Kroger CFO talks acquisitions

The grocery category is heating up as the continued push from Walmart and Target puts pressure on traditional retailers to develop new formats, expand into new markets or demographics, or to merge in an attempt to gain more critical mass. Kroger (NYSE:KR), the largest grocery chain in the United States, has felt that pressure more keenly than most. According to CFO Mike Schlotman, the retailer is working hard to realize not just synergies, but assets of its latest acquisitions.

Kroger has made three large acquisitions in the past 16 months: Harris Teeter, digital coupon provider YouTech, and the remaining assets of customer analytics company Dunnhumby that it didn't already own.
The trick to managing these successfully, Schlotman told the Cincinnati Business Courier, is to focus more on the benefits of the business acquired than the financial synergies that can be realized.

"Whenever those happen on that big of a scale, you have to be very careful that you stay focused on the business and the customer and don't let any disruptions (occur)," he said. "We don't want a synergy number to be the item that drives a transaction because then you get focused on the wrong thing and try to make the merger work. And you'll get the synergy dollars quickly at the expense of something else.

"A big bonus with the Harris Teeter transaction was their click-and-collect, which was a profitable venture. What we're trying to do is on any given shopping trip, if a customer wants to interact with you in brick-and-mortar, if they want to order online and swing by the store and pick it up or if they want some products delivered to their home, how can we offer that opportunity for them at a price that makes sense and continue to increase our loyalty with that particular customer?" he said. The Harris Teeter acquisition has also allowed Kroger to enter markets it would have otherwise had to grow organically.

"Well, you know there's a Kroger store in St. Louis now, but that's not the new market entry," Schlotman said. "Frankly, if not for the Harris Teeter merger, we probably would have already announced the new market. As recently as they had gone in the Washington, D.C., and the Baltimore area, we're kind of viewing that as not replacing the new market we would go into, but a new market recently enough for them that we need to add a little capital to get it more fully developed than it is today, so we slowed down our new market a bit because they can be a little expensive in the early going. We're clear in our conviction of when and where we want to go. It's just a matter of when the timing is right."

For more: 
-See this Cincinnati Business Courier interview

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