SEC Filing Reveals Whole Foods’ Other Suitors; No Counter Offers Yet For Amazon’s $13.7B Bid
While it’s doubtful to this reporter that anybody will make a serious counter offer to top Amazon’s $13.7 billion all-cash bid to acquire Whole Foods, the large organics retailer did generate a modest level of interest in the months leading up to the announcement of the tentative agreement.
According to an SEC filing earlier this month by the Austin, TX-based merchant, six interested parties contacted WFM to inquire about a sale, merger or an enhanced relationship. Four of those inquiries came from private equity firms. During this period Whole Foods was also in the process of revamping its board and reacting to the aggressive 8.3 percent stake that activist investor Jana Partners had acquired in the retailer (just before presstime, it was revealed that Jana had sold its ownership in WFM for about $1.1 billion, earning a profit of nearly $300 million on a three-month investment in the retailer. Jana was the company’s second largest investor).
However, it wasn’t until April 17 that Whole Foods first contacted Amazon and the initial exploratory meeting took place on April 30 in Seattle. On May 21, Amazon made its first offer – $41 per share in cash. Whole Foods countered at $45 per share, but according to the filing Amazon was not interested in a long, drawn out cat-and-mouse bidding process. The Seattle-based juggernaut upped its bid by only $1 per share and emphasized that it was the company’s best and final offer.
Apparently WFM CEO John Mackey had already “fallen in love” with Amazon and recommended to the company’s board of directors that they accept the $42 per share deal which was ultimately announced on June 16.
Since then, there has been a ton of industry speculation about how Amazon will reshape the entire grocery industry (premature) and what tangible effect the clout of the enterprise and the talent of its people will have on improving Whole Foods.
If approved, there are some relatively quick benefits that Amazon’s deep distribution network can bring to its table.
Think of the possibility of shipping a case of “365” brand product from an Amazon fulfillment center to a residence that isn’t close to an existing Whole Foods store. And Amazon could almost immediately use Whole Foods’ units as mobile delivery sites, especially in densely populated areas where WFM has a concentration of stores such as New York, Philadelphia and Boston.
I’m not so bullish on whether the magic of Amazon CEO Jeff Bezos will have a major impact on what goes on inside the four walls of WFM’s more than 450 stores. As I’ve said before, the bricks and mortar grocery business will remain a low margin industry because of its heavy reliance on labor and capital as well as having to account for shrink. That formula applies to discounters as diverse as Aldi and Costco and upscale operators like Whole Foods, Wegmans and even the most specialized of merchants such as Dean & Deluca and Eataly.
Of the many reports I’ve read, perhaps one of the strangest was a CNBC story that somehow opined that Amazon’s broadened presence in the grocery industry will ultimately lead to the death of the traditional coupon business. The story notes that Amazon’s ongoing low-price strategy will become part of WFM’s pricing model (really?), subsequently forcing virtually the entire retail grocery industry into an EDLP frenzy, eliminating the advantage that coupons offer. While the traditional print coupon business has certainly declined over the past decade, it is nowhere close to death and to posit that “whole paycheck” is somehow going to morph into “whole discount” is an absurd theory or perhaps even “fake news.”
There’s no question that traditional retailers are going to have to continue to adapt to fill the needs of emerging Millennial and Gen-Y shoppers. Amazon’s increased presence in the grocery arena will serve to prioritize and accelerate those efforts.
On paper, the Amazon-Whole Food deal seems like a pretty clean one from an anti-competitive analysis (even though several shareholder lawsuits have already filed), and as such, I expect the FTC to approve the purchase, even if it takes as long as a year to finalize.
That will certainly give other merchants enough time to prepare their defenses to compete against potentially the largest game changer since Wal-Mart began to expand nationally with its SuperCenter model in the late 1980s.
