Kroger plans to leave Harris Teeter intact

07/11/2013 12:35:00 PM
Pamela Riemenschneider

Kroger set its sights on the growing mid-Atlantic markets with the purchase of Matthews, N.C.-based Harris Teeter Supermarkets Inc.

The $2.5 billion deal, approved by the board of directors of both companies, awaits approval by regulatory agencies, and further solidifies the Cincinnati-based company’s position as the largest grocery retailer in the U.S.

Harris Teeter’s 212 stores give Kroger more than 2,600 locations in 34 states and the District of Columbia.

Harris Teeter reportedly had been shopping for a buyer since early this year. The deal includes the company’s distribution centers for grocery, frozen and perishables in Greensboro, N.C. and Indian Trail, N.C.

click image to zoomharris teeter produceAmber BrodaKroger officials said Harris Teeter's perishables departments, like this one from a store in Charlotte, N.C., were a major draw for the retailer. Following closing of the transaction, Harris Teeter will continue to operate as a subsidiary of The Kroger Co., led by the company’s management team, said Mike Schlotman, Kroger senior vice president and chief financial officer during an investor call held July 9. There are no plans to make changes to senior management, and Harris Teeter’s headquarters remains in Matthews.

“There are many things we think we can learn from Harris Teeter, especially in the fresh category,” Schlotman said. “The Harris and Teeter families founded those chains independently and that name resonates in the markets they’re in.”

Schlotman said Kroger has a history of acquiring regional chains while maintaining their strengths in the market, dating back to the company’s acquisition of Dillon’s in the 1980s.

James Tenser a Tuscon, Ariz.-based retail analyst with VSN Strategies agreed.

“Kroger, historically, has added other banners and done a pretty good job of not messing with them,” he said. “You can look at Fred Meyer, King Soopers and Ralphs for examples. They seem to understand the value of the brand equity. I think Kroger can help run Harris Teeter better.”

Harris Teeter’s stores typically run on the higher end of the Kroger spectrum, and Kroger plans to continue with this strategy, Schlotman said.

“They’re priced a little higher than an average Kroger store, but it’s not something the type of customer they have will be turned off by,” Tenser said. “Their margin structure is different than ours. They actually have a bigger penetration in a lot of the fresh categories than we do and, and that’s one of the things we’re excited about that we can learn from them.”

After the announcement, vocal Harris Teeter customers turned to social media to express concern about changes to stores and the perceived loss of quality with the Kroger acquisition.

Tenser said this may be premature.

“I feel reasonably confident the last thing Kroger would do to a good operation is to try to drive it down to the level of a standard Kroger store,” he said. “This is a higher positioned company in terms of their retail operation. There are not a lot of examples of big retail companies with successful acquisitions and Kroger has been an exception.”

The acquisition also gives Kroger a stronger foothold in a vibrant North Carolina and mid-Atlantic market, Schlotman said, and there only a few markets where Kroger and Harris Teeter had overlapping market share, including Nashville, Raleigh-Durham, N.C., Hampton Roads, Va. and Charlottesville, Va.

Schlotman said Kroger plans to continue growing the Harris Teeter brand.

“They have a great pipeline of store projects in the works,” he said. “We’re excited about what they have in these great mid-Atlantic and Southeastern markets. If we were to do anything, we’d add more capital and make it a little faster.”



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