Harris Teeter Hangs Out ‘For Sale’ Sign
Harris Teeter, the upscale grocery chain headquartered in North Carolina, has confirmed that it has hired J.P. Morgan to assist it as it pursues strategic alternatives.
According to a Charlotte Observer report, two unnamed private equity firms approached Harris Teeter to determine management’s interest in selling the company.
What company ultimately buys Teeter could determine its eventual fate.
RetailWire BrainTrust panelist David Livingston told the Observer, "I would expect one of the private equity retail morticians to put the company on life support and sell off all its organs."
Others think the grocery chain is more likely to be purchased by a competitor. A chain such as Publix, for example, already engaged in a northward push and starting to move into Teeter’s territory, could use an acquisition to accelerate its expansion. Teeter currently operates stores in eight states and Washington, D.C.
Ahold and Kroger were mentioned as possible suitors in a Wall Street Journal article on Teeter’s plans.
"We’ll be consolidators in that we’ll continue to buy assets, but I don’t think it will be a clear strategy that we’ll go out and buy the world," Kroger CEO David Dillon told the Journal.
Discussion Questions
What is your evaluation of Harris Teeter as it is currently configured? What potential acquirer would be the best match?
Harris Teeter is a classy and classic supermarket operator that some smart venture capital group with a pile of cash should grab, ASAP.
Harris Teeter is one of best upscale markets in its trading area and would be a perfect match for a company like Publix. Most of its customers still call it My Harris Teeter for good reason; they know customer service. Some of the other possible suitors would not and could not meet the expectations set by Harris Teeter. I also believe they would be just fine on their own given the right investment firm buying them.
Given the relatively solid status of Harris Teeter I would be surprised if an equity player would find the multiples attractive enough to purchase the chain, knowing there would be little opportunity for a sizable profit in a few years when they re-sell.
As for other chains making the acquisition, intuitively, Publix makes the most sense, in that they would likely have the cash to make the deal and it would fit into their current geographic coverage logistically. Kroger is always a potential player, but they have been fairly quiet on the acquisition front of late. Most others are either too small, or in financial straits themselves, and not in position to play.
In any event, my hope is that they are purchased by a chain or enterprise that has similar standards and wants to run great stores. Losing another really good grocery chain to the vagaries of capital investment, in which case (as David Livingston describes), would not be good for the Harris Teeter or their shoppers!
I am a fan of local regional supermarket chains. Harris Teeter is a well-run, upscale retailer. I hope it won’t be acquired by a different retailer that will lower the bar in terms of product selection, distribution, customer offerings, etc.
Perhaps a retailer looking to advance its upscale image or building a separate track for the economically less challenged could leverage the Harris Teeter equity. Maybe Giant Eagle fits the bill.
As an upscale grocer, Harris Teeter has a dedicated and loyal shopper base. Noting the rise of shares since its announcement to review “strategic alternatives,” I’d say the company isn’t ripe for a complete overhaul just yet. However, if it is sold, I’d expect brands like Wegmans or Whole Foods to be front runners to purchase all or part of the company.
As a North Carolina native, I like Harris Teeter a lot as well. And I’d love to jump on the “Publix should buy it” bandwagon because they are similarly cultured operators. But I wonder if Publix could really operate a substantial chain under another banner. Their culture as Publix may be too strong to allow that. And I don’t think the folks who grew up with “My Harris Teeter” would take kindly to a name change. So I’m going with Kroger as the next best choice due to their demonstrated propensity to do all of the above rather well. Besides, Dave Dillon didn’t say “no.” 😉
Harris Teeter is one of our great leading regional chains. They have a great understanding of their customers and a very loyal customer following. Their ability to grow will require infrastructure investment for a larger geographic area. The best match would be Delhaize with Hannaford, or Ahold with Giant.
Few grocery retailers will find it fun to compete against the Publix/Walmart one-two punch. Winn Dixie, Food Lion, Albertsons, and BI-LO have found the best defense was shuttering stores, bankruptcy or both. When it comes to being a grocery operator, Harris Teeter is average. They look nice, but they are still average. Publix will be the new average and than means Harris Teeter will become the new below average.
