Kroger offers $280 million for Vitacost.com in health play

Wed Jul 2, 2014 1:18pm EDT

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(Reuters) - Kroger Co said on Wednesday it would buy Vitacost.com Inc, a health products retailer, for about $280 million in a bid to expand its presence in the profitable health and wellness niche popularized by Whole Foods Market Inc.

A growing number of U.S. shoppers are willing to pay extra for products such as organic foods, local produce and specialty items such as vitamins and other supplements. Eyeing bigger profits, grocery sellers from Kroger to Wal-Mart Stores Inc and drugstore chain CVS Caremark Corp are hoping to cash in on the trend.

Shares in Vitacost soared after the announcement of the deal, which also could bolster Kroger's e-commerce capabilities.

In early-afternoon trading, Vitacost jumped 27 percent to $7.98, while Kroger slipped 0.2 percent to $49.44.

Boca Raton, Florida-based Vitacost sells a range of products, including vitamins, herbal remedies and other supplements as well as organic, gluten-free and other specialty food products to about 2.3 million regular customers.

With the tie-up, Kroger, the biggest U.S. supermarket operator, could also expand sales of its own Simple Truth products that are organic or made without some preservatives or other artificial ingredients, company executives said.

Vitacost's technology and ship-to-home fulfillment centers could enhance Kroger's existing online shopping capabilities.

Food retailers and entrepreneurs have discovered the popularity of home delivery in U.S. cities, but they are struggling to get a foothold in other parts of the country.

As a result, online grocery sales account for just a small fraction of the overall business in the United States.

Seeing opportunity, e-commerce giant Amazon.com Inc last year debuted its AmazonFresh online grocery business in a handful of West Coast cities.

Wal-Mart, which sells more groceries than any other U.S. retailer, unveiled plans to integrate e-commerce with its sprawling network of brick-and-mortar stores in June. It also appointed a new head of its online business.

Kroger's offer of $8 per share represented a 27.4 percent premium to Vitacost shares, which closed at $6.28 on Tuesday on the Nasdaq.

Cincinnati-based Kroger plans to finance the all-cash deal with debt. It also reaffirmed its earnings outlook of $3.19 to $3.27 per share for fiscal 2014.

Consac LLC, a major Vitacost shareholder, in February asked Chief Executive Officer Jeffrey Horowitz to sell the company.

Vitacost has reported losses for the past 15 quarters and had annual revenue of $382.7 million in 2013.

Kroger bought North Carolina-based Harris Teeter Supermarkets for about $2.5 billion on Jan. 28, adding more than 200 supermarkets to its network.

(Reporting by Shailaja Sharma in Bangalore; Editing by Joyjeet Das, Don Sebastian and Jeffrey Benkoe)

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