Harris Teeter 2011 Annual Report Download - page 7

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 can vary depending on the
economic conditions of the markets 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 less developed
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.
Food Safety Issues Could Result in a Loss of Consumer Confidence and Product Liability Claims.
Harris Teeter could be adversely affected if consumers lose confidence in the safety and quality of the food supply chain.
These concerns could cause shoppers to avoid purchasing certain products from Harris Teeter, or to seek alternative sources
of supply for their food needs, even if the basis for the concern is not valid and/or is outside of the company’s control. Adverse
publicity about these types of concerns, whether or not valid, could discourage consumers from buying our products and any
lost confidence on the part of our customers would be difficult and costly to reestablish. As such, any issue regarding the safety
of any food items sold by Harris Teeter, regardless of the cause, could have a substantial and adverse effect on the company’s
operations.
Harris Teeter’s Geographic Concentration May Expose it to Regional or Localized Downturns.
Harris Teeter operates primarily in the southeastern and mid-Atlantic United States, with a strong concentration in North
Carolina, Virginia and South Carolina. As a result, Harris Teeter’s business is more susceptible to regional factors than the
operations of more geographically diversified competitors. These factors include, among others, changes in the economy,
weather conditions, demographics and population. Although these regions have experienced economic and demographic growth
in the past, a significant economic downturn in the region could have a material adverse effect on Harris Teeter’s business,
financial condition or results of operations.
The Ownership and Development of Real Estate May Subject Harris Teeter to Environmental Liability.
Under applicable environmental laws, as an owner or developer of real estate, Harris Teeter may be responsible for
remediation of environmental conditions that may be discovered and may be subject to associated liabilities (including liabilities
resulting from lawsuits brought by private litigants) relating to Harris Teeter supermarkets and other buildings and the land on
which those buildings are situated, whether the properties are leased or owned, and whether such environmental conditions,
if in existence, were created by Harris Teeter or by a prior owner or tenant. The discovery of contamination from hazardous
or toxic substances, or the failure to properly remediate such contaminated property, may adversely affect Harris Teeter’s ability
to sell or rent real property or to borrow using real property as collateral. Liabilities or costs resulting from noncompliance with
current or future applicable environmental laws or other claims relating to environmental matters could have a material adverse
effect on Harris Teeter’s business, financial condition or results of operations.
Harris Teeter’s Information Technology Systems Are Subject to Risk.
Harris Teeter’s business is increasingly dependent on information technology systems that are complex and vital to
continuing operations. If Harris Teeter were to experience difficulties maintaining existing systems or implementing new
systems, it could incur significant losses due to disruptions in its operations. Additionally, these systems contain valuable
proprietary and financial data, as well as debit and credit card cardholder data, and a breach, including cyber security breaches,
could have an adverse effect on Harris Teeter.
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