Much To Learn In Kroger-Harris Teeter Deal

Kroger, the No. 2 retailer in the country, is acquiring Harris Teeter, an upscale chain based in Matthews, N.C., with 212 stores in the Southeast and mid-Atlantic markets, including Washington, D.C. The $2.5 billion transaction is not about extending the Kroger’s brand, mind you, or gaining ground on No. 1 Wal-Mart or even about streamlining operations, though Kroger expects annual cost savings of about $40 to $50 million over the next three to four years. It’s about sharing each other’s best practices.

“Kroger hopes to learn from Harris Teeter’s expertise in fresh foods and private-label goods, among other things,” writes Stephanie Clifford in the New York Times. In return, “Harris Teeter might pick up tips on loyalty programs from Kroger, where more than 90% of items purchased are bought by loyalty-card members.”

“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,” says Kroger chairman and CEO David B. Dillon. “They share our customer-centric approach to everything we do –- from store format and merchandising to innovative loyalty programs.”

The shop that Barney Kroger opened on Cincinnati’s Pearl Street with his life savings of $372 now will consist of 2,631 supermarkets and more than 368,300 workers across 34 states. 

“The sale ends local control of Charlotte’s No. 1 grocer by market share, founded in the 1930s as two separate stores -- one Harris, one Teeter, writes the Charlotte Observer’s Ely Portillo. “The company says an early Harris store that opened in 1949 was innovative for the time, in offering air conditioning and staying open until 9 on Friday nights.”

The two companies merged in 1960, according to a company history, and prides itself on having “the freshest, highest-quality and best selection of meats, seafood and produce available.”

But don’t look for Kroger to be intrusive, and it won’t be slapping its logo over the Harris Teeter signage.

“We’re not going to come in and change these stores into something people won’t recognize,” Korger’s Dillon tells Portillo. “These are going to be Harris Teeter stores, and they’re going to stay Harris Teeter stores.” 

That is in keeping with Kroger’s practice with other acquisitions.

“Many people shop at Kroger stores and may not know it…,” write Jayne O’Donnell and Bowdeya Tweh in USA Today. “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.”

From a geographic and prestige POV, the deal “strengthens Kroger’s position in the Southeast, especially the quarter from Charlotte through Baltimore,” Northcoast Research analyst Charles Cerankosky tells Bloomberg’s Leslie Patton. “Harris Teeter has a very strong quality and service profile. They have great value, but you don’t go there to buy cheap seafood; you go there to buy great seafood.” 

“The acquisition is a quick and simple way for Kroger, the largest U.S. grocer, to cash in on two of the fastest-growing states in the country: Virginia and North Carolina,” observes Bloomberg Businessweek’s Kyle Stock.

“[Harris Teeter has] a stronger fresh reputation, and by fresh I’m really referring to all the perishable departments, than some of the Kroger operations,” Dillon says in Clifford’s piece. “Our intent is to learn from them, ‘How do they get that reputation? What are some of the things they do that create that?’ It won’t be as much, I think, in the actual products as in the methods by which we get the products to the market.”

But Harris Teeter may be the bigger beneficiary of the forthcoming Socratic dialogues, according to Ken Nisch, chairman of JGA, which designed the new Whole Foods Market in downtown Detroit. 

“If they can execute the delicate dance of being enormous and local at the same time, then they’ve got a winning formula,” Nisch tells O’Donnell and Tweh. “But history would suggest local is much harder to execute with all the growth in local, regional and specialty stores.” 

Although “the deal was met with skepticism from some Harris Teeter loyalists,” including some who took to Facebook to express their displeasure, Abha Bhattarai reports in the Washington Post, most analysts seem to applaud the “merger.”

“A lot of traditional grocers are still struggling from the competitive threat of companies like Wal-Mart that have moved aggressively into food,” Morningstar analyst Kenneth Perkins tells Bhattarai . “They’ve been struggling from that perspective, and they’re trying to keep people coming through their doors. Kroger, to their credit, has done a good job with that.”

And they’re still learning.

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