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The Kroger Co. (KR), Harris Teeter Supermarkets Inc (HTSI): Growth Gets Better With Size For These Retailers

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Customer satisfaction and an enhanced buying experience are the new focus for retailers. The preference for shopping at convenience stores and eating away from home has increased the demand for “mini-markets and supermarkets.” Retailers are capitalizing on this opportunity with new stores, innovative products, huge discounts, and loyalty programs. Let’s look at the three retail companies developing and executing appropriate strategies in this transforming industry.

The Kroger Co. (NYSE:KR)

Increase in out of home consumption to boost sales

Companhia Brasileira de Distrib. (ADR) (NYSE:CBD)’s Assai is a Brazilian cash and carry wholesale store that targets restaurants, hotels, and other small and medium enterprises that make cheap and bulk purchases.

Assai’s gross revenue increased 18.5% year-over-year in 2012, contributing 16.4% to the company’s total food sales. Assai’s sales per invoice was $49.01, compared to the average of $30.45 in hypermarkets and $19.04 in supermarkets in Brazil in 2012. Furthermore, Companhia Brasileira de Distrib. (ADR) (NYSE:CBD) intends to open 12 to 15 Assai stores in 2013, and open an additional 60 stores across Brazil from 2014 to 2016.

In Brazil, 31.1% of the total population consumed food away from home every week in 2008-09, and according to Portal, regular eating away from home could reach 50% in 2020. The rising wages, lower unemployment, and urbanization are the main drivers behind this increase. Due to the shift in consumers dining away from home and increasing convenience purchases in the neighborhood, Companhia Brasileira de Distrib. (ADR) (NYSE:CBD) is also giving more attention to its Minimercado extra — a mini-market store. It is planning to open 100 new stores in Brazil by 2013. It opened 23 new stores in the second quarter of 2013 and plans to open 100-150 stores every year. This is because people are avoiding large purchases and are instead making small purchases in mini-markets. Among the company’s retail store brands, Minimercado had the highest growth in gross sales at 32.4% year-over-year to $112.24 million in 2012. Analysts expect to generate $175.20 million in 2013 with 207 stores.

Acquisition to achieve upscale expansion

Last month The Kroger Co. (NYSE:KR) entered an agreement with Harris Teeter Supermarkets Inc (NYSE:HTSI) , under which it will purchase all outstanding shares of Harris Teeter at a price of $49.38 each in cash, for a total value of $2.5 billion. Post-acquisition, Harris Teeter Supermarkets Inc (NYSE:HTSI) will operate as a subsidiary of The Kroger Co. (NYSE:KR). This will increase The Kroger Co. (NYSE:KR)’s total store count by 9% to 2,630 stores across 34 states in the U.S.

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