Dive Brief:
- Kroger announced Wednesday that it plans to acquire supermarket chain Giant Eagle for $1.65 billion.
- The deal, which the companies expect to close in 2027, includes $1.25 billion in cash plus the assumption of $400 million in liabilities. The grocers expect to make “limited” divestitures of Giant Eagle stores in order to receive regulatory approval.
- “We evaluated the opportunity carefully, and the strategic fit is clear. Giant Eagle expands our reach into attractive adjacent markets, allowing us to do what we do best: Run outstanding stores, deliver fresh foods and convenient meal solutions at affordable prices, and take care of our customers and associates every single day,” Kroger CEO Greg Foran said in a statement.
Dive Insight:
The deal is set to expand Kroger’s geographic footprint and add nearly 200 supermarkets to its fleet more than a year after its bid to acquire rival chain Albertsons fell through. It also marks the first acquisition under recently appointed CEO Greg Foran.
Giant Eagle operates stores in Pennsylvania, Ohio, West Virginia, Maryland and Indiana. Kroger already runs stores in three of those states and will gain access to Pennsylvania and Maryland through the acquisition. The former state is a stronghold for Pittsburgh-based Giant Eagle and offers a distinct opportunity for Kroger to reach new shoppers and build market share.
Like Kroger, Giant Eagle places a premium on fresh food and has a robust pharmacy and private label business. And like Kroger, Giant Eagle has come under considerable pressure from discount chains and mass merchandisers, including Walmart. The regional chain divested its c-store business last summer and has revamped its loyalty program and pricing promotions to stay competitive.
Neil Saunders, managing director with GlobalData Retail, wrote in an email that the acquisition represents a key win for Kroger and Foran at a time when the supermarket chain is under considerable scrutiny from investors and consumers.
“Unlike the Albertsons proposal — this deal carries considerably less risk and has a much more solid strategic basis,” he wrote.
However, improving Giant Eagle’s performance adds to a considerable to-do list for Kroger right now, he added.
“Making a success of the deal requires [Kroger] to absorb a new division at the same time as fixing the core of its own business. It will also need to sweat the assets of Giant Eagle through things like loyalty programs, its media network and other incremental revenue streams,” Saunders wrote.
Under Foran, Kroger is focusing on improving store performance, lowering prices and improving efficiency across the business. During the company’s most recent earnings call, he said Kroger needs to simplify its pricing and promotions as well as more effectively coordinate across its back-end operations.
“[T]he way we operate behind the stores needs to improve. We need to move faster, make decisions more quickly and get more out of the assets and the talent we already have,” he said.