‘Round The Trade
And while we’re still traveling in the digital world, according to the Wall Street Journal and confirmed by my sources, Albertsons is expected to revamp many of its e-commerce systems which will impact its more than 2,300 supermarkets. The Boise, ID-based chain will essentially rebuild and replace systems that in some cases are 15 years old. It will build and create systems that will be able to operate on improved public and private cloud platforms including Microsoft’s Azure technology. Of all the large bricks and mortar merchants, Albertsons is probably most in need of modernization of its web-based offerings and internal systems. Also from Albertsons comes the good news that our old buddy, Dennis Clark, has been promoted to corporate senior VP-merchandising and that former Mrs. Green’s CEO Pat Brown (ex-HEB, ex-New Seasons Market), who joined Albertsons in May as VP-merchandising strategic initiatives, now becomes group VP-merchandising where he will focus on deli and prepared foods and business initiatives. Bloomberg is also reporting that Albertsons has once again put its IPO plan on hold. The big merchant originally announced its plans to go public two years ago, but has been unable to pull the trigger on a deal, partly because of market conditions. This time, according to the report, the aftershock of Amazon acquisition of Whole Foods created the roadblock (most food retail stocks were adversely impacted by the potential mega-deal). The story also noted that if Albertsons, which is owned by large PE firm Cerberus Capital Management, would have sought to relaunch its initial public offering it would have done so with a slightly different strategy – going straight to investors that showed interest in the initial original IPO plan and with a narrower price range from the original range of $21-$24 per share…one company that was able to reach the finish line in its attempt to go public was meal-kit solutions company Blue Apron. Although it’s still early, things haven’t gone exactly as planned for the Manhattan-based start-up. Just prior to its June 29 launch date, Blue Apron revealed that proceeds from investors would be more than $150 million under target. That meant that the when the stock opened at $11 per share it was well below the $15-17 per share that was originally projected. At presstime on July 20, Blue Apron shares were trading at $6.65. To make matters even more challenging, a week after Blue Apron’s launch, Amazon applied for a trademark noting that it was planning “prepared food kits composed of meat, poultry, fish, seafood, fruit and/or vegetables ready for cooking and assembly as a meal.” It also announced its new tagline: “We do the prep. You be the chef.”… bankruptcy, did I hear bankruptcy? Well not quite yet, but the smell of death in the air is getting even stronger for Sears Holdings, which just last week announced another round of store shutterings. This month’s number is 43 units, part of the 132 stores (40 Sears, seven Auto Centers, 85 Kmarts) that have been announced in several phases over the past six weeks. That brings the 2017 grand total to 312 closings for “Slow” Eddie Lampert’s failing retail empire…Sycamore Partners is set to acquire Staples for $6.9 billion in another example of a PE firm trying to revive a declining brand, utilizing its Staples real estate assets and solid cash flow as drivers. You might remember that Sycamore and its Dollar Express affiliate is suing Dollar Tree for allegedly helping the dollar store operator go out of business by utilizing confidential information to open new stores near where Dollar Tree stores were located. Dollar Express was formed in 2015 when Sycamore bought 330 former Family Dollar stores that were in “conflict” locations (as part of an FTC-mandated divestiture that allowed Dollar Tree to ultimately acquire Family Dollar). Sycamore/Dollar Express also accuses Dollar Tree of putting under-qualified and inattentive store managers in those divested locations…Danone, the French yogurt dynasty, has found a buyer for its Stonyfield unit – and it didn’t have to search very far. Lactalis, another French dairy company, has agreed to acquire the former family-owned business (founded by Gary Hirshberg in 1983) for $875 million. Danone put Stonyfield on the sales block when it acquired White Wave earlier this year for $10.4 billion. Lactalis, still a family-owned company, operates in 85 countries and already has significant U.S distribution with its President and Galbani brand cheeses…and in the biggest deal of the month, McCormick will acquire Reckitt & Benckiser’s food business for $4.2 billion (all cash), giving the Maryland spicemaker control of two key brands – French’s mustard and Frank’s Red Hot sauces (those brands will now become McCormick’s number two and three brands). Meanwhile, Reckitt Benckiser will continue to focus on its consumer health and wellness strategy which includes core brands, Nurofen, Clearasil and recently acquired Mead Johnson…Bruce Besanko, Supervalu’s chief financial officer for the past four years, has left the Eden Prairie, MN-based wholesaler/retailer and will assume the same post for