Why Kroger Bought Vitacost

Kroger announced that it was going to offer $280 million for Vitacost.com, broadening its horizons and cementing its online plan.

Jul 14, 2014 at 3:07PM

Jumping on the organic train like a kid on a moonbounce, Kroger (NYSE:KR) is offering $280 million for online vitamin retailer, Vitacost.com (NASDAQ:VITC). Vitacost is a relatively small retailer, with revenue of just $382.7 million in its last fiscal year. Kroger, by comparison, gathered up $98.4 billion in revenue in its fiscal year. So what does Kroger see in this little online retailer, and what plans does it have for the long term?

What's in it for Kroger?
There's probably a long way to say this, but here's the short version: Whole Foods Market. Whole Foods has made a business and a fortune out of selling organic, sustainable, and healthy products. As the company's bottom line has grown, so has the American appetite for healthy products. According to Euromonitor International, Americans spent $23 billion on vitamins and supplements in 2012.

As the market continues to grow, more and more companies are getting in on the health act. Kroger's acquisition of Vitacost is part of its plan to offer more products through more channels -- Vitacost is online-only -- in order to build its revenue stream. In the announcement of the purchase, Kroger said that it "[intends] to grow Vitacost.com's strong position in the online nutrition market" while at the same time using its online platform to offer new options to online shoppers at its other brands.

Kroger has pushed its online strategy recently, and its acquisition of Harris Teeter and its "Express Lane" online platform will be strengthened by Vitacost's products. That should help Kroger kick its sales up a level from their already strong position. Kroger managed a 4.6% increase in comparable store sales -- excluding gas sales -- last quarter.

Kroger and the competition
While the Vitacost is a direct shot at the Whole Foods customer base, it's also going to help solidify Kroger as the strongest traditional retailer. Kroger is already out ahead of companies like Safeway, which only increased comparable sales by 1.8% last quarter, and which put up a meager 0.66% operating margin -- Kroger's operating margin was 2.8%.

Vitacost should help Kroger keep itself out ahead of its closest competitors while giving it a new avenue to pursue the markets of players like Whole Foods. This is an excellent move for Kroger -- even if it is relatively small -- and investors should be happy with the added expertise in online shopping. Kroger is setting itself up to be a company that owns the high end of grocery retail, and Vitacost is a step toward that end.

From organic apples to Apple's next smart device...
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers