Business

Kroger to acquire Harris Teeter, says no stores to close

Posted July 9, 2013 7:57 a.m. EDT
Updated July 9, 2013 6:37 p.m. EDT

— The Kroger Co., the country's largest grocery store chain, announced Tuesday that it will acquire Harris Teeter Supermarkets Inc. for about $2.5 billion in cash. 

According to a news release, there are no plans to close Harris Teeter stores, which will continue to operate under the Harris Teeter name. The Matthews, N.C.-based supermarket chain will become a subsidiary of Cincinnati-based Kroger.

Harris Teeter operates 212 stores in the Southeast, including 136 in North Carolina and 20 in the Triangle. Kroger, meanwhile, operates about 10 times that number of stores under more than a dozen names in 31 states.

"Harris Teeter is an exceptional company with a great brand, friendly and talented associates and attractive store formats in vibrant markets," Kroger Chairman and Chief Executive David Dillon said in a statement. "We look forward to bringing together the best of Kroger and Harris Teeter while continuing to operate and grow the Harris Teeter brands."

Still, customers worried Tuesday that Kroger will eventually change Harris Teeter stores, which they consider to offer higher-quality foods and offer better service.

"Harris Teeter is, quality-wise, absolutely better than Kroger, so that's definitely a concern," shopper Erin Parks said.

Kroger spokeswoman Kari Armbrewster said it's too early to speculate on possible changes to product selection in stores, but she said the chain would evaluate what works well in both Kroger and Harris Teeter stores and may decide to incorporate "best practices" across the board.

It's also unclear whether Kroger will retain Harris Teeter's police of doubling the value of coupons every day. Kroger stopped that practice in May, choosing to cut prices instead.

Kroger shopper Heidi Delozier said she hopes the merger leads to lower prices.

"It would be nice to see the price point for Harris Teeter to come down," Delozier said. "I like their things and I think it's good, but it's just one of those things, as a single mom, it's very difficult to afford their prices."

A study at South Dakota State University found that larger supermarket chains produce greater economies of scale, which could lead to lower prices. A study by the Federal Trade Commission said pricing depends on the competition in a market, with prices rising by about 2 percent in areas where one or two chains control the market.

Harris Teeter customers shouldn't worry about the takeover, said Mike Walden, an economist at North Carolina State University. Kroger would not pay the price it agreed to in the deal "and go out and destroy the company," he said.

Walden, who grew up shopping at Kroger in Cincinnati, called Harris Teeter "a juicy, ripe apple" that was bound to be picked off sooner or later by a larger chain.

"The nature of the grocery industry, of the supermarket industry, is to get bigger, to go national. That helps with advertising, that helps raising money," he said.

He called the deal "a complementary match," noting that Kroger doesn't have a great presence in the mid-Atlantic region, which is Harris Teeter's main base.

Kroger did close two Raleigh stores in January that it said were unprofitable. One on New Bern Avenue has since been converted into a Carlie C's IGA supermarket, and Mount Peace Baptist Church says it has purchased the vacant Kroger on Martin Luther King Jr. Boulevard for a community grocery store and church wellness center.

Kroger will finance the transaction with debt and expects to achieve annual cost savings of approximately $40 million to $50 million over the next three to four years. Kroger plans to assume Harris Teeter's outstanding debt of about $100 million.

The $49.38 per share purchase is 34 percent more than Harris Teeter's closing stock price on Jan. 18, the day of the first media report that the chain was considering a sale, Bloomberg reported Tuesday. Harris Teeter had $4.5 billion in revenue in 2012.