Harris Teeter 2010 Annual Report Download - page 9

(v) continued solvency of any third parties on leases the Company has guaranteed; (vi) management’s ability to
predict the required contributions to the pension plans of the Company; (vii) the Company’s requirement to impair
recorded goodwill or long-lived assets; (viii) changes in labor and employee benefit costs, such as increased health
care and other insurance costs; (ix) ability to recruit, train and retain effective employees and management in both
of the Company’s operating subsidiaries; (x) the extent and speed of successful execution of strategic initiatives;
(xi) volatility of financial and credit markets which would affect access to capital for the Company; and, (xii)
unexpected outcomes of any legal proceedings arising in the normal course of business of the Company. Additional
risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business
operations and also could cause actual results to differ materially from those included, contemplated or implied
by the forward-looking statements made in this report, and the reader should not consider any of the above list
of factors and the following discussion to be a complete set of all potential risks or uncertainties.
Risks Related to Harris Teeter
The Supermarket Industry is Highly Competitive
The supermarket industry is characterized by narrow profit margins and competes on value, location and
service. Harris Teeter faces increased competitive pressure in all of its markets from existing competitors and from
the threatened entry by one or more major new competitors. The number and type of competitors faced by Harris
Teeter vary by location and include: traditional grocery retailers (both national and regional), discount retailers such
as “supercenters” and “club and warehouse stores,” specialty supermarkets, drug stores, dollar stores, convenience
stores and restaurants. In addition, certain Harris Teeter supermarkets also compete with local video stores, florists,
book stores and pharmacies. Aggressive supercenter expansion, increasing fragmentation of retail formats, entry
of non-traditional competitors and market consolidation have further contributed to an increasingly competitive
marketplace.
Additionally, increasingly competitive markets and economic uncertainty have made it difficult generally for
grocery store operators to achieve comparable store sales gains. Because sales growth has been difficult to attain,
Harris Teeter’s competitors have attempted to maintain market share through increased levels of promotional
activities and discount pricing, creating a more difficult environment in which to achieve consistent sales gains.
Some of Harris Teeter’s competitors have greater financial resources and could use these resources to take measures
which could adversely affect Harris Teeter’s competitive position. Accordingly, Harris Teeter’s business, financial
condition or results of operations could be adversely affected by competitive factors, including product mix and
pricing changes which may be made in response to competition from existing or new competitors.
Harris Teeter’s Expansion Plans Are Subject to Risk
Harris Teeter has spent, and intends to continue to spend, significant capital and management resources on
the development and implementation of expansion and renovation plans. Harris Teeter’s new store opening program
has accelerated in recent years and involves expanding the company’s Washington, D.C. metro market area which
incorporates northern Virginia, the District of Columbia, southern Maryland and coastal Delaware. The successful
implementation of Harris Teeter’s renovation and expansion plans are subject to several factors including: the
availability of new, suitable locations on reasonable commercial terms, or at all; the success of new stores, including
those in new markets; management’s ability to manage expansion, including the effect on sales at existing stores when
a new store is opened nearby; the ability to secure any necessary financing; change in regional and national economic
conditions; and increasing competition or changes in the competitive environment in Harris Teeter’s markets.
Harris Teeter’s new stores may initially operate at a loss, depending on factors such as prevailing competition
and market position in the surrounding communities and the level of sales and profit margins in existing stores may
not be duplicated in new stores. Pursuing a strategy of growth, renovation and expansion in light of current highly
competitive industry conditions could lead to a near-term decline in earnings as a result of opening and operating
a substantial number of new stores, particularly with respect to stores in markets where Harris Teeter does not have
a significant presence. If Harris Teeter’s expansion and renovation plans are unsuccessful, it could adversely affect
Harris Teeter’s cash flow, business and financial condition due to the significant amount of capital and management
resources invested.
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