Inc., an online seller of vitamins and other health-related products, in a move that would give the largest U.S. supermarket chain a stronger presence in Internet retailing. The $280 million deal, which Kroger announced Wednesday, is small in financial terms for a company with $100 billion in annual sales. But Kroger expects the acquisition to enhance its technology expertise and give it a platform for fulfilling home delivery of online orders—an area of increasing importance for... Depeche Mode's Dave Gahan Discusses New Album and Tour Listing of the Day: Boca Raton Art By Artificial Intelligence: AI Expands Into Artistic Realm Tot Throws Tantrum in Front of the Queen of England Ferrari's New 812 SuperfastHEALTH & WELLNESSHow to make the time change a little less painful this weekend Kroger buys Vitacost to expand into online grocery shopping Supermarket giant Kroger Co. wants to beef up its Internet operations. , an online seller of vitamins and other health-oriented products, for $280 million.
"The deal could be transformative for Kroger," said Burt Flickinger III, managing director at retail consulting firm Strategic Resource Group in New York. "It gives them the chance to meet and exceed the scale of competitors like PeaPod, Safeway and ShopRite and be the national leader in online delivery."Kroger's online retail options are now limited to King Scoopers in Denver and 154 Harris Teeter stores, primarily in the Southeast. Its Denver model has been a small-scale work in progress that would not work nationwide, the company said. Last year Kroger bought Harris Teeter for $2.44 billion, adding Teeter's "click and collect" online service that enables customers at some stores to order groceries online and pick them up at the store. Buying Vitacost gives Kroger a ready-made online shopping platform that can be adapted and expanded over the next few years. "Vitacost accelerates us into the e-commerce space immediately," said Keith Dailey, the company's director of media relations.
What's in it for Kroger? There's probably a long way to say this, but here's the short version: Whole Foods Market. Whole Foods has made a business and a fortune out of selling organic, sustainable, and healthy products. As the company's bottom line has grown, so has the American appetite for healthy products. According to Euromonitor International, Americans spent $23 billion on vitamins and supplements in 2012. As the market continues to grow, more and more companies are getting in on the health act. Kroger's acquisition of Vitacost is part of its plan to offer more products through more channels -- Vitacost is online-only -- in order to build its revenue stream. 's strong position in the online nutrition market" while at the same time using its online platform to offer new options to online shoppers at its other brands. Kroger has pushed its online strategy recently, and its acquisition of Harris Teeter and its "Express Lane" online platform will be strengthened by Vitacost's products.
That should help Kroger kick its sales up a level from their already strong position. Kroger managed a 4.6% increase in comparable store sales -- excluding gas sales -- last quarter. Kroger and the competition While the Vitacost is a direct shot at the Whole Foods customer base, it's also going to help solidify Kroger as the strongest traditional retailer. Kroger is already out ahead of companies like Safeway, which only increased comparable sales by 1.8% last quarter, and which put up a meager 0.66% operating margin -- Kroger's operating margin was 2.8%. Vitacost should help Kroger keep itself out ahead of its closest competitors while giving it a new avenue to pursue the markets of players like Whole Foods. This is an excellent move for Kroger -- even if it is relatively small -- and investors should be happy with the added expertise in online shopping. Kroger is setting itself up to be a company that owns the high end of grocery retail, and Vitacost is a step toward that end.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy., a deal that will add a nutrition and health-focused e-commerce business to the traditional grocery company's assets and bolsters the company's efforts to expand its natural foods offerings.Kroger (kr) said it will pay $8 per share in cash to buy Vitacost (vitc), a purchase price that is a 27% premium to Vitacost's closing price on Tuesday and 51% above the level the company traded at before a major shareholder in February publicly asked the company to mull strategic alternatives."''s strong position in the online nutrition market," said Kroger Chief Executive Rodney McMullen in a statement.
The acquisition, which is expected to close in the third quarter, will add a platform to Kroger's business that includes technology and ship-to-home fulfillment centers to serve customers across all 50 states and internationally. Kroger's 2,642 traditional supermarkets--which include two dozen banner names including Kroger, Harris Teeter, Dillons and Food 4 Less--have a physical presence in 34 states and D.C.Vitacost's business includes the sale of more than 45,000 vitamins, supplements, sport nutrition and other health and wellness products. The company has more than 800 associates and operates two distribution centers in the U.S.Vitacost's sales have risen sharply over the years, totaling $382.7 million in 2013. Results have been bolstered by so called "active users," which the company defines as customers who have made a purchase over the last 12 months. That figure has increased from about 270,000 at the end of 2005 to about 2.3 million today. A bulk of the orders placed on Vitacost's website were repeat customers.