Odds Against Big Kroger Acquisitions: Analysts

NEW GEOGRAPHIES

If given its choice, Kroger would probably like to expand into the Northeast, Currie added, “where Wal-Mart has less of a stranglehold in food retail and where Kroger could become the price leader with good-quality stores.”

According to Wolf, if Kroger were to seek to expand geographically through acquisition, it would probably be interested in the Northeast or Florida.

“The Northeast is attractive because of the huge populations in places like New York, Boston and Philadelphia,” he said. “What’s problematic for Florida is it’s a non-union state and Kroger, though it has some non-union operations, generally operates as a unionized chain.”

Cerankosky also cited the Northeast and Florida as the markets Kroger would most like to move into.

“It already has a large market share in most parts of the U.S., so it would run into antitrust issues in many regions. But in areas where it’s not represented, the Northeast and Florida would be particularly desirable.”

According to the unnamed analyst, Kroger would probably be most likely to make a major acquisition in a market where access to new sites is difficult.

“Kroger would have an interest anyplace where real estate is a challenge and where it makes sense for it to operate. That might mean it would consider doing an acquisition in the Washington, D.C., area — because it already operates in Richmond, Va. — before it would go into New England.

“It took a good hard look at both Acme and Shaw’s a few years ago, but neither was in good enough shape to meet Kroger’s criteria,” the analyst added.

Wolf told SN he doesn’t see Kroger changing its strategic approach to growth by acquisition “unless industry valuations come down over time. At certain valuations, it would make sense for Kroger to buy another chain, even if its prices were not close to Kroger’s levels.”