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You Should Think Twice Before Overlooking Kroger

August 04, 2014 | About:
Suravi Thacker

Suravi Thacker

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Kroger (KR) is one of those companies which are climbing the steep mountain of success with its head held high. The company has been able to earn a place in customers’ hearts by following Customer 1st strategy to the T. Further, it has been expanding and strengthening its presence through various other strategic measures.

The most recent move to strengthen its business is the acquisition of Vitacost.com, announced recently. Vitacost is an online retailer of health related products, such as vitamins, minerals, beauty care, sports nutrition and natural and organic food. It caters to a market of 2.3 million customers across 50 states and offers a wide range of 45,000 products.

The deal

Kroger will be buying Vitacost for a total of $280 million in cash, which is at a premium of 51% over its current share price. This acquisition will help the grocer in expanding its online presence since it will add Vitacost’s distribution network and infrastructure to Kroger’s capabilities. The company’s shipping on online delivery will get better. This is important because of the growing popularity of online shopping which has taken away all customer attention. Also, Kroger will be able to add its products to the online retail platform, giving a broader exposure to its products.

This move was important to overcome competition from online giants such as Amazon (AMZN), who have well developed website and distribution facilities to offer same day delivery of goods sold. However, none of the online retailers want the complexity of handling perishables, which are difficult to maintain.

Through this acquisition, the Cincinnati-based retailer will be able to expand its position in the organic food market. Hence, Vitacost’s natural foods will complement the Kroger’s line of organic offerings, called Simple Truth.

Moreover, Vitacost’s revenue stood at $382.7 million in the first quarter of 2014. Hence, this will add to Kroger’s top line. This made the retailer reiterate its earnings outlook to $3.19 per share to $3.27 per share for the year 2014. Hence, the addition of Vitacost will help in boosting the acquirer’s performance.

Gearing up

This is not the first time that Kroger has expanded its wings by purchasing another company. It recently completed its acquisition of Harris Teeter Supermarkets in January. Harris Teeter added online order and pick up service to Kroger’s service network. It allows customers to order goods online and then pick it up from any of the nearby stores. This enables customers to keep their goods booked before it gets sold.

In fact, the addition of Harris Teeter helped the company in registering great numbers in its latest quarter. Its revenue surged 10% to $33 billion, helped by same store sales growth of 4.6%. The top line increased because of higher customer traffic as well as a higher transaction size, resulting in higher sales. Also, its acquisition of YOU Technology helped in strengthening its digital operations and marketing.

The summary

Therefore, Kroger looks like a solid company with strong strategies and growing numbers. It also increased its dividend and revised its outlook recently. The company believes in making customers happy through various promotions such as a loyalty program. Also, Kroger has been gearing up to strengthen each segment of its business by acquiring other companies. These measures, coupled with its own capabilities make the retailer a great pick.


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