Kroger has agreed to pay about $280 million to acquire Vitacost.com, a deal that will add a nutrition and health-focused e-commerce business to the traditional grocery company’s assets and bolsters the company’s efforts to expand its natural foods offerings.
Kroger (KR) said it will pay $8 per share in cash to buy Vitacost (VITC), a purchase price that is a 27% premium to Vitacost’s closing price on Tuesday and 51% above the level the company traded at before a major shareholder in February publicly asked the company to mull strategic alternatives.
“Vitacost.com’s core focus on healthy living products is complementary to our fast-growing natural foods business, and we intend to grow Vitacost.com’s strong position in the online nutrition market,” said Kroger Chief Executive Rodney McMullen in a statement.
The acquisition, which is expected to close in the third quarter, will add a platform to Kroger’s business that includes technology and ship-to-home fulfillment centers to serve customers across all 50 states and internationally. Kroger’s 2,642 traditional supermarkets–which include two dozen banner names including Kroger, Harris Teeter, Dillons and Food 4 Less–have a physical presence in 34 states and D.C.
Vitacost’s business includes the sale of more than 45,000 vitamins, supplements, sport nutrition and other health and wellness products. The company has more than 800 associates and operates two distribution centers in the U.S.
Vitacost’s sales have risen sharply over the years, totaling $382.7 million in 2013. Results have been bolstered by so called “active users,” which the company defines as customers who have made a purchase over the last 12 months. That figure has increased from about 270,000 at the end of 2005 to about 2.3 million today. A bulk of the orders placed on Vitacost’s website were repeat customers.
But the company’s operating expenses remain high, resulting in annual losses for the past four years.
Kroger’s move to acquire Vitacost gives it a greater ability to tap the U.S. nutrition and dietary supplement markets. According to the Nutrition Business Journal, both of those segments are expected to report high single-digit U.S. sales growth over the next seven years.
Kroger on Wednesday said it intends to finance the deal with debt, and intends to commit to maintaining its investment-grade credit rating. The company also affirmed its per-share earnings outlook for the year, as well as its long-term targets.
