BUSINESS

Kroger plans to buy digital health retailer for $280M

Alexander Coolidge
acoolidge@enquirer.com
Kroger is the nation's largest supermarket chain.

Kroger is pushing further into ecommerce and health-conscious products Wednesday as it announced a $280 million deal to buy retailer Vitacost.com of Boca Raton, Florida.

The Vitacost.com deal is barely more than a tenth the cost of Kroger's Harris Teeter takeover, but brings the grocer a new platform to expand its digital presence – an increasingly important growth area. The Florida company has 800 workers with extensive ecommerce experience, distribution centers in Lexington, North Carolina and Las Vegas, Nevada and a customer service center in Lexington, North Carolina. The deal also gives Kroger an additional new portfolio of nutrition and healthy living products. The company ships products to all 50 states and internationally.

"This merger is in line with our growth strategy to enter new markets and new channels," Kroger CEO Rodney McMullen said. "Vitacost.com's talented team has built an exceptional online retail destination in the growing nutrition and wellness market, with an enviable technology and fulfillment infrastructure."

McMullen said the acquisition, expected to close by fall, dovetails well with Kroger's recent $2.5 billion purchase of North Carolina-based Harris Teeter, which has an online order and pick up service at 154 stores that Kroger is studying for potential expansion.

Millions of Kroger customers already plan their shopping online using the grocer's cloud-based shopping list and weekly ad through the company's mobile apps. More than one billion digital coupons have been downloaded since 2009. Besides Harris Teeter's digital presence, Kroger also offers an order online, deliver-to-home service in its King Soopers division in Denver.

Kroger said the deal won't affect its profit forecast of $3.19 to $3.27 earnings per share for fiscal 2014 – suggesting an annual profit of $1.6 billion.

Vitacost.com has struggled financially and was under pressure to sell itself by investors. The company has lost $14.6 million in the last 12 months on sales of $389.8 million, according to Bloomberg.

"We are excited to join such a tremendous organization and believe this will be an outstanding partnership,"Vitacost.com CEO Jeffrey Horowitz.

Vitacost.com investors must vote to approve the deal, but institutional investors representing 26.2 percent of Vitacost.com have already agree to sell their shares to Kroger in a tender offer.

Kroger's $8 per share represents a 51 percent premium from the $5.30 close when the company disclosed it might be for sale.

Vitacost.com will operate as a subsidiary of Kroger and continue to operate its facilities in North Carolina, Florida and Nevada.

Vitacost.com sells more than 45,000 products including vitamins, minerals, herbs, supplements, sports nutrition, beauty care products and natural and organic foods. It has 2.3 million customers.

Kroger said Vitacost.com's products, including its proprietary brands, complements Kroger's already fast-growing natural foods business and Simple Truth Organic and Simple Truth corporate brand offering.

Kroger added the company's ecommerce platform will enable Kroger to serve customers through ship-to-home orders in all 50 states, including 16 states that are currently not served by Kroger supermarkets, expanding Kroger's reach into new US markets as well as internationally.

Vitacost.com's website and mobile app offer robust product information, rich content including recipes, videos and customer reviews, and "Set & Save" subscriptions for thousands of items, Kroger said.