Kroger Buys Harris Teeter

Kroger will bolster its status as the largest traditional U.S. supermarket operator by snapping up regional independent Harris Teeter in a transaction valued at $2.5 billion.Most key members of Teeter's Matthews, NC-based senior management team will continue to run the 212-store chain (147 of which have pharmacies) as a Kroger subsidiary, with no plans to close stores or move any operations to the parent company's Cincinnati base, the companies said. Those plans align with Kroger's decentralized, semi-autonomous organization model. (See "Marketing at Kroger.") The deal is expected to close in a few months, pending Kroger shareholder and federal regulatory approval."Harris Teeter is an exceptional company with a great brand, friendly and talented associates, and attractive store formats in vibrant markets run by a first-class management team," Kroger chief executive officer David Dillon said in a media release announcing the deal. "They share our customer-centric approach to everything we do — from store format and merchandising to innovative loyalty programs."Teeter operates a “click and collect” delivery service that lets shoppers in some markets order groceries online for in-store pickup, something that Kroger executives have indicated could be implemented at its other chains. Kroger also hopes to learn from Harris Teeter’s expertise in fresh foods and private-label development, Dillon told The New York Times. Harris Teeter, meanwhile, might benefit from Kroger's loyalty program capabilities in addition to the typical economies of scale that a large parent can provide.The acquisition extends Kroger's footprint into Florida, Maryland, Delaware and Washington, DC. In the existing Kroger markets of Virginia, North Carolina, South Carolina, Tennessee and Georgia, it adds stores in high-growth markets, affluent vacation destinations and university communities in which the retailer has had little presence.Teeter, which also operates a dairy facility and two distribution centers for grocery, frozen and perishable foods (all in North Carolina), generated approximately $4.5 billion in sales during fiscal 2012. "We are excited about becoming part of [Kroger], one of the best food retailers in the U.S., while maintaining the Harris Teeter banner, our management teams, our new store growth plan, our distribution and manufacturing facilities ... as well as our headquarters," ceo Thomas Dickson said in the release. Dickson will maintain his role after the merger. Kroger will finance the deal with borrowed money, purchasing all outstanding shares of Teeter for $49.38 per share in cash and assuming the company's outstanding debt of roughly $100 million.After the merger, Kroger will operate 2,631 supermarkets in 34 states.

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