Kroger to buy Harris Teeter chain in $2.4B deal

Jayne O'Donnell and Bowdeya Tweh | USA TODAY

The nation's largest grocery store chain is getting even bigger -- and possibly, tonier.

Kroger said Tuesday it's buying Harris Teeter Supermarkets in a $2.4 billion deal, which will increase by three the number of states in which it operates to 34.

The deal will be the fourth-largest acquisition of a North American food retailer in the past decade. It also would be Kroger's biggest takeover since 1998, when it bought the Fred Meyer food and merchandise store chain in the Northwest for more than $12 billion, according to financial data service Bloomberg.

Kroger is getting a group of good-quality stores in good locations with little overlap. Matthews, N.C.-based Harris Teeter has 212 stores in what Kroger called attractive, high-growth markets in the eight Southeast and Mid-Atlantic states and Washington, D.C., and about $4.5 billion in revenue for fiscal 2012.

The two grocery chains are very different, but Kroger CFO Michael Schlotman said in a conference call early Tuesday that they should be complementary. Kroger will learn a lot about fresh food categories, which are more profitable, he said. Harris Teeter will benefit from Kroger's purchasing power, information systems and loyalty programs.

Many people shop at Kroger stores and may not know it. The company has 2,419 stores in 31 states. In addition to its flagship brand of supermarkets, it operates under a number of brands, including Ralphs, Fry's, King Soopers and Food 4 Less.

Together, the companies will employ more than 368,300 people in 34 states and Washington, D.C.

Judi Niedercorn, who grew up shopping at Kroger stores in Ohio and now lives in McLean, Va., says the deal should "bring a bit of a higher level of gourmet sophistication and quality to the Kroger store family."

Harris Teeter stores, at least in the Washington, area, are more "high end" than the typical Kroger store she shops in when she visits family back in Ohio.

Schlotman acknowledges Harris Teeter is "slightly more upscale operator" than the Kroger brand.

The merger better positions both companies in the competitive grocery space, but the huge Kroger may not benefit as much as Harris Teeter, says Ken Nisch, chairman of brand strategy and retail design firm JGA.

"If they can execute the delicate dance of being enormous and local at the same time, then they've got a winning formula," says Nisch, whose firm designed the new Whole Foods Market in downtown Detroit. "But history would suggest local is much harder to execute with all the growth in local, regional and specialty stores."



Kroger is No. 2 only to Wal-Mart in U.S. retail sales, bigger than Target, Home Depot and CVS. It also is more than a grocery store chain, with a growing number of supercenter-style merchandise and food stores, including the Fred Meyer chain in the Northwest and its Marketplace stores under several of its brands.

Kroger remains based in Cincinnati, where the company was founded in the 19th century.

Kroger will pay $49.38 each for Harris Teeter shares, about 2% above their Monday close and 33.7% higher than the Jan. 18. closing price, when the company disclosed it was evaluating strategic alternatives. Kroger says that Harris Teeter management will continue to operate the stores as a subsidiary of Kroger, which will then have 9% market share nationwide.

Harris Teeter CEO Thomas Dickson called Kroger "one of the best food retailers in the U.S." and said the company's plans for growth will continue.

Kroger says it expects the deal to result in cost savings of $40 million to $50 million in the next three to four years. It will finance the deal with debt and plans to assume Harris Teeter's outstanding debt of about $100 million.

Shares of Kroger jumped 96 cents, or 2.7%, to close Tuesday at $37.15. Harris Teeter shares rose 74 cents, or 1.5% to $49.26.

Contributing: Megan Kowalski, Associated Press. Tweh also reports for the Cincinnati Enquirer