Kroger, Harris Teeter to close merger by month’s end

elyportillo@charlotteobserver.comJanuary 17, 2014 


The Harris Teeter store at the corner of The Plaza and Central Avenue in Charlotte’s Plaza Midwwod neighborhood.


The Kroger Co. said Friday it expects to close its $2.5 billion acquisition of Matthews-based Harris Teeter by the end of January, creating a supermarket company with sales of more than $100 billion and ending local control of one of the region’s best-known companies.

The Federal Trade Commission gave the two grocers its approval for the deal late Friday.

On Friday, Kroger spokesman Keith Dailey told the Observer the deal would close next week. However, on Saturday, Dailey said he had misspoken, and the deal was set to close by the end of January. An exact date for the deal’s close was not immediately available.

The move means Cincinnati-based Kroger will control the No. 1 grocer by market share in the Charlotte region. Harris Teeter’s acquisition comes at a time of flux for Charlotte shoppers, with Florida-based Publix muscling into the region and Walmart opening more of its Neighborhood Market grocery stores.

Kroger has said it will let Harris Teeter keep its name and much of its autonomy, with locally-based management. But they haven’t said how many of Harris Teeter’s 550 headquarters jobs will remain, or how Kroger will change what’s on the shelf at your local supermarket.

For now, analysts and Kroger executives are telling customers not to expect major changes in stores.

Chuck Cerankosky, a managing director at Northcoast Research, said he doesn’t expect customers to notice anything different, at least for now.

“I don’t see them doing a lot to fix something that’s working just fine,” Cerankosky said. “It’s not going to be Kroger walking in the door and saying, ‘You have too many registers open,’ or ‘We’re going to completely revamp your pricing and promotion strategy.’ I don’t think they’re going to touch that stuff.”

John Stanton, a professor of food marketing at St. Joseph’s University, said while he agrees most things will stay the same, customers will see some differences in merchandise.

“You’re going to see the Kroger private label products come in,” he said.

Kroger is far larger than Harris Teeter, operating coast-to-coast with almost $97 billion worth of sales, 343,000 employees and 2,414 stores. That compares with Harris Teeter’s $4.7 billion in sales, 25,800 employees and 212 stores.

Besides its namesake supermarkets, Kroger operates stores under names including Fred Meyer, King Soopers, Food 4 Less and Ralphs.

Harris Teeter started as two separate stores in the late 1930s – the Harris and Teeter grocery markets – before merging in 1960. Local businessmen Alan and Stuart Dickson bought the supermarkets in 1969 with their holding company, Ruddick Corp.

Kroger also plans to bring its data-analytics program to Harris Teeter – mining details gleaned from VIC loyalty cards. Kroger is part of a joint venture with dunnhumbyUSA, considered one of the premier data aggregators and analysts for food retailers.

Under Kroger control, Stanton expects Harris Teeter stores to tailor and market their offerings more precisely to local customers.

“If they realize there’s a store where they’re selling more high-end extra virgin olive oil, you may see 15 choices on the shelf in those stores. But they’re not going to force every Harris Teeter to carry 15 choices,” he said.

Cerankosky said Harris Teeter has been expanding faster than Kroger on a percentage basis, as it opens new stores in markets such as Washington, D.C. He expects that level of growth to continue, but said Kroger will likely keep Harris Teeter in its traditional Southeastern footprint. About two-thirds of Harris Teeter’s stores are in North Carolina.

“I don’t think they’d necessarily take Harris Teeter on the road,” Cerankosky said.

Kroger executives have said they expect to generate $40 million to $50 million worth of annual savings as a result of the deal. They’ll try to achieve some of that by using their combined purchasing power to get better deals on merchandise, as well as combining distribution and other logistics.

But some of those savings will likely come from combining office functions, such as advertising and technology. Kroger executives didn’t rule out moving some of those jobs to Cincinnati, but have said no decisions would be made until after consulting with Harris Teeter’s management team.

Kroger’s $13 billion merger with Oregon-based Fred Meyer in 1998 later resulted in some jobs being eliminated or transferred to Kroger’s headquarters, according to news reports from the time. In 2000, Kroger laid off almost 100 employees, most in accounting and information services, at Fred Meyer’s headquarters as it wrapped up that acquisition.

Cerankosky said he expects the Harris Teeter-Kroger integration will be smooth because it involves grafting one profitable company onto another.

“Fred Meyer itself, at the time Kroger bought it, was the product of several mergers that weren’t all fine running machines,” Cerankosky said. “It was such a huge acquisition.”

Stanton said he expects Kroger to leave Harris Teeter a large degree of autonomy, given its track record. He tells a cautionary tale from a past supermarket merger, though he declines to name the companies.

After a smaller chain combined with a larger one, Stanton said the smaller chain had to start using the cleaning contractor used by the larger company. He talked with a store manager who complained that when his store wasn’t cleaned well, he had to call his regional executives. Those executives called headquarters, who called the cleaning company, which called the regional offices for the cleaning company, which called the company to tell it to clean the store better.

Hamstrung by such operational inefficiencies, the deal didn’t generate savings, and the smaller chain was eventually sold off.

“There’s also a lot of major chains that have bought other chains and have ruined them,” Stanton said. “We have other companies that tried to centralize everything and had it be a disaster. I don’t think that will be the case here.”

Portillo: 704-358-5041; Twitter: @ESPortillo

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