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.
Vitacost began operations in 1994 as a catalog retailer of third-party vitamins and supplements under the name Nature's Wealth Company.[ and introduced proprietary vitamins and supplements, which has since expanded to include food, beauty products and sports nutrition. In 2008, the company completed construction of its manufacturing facility located in Lexington, North Carolina. [5] However, effective September 1, 2012, Vitacost agreed to lease its manufacturing facilities to a third party provider. Vitacost went public on September 23, 2009.[7] During 2010, the company expanded and upgraded its West Coast distribution facility located in Las Vegas, Nevada. The Company began a similar project for its east coast distribution center, located in Lexington, North Carolina in the spring of 2010, with the building construction completed in the first quarter of 2011. launched a cruelty-free specialty store showcasing beauty and personal care products that are independently certified by the Leaping Bunny Program, which is operated by the Coalition for Consumer Information on Cosmetics.
In 2013, Vitacost kicked off several new product lines, including a new sports nutrition line, "ARO: Black Series,"[10] which includes pre- and post-workout formulas, protein powders, flavored glutamine, creatine and branched-chain amino acids.[2] The acquisition was completed in August 2014. ^ You Missed This IPO. , September 28, 2009 ^ UPDATE 1-Vitacost IPO prices for $12, within range. , September 23, 2009 Nutrition Industry Stocks Rebound Significantly in 2009. Vitacost is a relatively small retailer, with revenue of just $382.7 million in its last fiscal year. Kroger, by comparison, gathered up $98.4 billion in revenue in its fiscal year. So what does Kroger see in this little online retailer, and what plans does it have for the long term? 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.