(Adds context, background, updates share move)
By Lisa Baertlein and Shailaja Sharma
July 2 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
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
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)