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TheStreet Open House

Kroger Ready to Share Wealth From Competition With Latest Acquisition

Stocks in this article: KRDPSULJNJPEPSWYSVUSALE

NEW YORK ( TheStreet) -- Kroger's (KR) latest acquisition had less to do with physical square footage and more to do with consumers who shop online. As customers continue to choose online shopping and digital coupons to save money on grocery items, Kroger found it necessary to acquire You Technology. The acquisition will bridge Kroger's physical and digital operations and also provide upside as it helps its competitors.

You Technology is a leader in digital coupons and brand management. The company works with such clients as Dr Pepper Snapple Group (DPS), Unilever (UL), Johnson & Johnson (JNJ) and Tropicana (PEP). More important, You Technology provides digital coupon platforms for grocery retailers Kroger, Giant Eagle, Safeway (SWY) and SuperValu (SVU).

Kroger will keep You Technology as an independent company. With the acquisition, Kroger will now be able to benefit directly from competitors like Safeway and SuperValu. As digital coupons increase user engagement and store spending, Kroger will see a small percentage of sales come into its financials. You Technology is also in growth mode and could expand into other retailers with cash backing from Kroger. You Technology CEO Cheryl Black said her company intends "to build and grow the premier retailer and customer-centric digital coupon platform in the industry."

Kroger's ownership of You Technology could also help its relationships with consumer brands. With Tropicana and Dr Pepper among key customers of You Technology, Kroger should be able to leverage this as a retailer and technology provider. Kroger now has a much larger impact on the sales seen at large companies like Dr Pepper, Pepsi and Unilever.

One item to watch is the rumored sale of Safeway. The company is exploring its options and may be bought out by a larger competitor. Kroger has been ruled out by most, but could still be in play. If a company buys Safeway, it may continue to use You Technology, integrate You Technology into its other brands or choose to find a different coupon provider altogether.

Founded in 2008, You Technology created a measurable way to drive consumer purchases. The company has a presence in 10,000 retail stores. More than 1.1 billion coupons have been downloaded from You Technology.

Kroger has continued to see a boost in sales from its digital coupon platform. The company began digital coupons in 2009 and reached the 500 million download mark in less than three years. Over the last 12 months, Kroger customers have downloaded coupons 400 million times.

The coupon market is a huge one, and Kroger is smart to acquire one of the smaller players in the game. Coupons.com, which is set to hit the public market soon, saw a valuation of $1 billion earlier this year. RetailMeNot (SALE), which operates a digital coupon marketplace, now has a market capitalization of more than $2 billion.

Kroger shares are up only 2% in 2014 with a share price around $41. Over the last 52 weeks, shares traded as high as $43.85, a mark seen in October 2013. The company continues to push its store expansion plans and should now see growth from digital coupons. You Technology was a smart purchase by Kroger and will help the company as it grows for the future.

At the time of publications, the author held no positions in any of the stocks mentioned.

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