Cincinnati-based grocery giant Kroger Co. wants to beef up its online operations. The company announced on Wednesday that it would buy Vitacost.com Inc, online retailer of vitamins and other health-oriented products for about $280 million.
Though the $280 million deal is trivial in financial terms for a company with $100 billion in annual sales, Kroger expects the acquisition to open up various opportunities to sell its products online and enhance its technology expertise to compete with companies like Amazon.com and Wal-Mart. The company has been expanding its store-based products quicker than most competitors, with its sales having grown strongly every quarter for over a decade.
The Boca Raton, Fla based Vitacost.com was founded in the year 1994 as a catalog retailer and shifted online almost five years later. Its website currently sells more than 45,000 products including beauty care products and natural and organic foods in addition to vitamins and supplements, minerals, herbs and sports nutrition to nearly 2.3 million online shoppers. Its revenue increased 16% in 2013 to $382.7 million, though it reported a net loss of $13.7 million, its fourth-straight year in the red.
The company has nearly 408 employees at its Lexington facility. The companies decided to operate Vitacost.com as a Kroger subsidiary that will continue to operate its facilities in Lexington, Boca Raton and Las Vegas. Overall Vitacost.com has more than 800 employees. Kroger said it intends to include its own corporate brands and its own natural and organic foods, which is sold under the brand name Simple Truth to Vitacost.com website. Kroger expects Simple Truth to reach $1 billion in sales this year. Vitacost provides Kroger a ready-made e-commerce shopping platform that can be adapted and expanded over the next few years
Kroger said its main stimulus is buying Vitacost.com online platform which includes delivering orders to home in all 50 states, including 16 states that are not served by Kroger supermarkets. The deal is expected to assist Kroger in gaining new U.S. and international sales. The company’s online retail options are just bound to King Scoopers in Denver and 154 Harris Teeter stores, which Kroger acquired last year for $2.44 billion. Teeter's click and collect online service allows customers at certain stores to order groceries online and pick them up at the store.
Kroger is paying $8 per share in cash for Vitacost, a 27 percent premium to its Tuesday closing price of $6.28 on the Nasdaq.