Cincinnati based supermarket Kroger announced plans this week to buy Vitacost.com Inc., an online seller of vitamins and other health-related products, in a deal that would give the largest traditional U.S. grocer a stronger online presence.
According to the definitive merger agreement, Kroger will purchase all outstanding shares of Vitacost.com for $8 per share in cash, or approximately $280 million.
The purchase price represents a premium of 51% to Vitacost.com’s closing share price on Feb. 19, the day before a major Vitacost.com shareholder publicly asked the company to evaluate strategic alternatives. Both companies’ boards of directors unanimously approved the terms of the agreement.
Kroger hopes the deal will help it compete with rapidly expanding online competition from Amazon, FreshDirect and a slew of traditional bricks and mortar retailers.
Additionally Kroger plans to add its rapidly growing natural and organic Private Simple Truth, to Vitacost’s website, which currently offers more than 45,000 products to about 2.3 million customers. The move has the potential to bump Simple Truth over $1 billion in sales this year.
Florida-based Vitacost was founded in 1994 as a catalog retailer and began shifting online five years later. The retailer sells beauty products, natural and organic foods and vitamins and supplements. Revenue in 2013 grew 16% to $382.7 million but it reported a net loss of $13.7 million, its fourth-straight year in the red.
Kroger employed a similar strategy with its recent acquisition of Harris Teeter for $2.44 billion. That deal gave it access to what’s called click-and-collect technology, where customers order online and pick up at the store. Kroger says that model has significant potential for growth in fresh food sales.