Kroger Expands Online Meals Offerings -- WSJ
May 24 2018 - 3:02AM
Dow Jones News
Supermarket chain to acquire Home Chef in agreement valued at up
to $700 million
By Heather Haddon
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 24, 2018).
Kroger Co. is buying Home Chef, the largest private meal-kit
company in the U.S. by sales, its second deal in as many weeks
aimed at bolstering the supermarket chain's online business.
The deal -- $200 million initially and up to $700 million if
Home Chef hits performance targets -- comes about a week after the
Cincinnati-based grocer took a roughly $250 million stake in
British online grocery operator Ocado Group PLC. The companies are
poised to open a series of automated warehouses for grocery
delivery in the U.S.
Kroger, the largest U.S. supermarket chain by stores and sales,
is quickly pushing to shake up its business model as its faces
competition on all fronts. Amazon.com Inc. is ramping up delivery
service and discounts at Whole Foods stores for Prime members,
while Walmart Inc.'s investments in its stores and technology are
paying off. Deep discounters, meanwhile, have pressured Kroger to
slash costs as weak inflation in food prices haven't boosted sales
as grocers had hoped.
"We are not blind or ignoring what is going on in the space,"
said Yael Cosset, Kroger's chief digital officer, in an interview
Wednesday.
Kroger faces shareholder pressure to innovate. The company's
same-stores-sales growth has weakened after years of steady
increases and shareholders have punished Kroger for long-term
investments that have weighed on immediate profits. Kroger's stock
is down about 11% so far this year.
Kroger executives said Wednesday they are aware of the changes
sweeping the food retail sector, but were pursuing new ways to sell
food in response to customer demand, not Amazon, and that talks
with other companies about deals were continuing.
Meal kits offer their own risks. The business is extremely
competitive, with over 100 meal-kits companies operating online. A
number of grocery stores have started their own meal-kit lines,
including Kroger whose existing Prep+Pared meal kits would fold
into Chicago-based Home Chef, which is expected to operate as a
stand-alone company.
Making boxes of premeasured ingredients for meals have proven to
be operationally challenging and tough to do profitably. Blue Apron
Holdings Inc. is starting to sell its kits in Costco Wholesale
Corp. stores after a series of operation challenges led to a drop
in the number of its subscribers. Startups are increasingly looking
to team up with supermarkets to gain new customers.
Some analysts expect more deals between meal-kit companies and
food retailers as consumers want to buy the boxes both in stores
and online. Pentallect Inc., the food consultancy, projects that
the multibillion-dollar meal-kit market will continue to grow at
about 20% annually.
"These big retailers all see a window of opportunity in buying
these companies to get some expertise," said Bob Goldin, partner at
the Chicago firm.
Kroger's deal is the second tie-up between a national grocery
chain and a meal-kit startup, with Albertsons Cos. buying Plated
last year.
Home Chef has sought a niche in accessible meal kits that aren't
as involved to make as some of those sold by Blue Apron and some
other competitors. Executives said the company's menus and focus on
consumer data proved a good fit for Kroger, which seeks to cater to
mainstream shoppers and use technology to closely study buying
patterns.
Once the deal clears regulatory approvals, executives expect
Home Chef meals to quickly become available in many of Kroger's
2,800 stores. The company said it delivers three million meals a
month nationally. Each meal currently averages around $9.95 a
serving. Home Chef is the third largest meal-kit company by sales
after the two largest providers, publicly traded Blue Apron and
HelloFresh SE.
Home Chef said it made $250 million in sales in 2017 and has
posted two profitable quarters. Kroger executives said they don't
expect the acquisition will hurt earnings this year.
Private-equity firm L Catterton led Home Chef's most recent $40
million funding round, and the company had been involved in deal
talks in the past several months.
Write to Heather Haddon at heather.haddon@wsj.com
(END) Dow Jones Newswires
May 24, 2018 02:47 ET (06:47 GMT)
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