Kroger agreed Tuesday to buy Harris Teeter for $2.5 billion, a move that would place a substantial share of the Charlottesville area’s grocery market under the same corporate leadership.
Federal regulators and shareholders still must approve the deal, which would give the combined company more than 368,300 employees in 34 states and Washington, D.C.
In Charlottesville and AlbemarleCounty, Kroger and Harris Teeter each operate three stores. Kroger employs about 450 people; Harris Teeter employs about 360.
Nationwide, Ohio-based Kroger operates 2,419 stores under two dozen local names, with revenues of about $96 billion last fiscal year. North Carolina-based Harris Teeter operates 212 stores, mostly in the Southeast and Mid-Atlantic, with annual revenues of about $4.5 billion.
In a joint statement, the companies said there are no plans to close stores or lay off employees. Kroger and Harris Teeter will retain their existing marquees, management and headquarters.
Kroger will borrow to finance the transaction and also assume about $100 million in debt from Harris Teeter.
“From a corporate perspective, Kroger really doesn’t view the acquisition of Harris Teeter as we might in the local market,” said Michael Ho, a professor at the University of Virginia's Darden Graduate School of Business Administration and an expert in mergers and acquisitions.
In Charlottesville, Kroger and Harris Teeter both operate stores in the Barracks Road Shopping Center. Each store occupies about 50,000 square feet, according to a listing on the website of Maryland-based Federal Realty, the shopping center’s owner.
Kroger’s other stores are farther up Emmet Street and at the Rio Hill Shopping Center. Harris Teeter’s other stores are in northern Albemarle at the Hollymead Town Center and in Crozet.
Although consumers might place the stores in the same general category — full-service grocery retailers — Ho said industry experts and the companies see themselves filling distinct segments of a very large and competitive market.
Kroger positions itself as a middle-market grocer and has a footprint that’s 10 times larger than Harris Teeter, which positions itself as a more upscale store.
Outside of Charlottesville, Nashville, Tenn., and the Raleigh-Durham area in North Carolina, “there’s actually very little overlap between Kroger and Harris Teeter’s footprint,” Ho said.
Maryland-based Food World, an industry trade publication, recently ranked Kroger as the Charlottesville area’s No. 1 grocer last year with $104.2 million in sales and 27 percent of the market. Harris Teeter was second with $56.4 million in sales and 15 percent of the market.
“Kroger really views its brand equity very different than Harris Teeter, so we can certainly make the argument that the market can support a store like a Kroger and a Harris Teeter,” Ho said. “I’m not concerned that we’ll see Harris Teeter disappear.”
“The industry is really changing and the supermarket business is a very low-margin business,” said Ho. “You’re talking a couple percent for profit margin.”
A $2.65-million renovation is underway at the Barracks Road Kroger. Spokeswoman Allison McGee said a planned renovation at the Rio Hill location will go on as planned. The work is set to begin late this year or early next.
Six large stores under the same corporate ownership in the same area could “pose some longer-term questions,” Ho said.
“Regarding whether they will need to close stores, that’s something that will first have to be reviewed by the [Federal Trade Commission],” Food World’s Terri Mahoney said by email. “However, as there is plenty of food competition in all of the markets involved from other retailers ... and independent supermarket operators, I wouldn’t expect the FTC to find any problems.”
“It is too early to speculate in markets where we operate both banners,” McGee said by email. “We are making plans on how we will operate in Charlottesville."
“Harris Teeter will become a division of Kroger,” Harris Teeter spokeswoman Danna Jones said in a separate statement. “We will maintain 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. We will continue to provide our shoppers the outstanding product and customer service they have come to expect from Harris Teeter.”
“We are excited to welcome Harris Teeter to the Kroger family,” David B. Dillon, Kroger’s chairman and CEO, said in the joint statement. “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.”