Walmart has come in, tenderized Harris Teeter, weakened them to a point they can’t pay off their debt, and now Publix will come in. Publix will play cat and mouse with them like they did with Winn-Dixie. Companies like Kroger don’t like buying declining stores. Kroger has avoided moving into a Publix market area like the plague. Conventional grocers that have entered into the Publix arena have not lived to tell about it.
I think a private equity group is the best fit. They could come and sell off under-performing stores, milk the cash flow for as long as possible, lay off excess labor, cut expenses, and borrow as much cash as possible and redistribute to the investors.
The owners have already gone through a revolution in the textile industry with the thread business and know what it is like to surf in a tsunami. The barbarians from Florida are already laying siege to the gates of the Queen City. As Kenny Rodgers sang ” You got to know when to hold ’em, know when to fold ’em. Know when to walk away and know when to run.”
Consolidation is going to happen around this impressive grocer. Their likely best fits would be Publix or Kroger, as many others have pointed out. This is not a play for the venture capital lads, as they will cream profits at the beginning, but likely destroy a strong brand.
The buyers will call the play here, as they will take a tip from the 2,000 year old Chinese board game of Wei Qi (pronounced way-chee), or a game we know as Go in the United States.
Some stunting and blocking tactics will come into play, in order to control turf. Both Kroger and Publix have relative familiarity to the Carolinas and Southeast population. My bet is on Kroger gaining a stronger position, if they win this one, based on their stronger distribution system, private label, and loyalty programs. A total of 211 stores would challenge Publix to absorb.
The consumer will be a winner either way with these firms, as both have a strong focus on the customer, similar to Harris Teeter.
I have never shopped at Harris Teeter, but I have heard it described as “the Wegmans of the South.” If that’s true, it would be a great acquisition for Publix, which is a good chain that could benefit from some upscale DNA. If Publix could learn from Harris Teeter if would become a more credible place to buy premium products, which could only have a positive impact on margins.
Like others, my best guess is that among retailers, Kroger has probably the optimum mix of resources, business philosophy and need to make a Teeter acquisition work.
Publix would be an interesting fit. It occurred to me earlier that while Publix has been heading north up the coast, Wegmans is moving southward. I doubt Wegmans has the financial capacity to handle such a deal, but that might make for an interesting pairing, as well.
I think the idea of Publix buying HT is insane. Publix is an employee-owned cult. They would not be able to reprogram the minds of managers and employees. That must all be developed from within. At some point they might cherry pick some of the stores. Managers and employees must be on the same page as Publix from day one. Publix will not waste time and money going through a massive learning curve. They take methodical baby steps, not giant leaps. I’m sure Kroger has modeled out this market 5 years in the future and it probably makes no financial sense.
Any time a chain buys another chain, sales drop about 15%. That’s not a good place start.
Wegmans? Seriously? What’s their experience with leap-frog acquisitions?
Like Ronald, my perspective on Harris Teeter is from afar—in this case awards in architectural magazines (which probably means they misspent their money)—but My! What a contrast between most of the commentator’s cheerleading, and the singularity of David’s cynical—albeit colorful—remarks. Unfortunately, for HT, it’s David who has the industry-specific knowledge, so I’m apt to give him more weight. Good luck guys.
Although I’ve only “visited” Harris Teeter while traveling (since they have not ventured west to Wisconsin), I’ve been quite impressed. For the right suitor, this is a well-run, differentiated operation. It could certainly be a nice fit for Publix, but I’m not in the prediction or speculation business.
Harris Teeter operates some good to very good stores. That said, they’re no Wegmans.
I only had some experience with this chain in a VA DC Suburb and was initially impressed by the flashy looking stores inside and out. Comparing this chain to Wegmans is laughable.
Then I got to looking around the stores… Boar’s Head in deli, other upscale looking offerings there all selling at outrageously high prices. The departments were not the cleanest I’ve seen either. Bakery also looked below average and item quality appeared marginal at best. I was not impressed with my purchases either. Produce was well presented but poorly rotated.
Prices were higher than Whole Foods. Quality and freshness were much worse. Service in every store was okay at best. I was far from impressed….