Kohl’s. SVU’s chief strategy officer Rob Woseth will handle the CFO duties on an interim basis while the company searches for Besanko’s replacement…Wal-Mart recently unveiled its new “On-Time, In-Full” initiative designed to improve in-stock service levels while also reducing inventories at its more than 4,700 U.S stores. The new program which will begin next month, calls for suppliers to deliver only full truckloads of fast-moving items or be subject to a three percent fine. By early next year, Wal-Mart is shooting for a 95 percent on time delivery rate within a four day window. Suppliers can also be fined for early deliveries, which Wal-Mart claims causes overstocks. The new plan is aimed at adding $1 billion in revenue…I finally visited my first Lidl stores and my impressions were mixed. The stores are nicely designed with a comfortable ambience and an easy-to-shop layout. Strong points included nifty packaging, a very good bakery presence (fresh baked bread aromas waft through the store) and an excellent wine presentation. The weakest department was clearly fresh meat, which in the two stores I visited was hardly fresh and certainly overpriced (at least when compared to relative pricing in other departments). I think that Lidl might regret making such a huge capital investment in acquiring its real estate (some future sites are in secondary or tertiary locations). A cursory 50-item price check against two nearby Aldi units found that Lidl was comparable but not as cheap as Aldi, especially in certain perishable commodities. It’s going to take a little while longer for the competition to fully gauge how it needs to compete with its new German rival, and to be fair, Lidl will also need some time to make the necessary adjustments in the markets where it opens. One advantage that Lidl won’t have when it cuts the ribbon for stores north of Virginia (Maryland, New Jersey, Delaware and Pennsylvania) – is that wine cannot be sold in supermarkets. That said, the discounter opened its second batch of “first round” stores on July 13 in Culpeper, VA; Chesapeake, VA; Havelock, NC; and Wake Forest, NC. The third and final group of “first round” stores will debut on July 27, all in the Richmond area. Additionally, the company whose U. S. headquarters are based in Arlington, VA, said it will build its fourth distribution center (and regional headquarters) in Cartersville, GA. That facility, located 45 miles from Atlanta, will open in late 2018, cost approximately $100 million and employ about 250 associates. Lidl currently is operational at its Fredericksburg area depot (which is supplying the group of stores) and in Mebane, NC and has its Cecil County, MD warehouse under construction. On a related note, Kroger (and its Harris Teeter unit), which will compete with many Lidl future locations in Virginia, Georgia and the Carolinas, has filed suit against the disc
ounter, claiming that its new “Preferred Selection” private label brand too closely mirrors Kroger’s long-established “Private Selection” own brand. Kroger claims in its suit that the close resemblance of the names will cause confusion for customers and allow Lidl to compete unfairly with Kroger because customers could assume that the two brands are associated with one another. Lidl wasted almost no time in responding to Kroger’s claim. “Kroger is using this lawsuit to try to: disrupt the on-going launch of a new, emerging competitor that offers consumers high-quality products at far lower prices; distract from the positive reviews garnered by Lidl’s launch by painting Lidl as a copycat — when in fact Lidl is a decidedly different and (better) grocery experience; and drive up Lidl’s costs by having to defend against Kroger’s spurious claims. Against that backdrop and in reaction to this increased competition, Kroger – two weeks later and without notice to Lidl – filed this suit and motion for a preliminary injunction on the Friday evening before the long July 4th weekend, and sought to have a hearing just days later to try to ram through extraordinary competitive relief to which it is not entitled,” the court papers state. “Although Kroger learned in November 2016 that Lidl intended to offer private-label products under the ‘Preferred Selection’ name and had more than six months to prepare its moving papers, Kroger has offered a striking absence of evidence in support of its claims,” Lidl stated in its response to suit in U.S. District Court in Richmond, VA…at Supervalu’s annual shareholders’ meeting, held July 19 in Minneapolis, stockholders authorized a 1-for-7 reverse stock split, a move designed to enhance the appeal of its shares to the financial community. Supervalu, like many other companies in the retail/wholesale sector, has experienced flat to declining stock prices over the past six months, which was further exacerbated by the prospective Amazon-Whole Foods deal. The reverse stock split, effective at the close of business on August 1, will reduce the number of authorized shares to 57.1 million while the number of issued and outstanding shares will be reduced from 268.5 million to 38.4 million. At presstime, SVU’s stock was trading at $3.33 per share.
