Private Label Buyer

Update: Kroger Buys Harris Teeter, Touts Private Label Lessons To Learn

July 9, 2013

Kroger announced Tuesday that it would buy Harris Teeter in an all-cash deal for about $2.5 billion and immediately said that it planned to keep the Harris Teeter banner and learn from its strong private label program.

Harris Teeter has 212 stores throughout the Southeast and Mid-Atlantic regions, including Washington, D.C. It also operates distributions centers for grocery, frozen and perishable foods in Greensboro, N.C., and Indian Trail, N.C., along with a dairy facility in High Point, N.C. Harris Teeter had revenues of about $4.5 billion for fiscal 2012, the companies said.

“We expect the addition of Harris Teeter will accelerate our growth into attractive, new markets and enhance both our top and bottom-line,” said Mike Schlotman, Kroger chief financial officer, on a call with analysts about the deal. “When the transaction closes we will be in a position to share more about our plans.”

Kroger said Harris Teeter would operate as a separate division within the company. A Kroger spokesman said Tuesday that it was too soon to speculate on whether Harris Teeter's private label team would merge with Kroger's, and whether Kroger would carry its own brands into Harris Teeter stores, as it does with its other supermarket banners.

However, Schlotman said on the call that Kroger officials were fans of Harris Teeter’s private label program.

“They have a very strong three-tier private label program,” Scholtman said. “We actually like a lot about their private label program. I do think that could be an example of one area where they’re buying private label for 212 stores and we’re buying it for 2,400 stores. So the combination of that can be one example of an area where we can get some cost efficiencies.”

Schlotman also said that Harris Teeter’s strength in fresh foods and programs was an area where Kroger could learn from and grow.

“Our disciplined and successful merger history is based on joining with companies with an established, respected brand in their markets,” Schlotman said. “Harris Teeter’s brand is exceptional. Kroger strives to be a locally relevant retailer, and we believe this is one of Harris Teeter’s many strengths.”

To that end, Schlotman reiterated that Harris Teeter would keep its banner through the integration with Kroger.

“We absolutely plan to keep the Harris Teeter banner,” he said in response to a question. “The Harris family and the Teeter family founded those chains … and that name resonates in the markets they’re in.”

Current Kroger supermarket banners include Ralphs, Dillons, Smith's, King Soopers, Fry's, Fred Meyer, QFC, City Market, Owen's, Jay C, Pay Less, Baker's, Gerbes and Scott's Food and Pharmacy.

Kroger will finance the transaction with debt. The deal includes the assumption of about $100 million in Harris Teeter's outstanding debt.

Kroger said in the release that it would continue its quarterly dividend and share repurchase program. It also expects to achieve annual savings of $40 million to $50 million over the next three to four years, mostly through benefits of Kroger’s scale.

“Harris Teeter has a long track record of creating shareholder value and this merger is the culmination of those efforts over many years,” Harris Teeter CEO Thomas Dickson said in a news release announcing the deal. “We are excited about becoming part of The Kroger Co., 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 in North Carolina as well as our headquarters in Matthews, N.C.”

Kroger said in the release that there were no plans to close stores, and that Harris Teeter employees would continue to have employment opportunities with both companies. The deal has been approved by both companies’ board of directors and is expected to close after approval by Harris Teeter shareholders and regulatory approval is granted.