Friday, March 9, 2007

The “Whole” Foods Industry

The nutritional food industry has many competitors, but two of the largest companies have just merged. On February 22nd, Whole Foods (WFMI) said it had acquired its smaller rival Wild Oats Markets (OATS) for $565 million in cash. The acquisition positions Whole Foods to compete with larger supermarket chains just as Ralphs and Vons, which have an increasing amount of healthy food for sale. The news brought increase too both companies stocks, clearly showing the merger was widely accepted. In the article on entitled "Whole Foods to acquire rival Wild Oats, shares jump" the writer Angela Moore reports increases of 13% for Whole Foods and 17.2% for Wild Oats. The article shows many perspectives on the merger by several analysts. It is mentioned that Whole Foods gained some great locations and a similar business, so the company should see increased sales, margins and continue its potential as the leading health supermarket. Many analysts upgraded their rating on Whole Foods to outperform or buy. One such analyst called this acquisition a "strategic slam dunk." The strength in the deal lays in Whole Foods current operations. They will be able to decrease the overhead costs and turn around the underperforming Wild Oats retailers. This will bring added value to Whole Foods stock and continue to establish its name as the leading retailer in this industry. The article mentions Whole Foods had been looking to acquire Wild Oats for the last six years and now was the perfect time to make the final bid. Wild Oats had slow same store sales growth therefore the company was probably undervalued. Whole Foods offered an 18% premium on their stock and now is in position to turn Wild Oats around and grow from the ever-expanding healthy consumer population. Though the food is more expensive and recent economic problems may have hindered these higher priced retail grocery stores, Whole Foods made a great merger in a downtime in this industry. Once the economy picks up and more consumers start considering organic and natural foods, then Whole Foods has positioned themselves to acquire all the potential customers. Currently, Wal-Mart is trying to compete, but Whole Foods has a better image in this industry and very popular amongst the healthy wary middle class. The news helps Whole Foods out because of their recent decline in first-quarter profits, but may struggle for the next couple of quarters due to several factors. The merger with Wild Oats will cause a lot of overhead and change within Whole Foods. Whole Foods will need to reconsider all management within Wild Oats, along with remodeling their stores to the level of quality that is known at their current stores and there are probably many stores owned by Wild Oats that are near a Whole Foods that will probably needed to be sold. All of these factors lead to strains on the company's income until these two companies mesh and run as one unit. In light of all the news, the CEO of Whole Foods John Mackey supported these findings mentioning that the benefits from the acquisition of Wild Oats would not be seen for about a year. So, in the long run the company is a good investment, but there will undoubtedly be some bumps in the road that need to be fixed and the stock price is bound to fluctuate over the next couple of quarters. In addition, as advice for investors, just sit back and wait for the hype to calm down before settling into this behemoth of a natural foods retailer.

1 comment:

Anonymous said...

Amiable brief and this enter helped me alot in my college assignement. Thank you for your information.