with the deal,” he said.
Harris Teeter’s fresh produce program is another area Schlotman said Kroger plans to study. In a conference call to investors, Schlotman spoke positively about Harris Teeter’s reputation for fresh produce and their margin scale.Because of the scale of The Kroger Co., integrating Harris Teeter’s private labels into Kroger’s established private label business could be a way to save costs. Kroger also employs technology, such as high-end databases for loyalty cards, that Harris Teeter could now use.
The deal must be approved by shareholders and regulators before closing. There is no official timetable for the closing date, although Schlotman speculated that the deal would close at the end of the third quarter or in the fourth quarter of this year.
Shoppers have greeted the news with mixed reactions.
“No one around here offers customer service like Harris Teeter,” said Michele Murray, a frequent contributor to the Daily Press Savvy Shopper Facebook page. “If Kroger manages to leave the policies alone, this won’t be that big of a deal.”Others wonder how the changes will affect prices.
“I love Harris Teeter, but my budget prefers Kroger,” Elisabeth Wilkins said in response to a Daily Press Facebook post.
Coupon lovers, in particular, are wary of changes in the grocery store scene.
“Best case is maybe Harris Teeter gets some lower pricing,” said Ashley Dethlefs-Shanks, of Newport News. “Anything else I’m wary of because since Kroger ‘revamped’ for lower pricing in their stores, I haven’t been impressed. I love Harris Teeter. They just cannot be beat in terms of customer service and coupon sales.”
Find more retail news at dailypress.com/shopping. Connect at Facebook.com/SavvyShopper.
By the numbers
7 total stores in Hampton Roads
1 store on the Peninsula
2,419 stores in 31 states
$96 billion in revenue in 2012
5 percent market share in Hampton Roads
Operates other about two dozen local banners including Fred Meyer, Dillon’s, Smith’s and Ralph’s
13 total stores in Hampton Roads
3 stores on the Peninsula
212 stores in 8 states
$4.5 billion in revenue in 2012
12 percent market share in Hampton Roads
Grocery store rankings
Top 20 retailers that sell groceries in Hampton Roads in order of market share
BJ’s Wholesale Club
Source: Food World
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