NEW YORK (
) -- In snatching
Harris Teeter Supermarkets
off the shelf for nearly $2.5 billion,
is jumping into the consolidation game in the Southeast.
By adding a Southeast footprint, Cincinnati-based Kroger is taking on Jacksonville, Fla.-based
, which has also been expanding its foothold in the region with acquisitions. According to a source, Kroger's move into the region will likely portend additional acquisitions, in what is seen as the U.S.'s most fragmented grocery market.
Bi-Lo, controlled by private equity firm
Lone Star Funds
, itself has been on a bit of a spending spree since exiting Chapter 11 protection in May 2010. Bi-Lo acquired
for $560 million in December 2011. More recently, in May, Bi-Lo acquired
's Sweetbay, Harveys and Reid's operations in the Southeast for $265 million.
The grocery chain emerged from bankruptcy having slashed $60 million in debt off its balance sheet and in a prime position to pursue growth via acquisitions. It exited Chapter 11 with a $150 million cash infusion from Loan Star as well as a new $200 million term loan and $200 million revolver, according to The Deal Pipeline.
Kroger's deal for Harris Teeter will give it a big boost in the Southeast. Harris Teeter operates 212 stores, generating about $4.5 billion in annual sales.
The Deal Pipeline reported in 2011 that Harris Teeter was a likely candidate for consolidation. Other likely candidates in the mid-Atlantic and the Southeast include Black Mountain, N.C.-based
and Abingdon, Va.-based
Analysts have previously tabbed Kroger and Bi-Lo, as well as
Publix Super Markets
, as likely acquirers of such assets.
Due to a slow, but steady, economic recovery and a rise in home prices, strategic acquirers and private equity firms have more confidence in investing in the supermarket business. But the supermarket business remains highly competitive. Traditional outsiders such as pharmacy giant
have aggressively moved into the grocery business.
At the high end, retailers such as
Whole Foods Markets
offer an assortment of prepared foods as well as organic and natural foods and are luring away affluent shoppers. In addition to Whole Foods, other competitors include
Apollo Global Management
Sprouts Farmers Market
, which has filed for an initial public offering;
Fairway Group Holdings
, which itself popped by 33% during its stock market debut; and Trader Joe's.
Beyond the Southeast, Delhaize continues to review its portfolio for further divestitures, sources said. Potential divestitures by Delhaize could include
, with 179 supermarkets in the Northeast, and
, a chain of 57 discount stores in Maryland, Virginia, North Carolina, Pennsylvania and New Jersey, as well as
, a chain of 49 stores in Maryland, South Carolina, Virginia and North Carolina, it was reported. Such divestitures would be to support its core
Other supermarket giants looking to unload assets could include both
Great Atlantic & Pacific Tea
. Safeway owns
Genuardi's Family Markets
Randall's Food Markets
, which has put its
unit on the block, operates A&P,
National chains and large regionals are likely analyzing their portfolios to determine where their strengths and weaknesses lie, said Antony Karabus, president of financial advisory firm
's SD Retail Consulting practice. The idea would be to divest stores in weak markets and to make tuck-in acquisitions to shore up positions in core markets, Karabus explained
Written by Richard Collings