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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

July 9, 2013 at 10:26 AM

Kroger expands, with Amazon in its nightmares

An AmazonFresh truck arrives at a warehouse in Inglewood, Calif. (Photo by Kevork Djansezian / Getty Images)

An AmazonFresh truck arrives at a warehouse in Inglewood, Calif. (Photo by Kevork Djansezian / Getty Images)

Years ago, mighty Kroger tried a foray into the Southeast and had its head handed to it. This time, instead of trying to grow organically, Kroger is buying its position outright with the $2.44 billion acquisition of Harris Teeter Supermarkets. It’s a funny name, but in affluent markets such as Charlotte, N.C., Harris Teeter is the upscale store in competition against the likes of Food Lion, Bi-Lo, Publix and, increasingly, Wal-Mart. Harris Teeter has typically enjoyed better margins in this razor-slim business.

Kroger, headquartered in Cincinnati, will likely run Harris Teeter by its existing name, as it has Fred Meyer and QFC. Indeed, this is Kroger’s biggest acquisition since it bought Portland-based Freddy’s  in 1999 for $13 billion. But it marks further industry consolidation and more homogenization. Harris Teeter, founded in 1960 by W.T. Harris and Willis Teeter, employs 25,000 in 200 stores across eight states. There’s little overlap, but jobs will no doubt be clearcut at Harris Teeter’s headquarters in suburban Charlotte.

Seattle is among the fortunate cities with some choices that include chains but also local Metropolitan Markets and a number of individual stores, such as the upscale Ralph’s in Belltown and plenty of neighborhood bodegas along with a “buy local” ethos. Oh, there’s that market at the foot of Pike, too. But for most communities, it’s all chains, all the time.

The common narrative is that this latest round of consolidation is driven by Wal-Mart. But that’s old news. The new big dog is Amazon.com, with its AmazonFresh delivery which is expanding into Los Angeles and the Bay Area, at least to “select” neighborhoods. It tested the service for about five years in Seattle. Big investment in warehouses makes further expansion likely.

Success is not guaranteed. For one thing, Amazon must show it can manage its logistics against brick-and-mortar groceries where this is their primary business. Other online grocers have struggled because margins are so thin. But Amazon has the cash and the willingness to invest. For now, Wall Street is in Amazon’s bag, too.

A footnote: I’ve heard from readers who say that lately they have had trouble getting staples (e.g. paper towels) from AmazonFresh. A sign of strain as the L.A. venture is rolled out? Just a fluke?

And Don’t Miss: IMF reduces global growth outlook as U.S. expansion weakens | Bloomberg

Today’s Econ Haiku:

The crash couldn’t kill

One American value

Twinkies, built to last

0 Comments | More in Amazon.com | Topics: Amazon.com, grocery sector, Harris Teeter

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