The Harris Teeter name isnt going anywhere, but executives at the Kroger Co. say theyre ready to start behind-the-scenes work combining everything from pharmacy systems to the computer models that tell managers how many cashiers they need.
Kroger on Wednesday said it has officially closed the $2.5 billion acquisition of the Matthews-based grocer, which was first announced in July.
Now, the fun starts, said Kroger Chief Financial Officer Mike Schlotman. He took pains to say Harris Teeter customers wont notice major changes.
The Cincinnati-based company said it expects job losses at Harris Teeters headquarters will be minimal. Kroger expects to save money by combining its orders for food with Harris Teeter, and it will try to bring faster checkout times to stores.
Schlotman said Kroger is aware of the loyalty many Harris Teeter shoppers feel. One of Krogers goals is to avoid alienating longtime shoppers in Charlotte, where the companys roots stretch back to the 1930s.
Our view is if we dont change Harris Teeter, we dont have to tell people about changing Harris Teeter, said Schlotman. He also said the company isnt going to cut jobs in stores or at its distribution centers.
As a wholly owned subsidiary of Kroger, Harris Teeter will keep its Matthews offices, its name and a degree of autonomy. However, two high-ranking executives at Harris Teeter have left the company, Kroger said.
Harris Teeter Chairman and CEO Thomas Dickson has retired, and longtime Chief Financial Officer John Woodlief left to pursue other interests, Kroger said. Harris Teeter will be led by the companys current president, Fred Morganthall.
The merger with Kroger provides the opportunity to continue to expand the Harris Teeter brand as well as to provide future employment and career advancement opportunities for our associates in an increasingly competitive market, said Dickson, in a statement.
Schlotman praised Dickson and Woodlief. We respect the heck out of them, he said.
John (Woodlief), up to yesterday, was arguing with one of their vendors. He joked with me, Theres no lame duck CFO down here, Schlotman said. He could have just said, No sweat off my back, here you go.
The departing executives are in line to receive payouts as part of the deal. According to securities filings, Dickson could receive up to $16.2 million, and Woodlief could receive up to $10.4 million, consisting of cash bonuses, accelerated stock awards and gross-up payments to offset taxes.
Harris Teeter declined to make any executives available for an interview Wednesday.
Kroger CEO Rodney McMullen said the deal gives Kroger better access to attractive markets. About two-thirds of Harris Teeters stores are in North Carolina.
We are pleased that our merger is complete and look forward to bringing together the best of Kroger and Harris Teeter to benefit our customers, associates and shareholders, McMullen said in a statement.
The acquisition propels Kroger into the rarefied ranks of companies with more than $100 billion worth of annual sales. There are 21 other such companies on the Fortune 500 list, including Apple, Bank of America and General Motors.
The deal also removes a corporate headquarters from Charlotte. In recent years, the area has seen several major local companies acquired, including Wachovia, Goodrich Corp., and now Harris Teeter. Harris Teeter shareholders will receive $49.38 a share from Kroger, which financed the deal with new debt.
Harris Teeter is the Charlotte regions No. 1 grocer by market share, with 23.7 percent of sales, according to data from Chain Store Guide. But the grocer faced increased competition from other grocers in its core markets. Wal-MartStores is opening more Neighborhood Market stores, the discount retailers version of a supermarket.
At the same time, Florida-based Publix Super Markets is opening a North Carolina division based in Charlotte. Publix has already announced plans for 14 Charlotte-area stores, as well as more throughout the state. The upscale grocer, which has 1,076 stores, has similar customers to Harris Teeters clientele.
In a message to employees last year, Harris Teeter executives said increased competition from larger grocers was one driver behind seeking the deal with Kroger.
We face a very difficult competitive environment, especially from price discounters such as Walmart, Aldi and Food Lion, Dickson and Morganthall wrote. The need to roll out new technology to service the customers grows with each passing year, which requires a great deal of financial investment. To compete effectively size and scale do matter.
Publix and Kroger are longtime competitors. They go head-to-head in markets such as Atlanta, where each has about two dozen stores. Kroger is the nations second-biggest grocer, after Wal-Mart, while Publix is No. 10.
Changes in stores
Schlotman said the first changes Kroger makes will be largely invisible to customers. Theyre all behind-the-scenes sort of things, he said.
• The companies plan to start coordinating their purchases soon. Many of their private label products are made by the same food manufacturers, Schlotman said, so the combined company should be able to secure better pricing.
A lot of it has to do with bringing them into the procurement contracts we have, said Schlotman. He said the company will try to pass along lower prices to customers.
• Kroger will also update Harris Teeters pharmacy computer systems, Schlotman said. They have an older pharmacy system, he said.
• Other changes Kroger will bring center on analyzing shoppers data. Kroger is a partner in dunnhumbyUSA, a major data-analytics firm, and will use that capability to tailor Harris Teeters offerings more specifically to customers.
Schlotman declined to give specifics. Lets just say the Harris Teeter folks have already scheduled a meeting with the dunnhumby folks, he said.
• Kroger also has a faster average checkout time than Harris Teeter, Schlotman said. He attributed that to Krogers predictive software that analyzes shopper trends by time of day at each store, telling managers how many people they should have to staff checkout counters.
For example, Wednesday might typically be a slow day. But on a certain day of the month, such as the first or second day after food stamp benefits come out, traffic might pick up considerably, he said.
This system would know youre about to get slammed and tell you to put more people on, not send someone on break, said Schlotman, who said Kroger will implement its system at Harris Teeter stores.
• And Kroger will examine the possibility of bringing gas stations to Harris Teeter stores, which Schlotman said had been a big win for Kroger in terms of bringing more customer trips. But many Harris Teeter stores are in more urban areas and have less room to open fuel centers, Schlotman said, so its too early to say how or where the program could roll out.
Not all of the changes will flow from Kroger to Harris Teeter, Schlotman said. Kroger will use Harris Teeters fresh produce practices to improve its own offerings.
Theyve just always gotten better marks than we have on produce, meat and the deli department, he said. Theres something in their practices. ... Their produce appears fresher.
Harris Teeter employs roughly 550 people at its Matthews headquarters, on Crestdale Road. Schlotman said most of those will remain in place, even as Kroger looks for savings.
Were very slow and very careful with how we do things, said Schlotman. He said Krogers message to Harris Teeters corporate employees has been, Were a big organization. We would expect to have a position for you somewhere in this company. Most of those would be in Matthews.
Kroger is a much more far-flung company than Harris Teeter, operating thousands of stores under two dozen different names, including Kroger, Fred Meyer, Frys, Dillons, King Soopers, QFC and Ralphs. Schlotman said some Harris Teeter employees have asked to transfer to divisions in other cities where they would like to live.
Kroger said it expects to achieve cost savings of $40 million to $50 million within four years, helping make the Harris Teeter acquisition profitable. The company said those savings will come largely from the benefits of Krogers enhanced scale, but the chain will also look at combining some behind-the-scenes and administrative functions.
Schlotman said Kroger has offered a very generous severance package to any employees whose jobs are cut in the next 18 months, but he also said he doesnt expect many will have to use the package.
We did that to calm peoples nerves about thinking wed come in and slash and burn, he said. Thats not our style.
At the store level, Kroger wont cut any employees, Schlotman said. The company also doesnt anticipate any changes at Harris Teeters Indian Trail or Greensboro distribution centers, or its High Point dairy facility.
Kroger shares closed Wednesday at $36.53, down less than 1 percent.
Portillo: 704-358-5041; Twitter: @ESPortillo
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