A shopper loads items into a vehicle outside of a Kroger Co. supermarket in Sterling, Illinois, U.S. (Photographer: Daniel Acker/Bloomberg)

Kroger Beefs Up Amazon Response With $200 Million Meal-Kit Deal

(Bloomberg) -- Kroger Co. is getting serious about meal kits.

The grocery chain is expanding its presence in the industry with a $200 million deal to buy Home Chef, the third-largest U.S. meal-kit company. Kroger could pay out as much as $500 million more over the next five years if certain growth targets are hit, according to a statement Wednesday.

Kroger has been testing the sale of its own meal kits at more than 500 stores as supermarkets try to spark growth amid competitive pressure in the aftermath of Amazon.com’s takeover of Whole Foods Market. As the largest U.S. grocery chain, with roughly 2,800 stores, Kroger is the latest brick-and-mortar retailer to embrace boxes of ingredients as a way to connect with busy shoppers trying to figure out what to make for dinner.

The deal for Home Chef will give Kroger a window into the data that comes with a direct-to-consumer e-commerce business and let the chain quickly scale up its meal-kit business, according to Yael Cosset, the grocer’s chief digital officer.

‘Extremely Disruptive’

“It allows us to go faster,” he said in an interview. “We expect it to be extremely disruptive in the industry.”

Home Chef saw its sales surge 150 percent to $250 million last year, putting it behind Blue Apron and HelloFresh in the U.S. market. The company, which says it has been profitable the last two quarters, has positioned itself as a meal-kit maker for the masses, favoring barbecue burgers and buttermilk chicken over some of the more foodie-inspired organic options offered by its competitors. Home Chef also sells smoothie kits and fruit baskets.

The meal-kit industry has been grappling with the online subscription model, and a presence in brick-and-mortar stores puts the company’s products in front of thousands of customers each day. Home Chef already offers its items online at Walmart.com and through Hannaford’s click-and-collect program.

Walmart Inc. started selling meal kits earlier this year, with plans to have them in 2,000 stores by the end of 2018. Albertsons Cos., the second-largest U.S. supermarket chain, bought Home Chef competitor Plated last year for about $200 million as part of its response to Amazon’s push into the grocery business, sources told Bloomberg News at the time.

E-Commerce Insulation

The grocery industry’s insulation from e-commerce started to unravel a year ago when Amazon announced the Whole Foods deal. Less than 2 percent of food is bought online, but most observers expect that number to surge in coming years. That’s caused grocers to bolster their digital capabilities.

In addition to the Home Chef deal, Kroger recently partnered with Ocado, a British online supermarket known for automated warehouses that can quickly fill delivery orders.

Home Chef’s headquarters will remain in Chicago, and the purchase is expected to close in the second quarter. The company, which employs about 1,000, isn’t planning any layoffs, Chief Executive Officer Pat Vihtelic said in an interview.

While Home Chef has received offers in the past, Kroger is the right partner to gain a wider audience, Vihtelic said.

“We really want to be everywhere our customers are,” he said. “We feel like Kroger is the best fit.”

©2018 Bloomberg L.P.