Local Notes
We’ve learned that Ahold USA has named the next group of merchandising executives who will support the company’s three divisions (brands) as it moves towards a January 1, 2018 decentralized operating structure. According to an internal announcement, at Giant/Martin’s, veterans Denise Mullen and Dave Lessard will become VP-non-perishables and VP-perishables respectively. Reporting to Mullen will be Deb Kreider, Kyle Kirkpatrick and Rebecca Lupfer. Steve Allison, Brian Lorenz and Chris Keetch will report to Lessard. Both VPs will report to John Ruane, senior VP-merchandising for the Carlisle, PA-based unit. At Stop & Shop, Kerri Aguilo will serve as senior VP of non-perishables with Maria Elena Ruisi, Natalia Torres-Furtado and Joel Brissenden reporting to her. The internal announcement we received still had the SVP of non-perishables position as open. Aguilo will report to Mark Messier, the division’s EVP-merchandising. At Giant/Landover, Michael Weinstock is the new VP of non-perishables and will have Greg Bibb and Diane Couchman reporting to him. As was the case at Stoppie, the announcement we received still had the VP-perishables position as still being open. Weinstock will report to Tonya Herring, SVP-merchandising. Not released at this time were any announcements concerning divisional operations leadership (those who would report to the senior VPs of operations who were named in May). A little further down the road (perhaps after Labor Day) we expect to hear who will be filling the specific category manager positions at the three divisions…Fairway Markets, which has struggled to regain its old form since emerging from a pre-packaged bankruptcy a year ago, recently received a downgraded credit rating from Moody’s. The drop from a Caa1 to a Caa2 puts the Manhattan-based “like no other market” merchant at a higher credit risk and will probably result in a higher cost of capital to the company and its primary investor, Blackstone Group’s GSO Capital Partners. It’s tough to visualize Fairway ever regaining its old mojo again, given cap-ex limitations and new competition which continues to invade the retailer’s market space…Weis has reopened its Tunkhannock, PA store, more than a month after a horrendous mass shooting by a violent suicidal associate cost three other associates their lives before the gunman then shot himself. In other news from the Sunbury, PA-based regional chain, Weis recently made two important executive level changes. It has hired industry veteran Ron Bonacci as its new VP-marketing and advertising, replacing Brian Holt, who moved on to a similar post as Spartan Nash. Bonacci was most recently senior director of marketing at United Supermarket in Lubbock, TX (a unit of Albertsons). He has also toiled for Kroger and Food City (K-VA-T) where he worked with Richard Gunn, Weis’ current senior VP-merchandising and marketing. Also recently joining the management team was Donna Banks-Ficcio, who comes aboard as VP-center store. She replaces Kevin Broe, who left the company a few months ago. Actually Banks-Ficcio and Broe worked together for several years at A&P. She’s a hard worker and a good choice for the evolving Weis organization…the new 113,000 square foot Wegmans that debuted in Hanover Township, NJ on July 23 drew one of the largest opening day crowds in recent memory and seems like it will be a big winner for the Rochester, NY uber-merchant. Next up for the regional chain is the opening of its long-awaited Montvale, NJ store on September 24…several trade associations including FMI and NACS have filed suit to prevent New York City from enforcing rules requiring nutritional and calorie information to be posted at stores by next month, long before the May 2018 compliance date established by the FDA. “The federal law pre-empts a municipality from taking matters into its own hands, and this is exactly what New York City is attempting to do, New York City’s action threatened interstate commerce and would introduce unneeded elements of confusion onto the retail marketplace,” said Jennifer Hatchers, FMI’s chief public policy officer. The suit asks for an immediate injunction to stop the City’s planned enforcement until the federal rules go into effect…while Whole Foods still plans on opening its “365” alternate format stores in Brooklyn and in Weehawken, NJ, the Austin-TX merchant reportedly has scaled back plans to open “365” units in several Midwest markets including Evergreen Park, IL; Toledo, OH; and Bloomington, IN. Numerous reports indicate that most of the four “365” units currently open are performing bellow projections. Both the Brooklyn and Weehawken units are expected to open next year…ShopRite will close its West Haven, CT store on July 29. The Campbell Avenue unit is not far from a Garafalo family owned ShopRite in Orange which opened late last year. On a happier note, the Greenfield family will debut its new 68,000 square foot unit in Plainview, NY on July 25. That new store on Old Country Road, will replace one of the oldest ShopRites on Long Island and is located about 1.5 miles from the original site…a few deaths to report this month including Paul Gilbert, who served as director of real estate for Wegmans. A 23-year veteran of the Rochester, NY-based uber merchant, Gilbert was responsible for site discovery at more than half of Wegmans’ 92 stores and several others in Wegmans’ future development plans…also passing on was legendary New York sportscaster Bob Wolff. Wolff spent an incredible 75 years behind the microphone and announced some of the most famous sporting events of the last three generations, including calling Don Larsen’s perfect game in the 1956 World Series and the Baltimore Colts’ overtime win in the 1958 NFL Championship game. Wolff, 96, began broadcasting while still a student at Duke University and was inducted into the broadcasting wing of the Baseball Hall of Fame in 1995. He was cited by Guinness World Records in 2012 as having the longest career of any sportscaster. “If you added all of the time up, I spent about seven days of my life standing for the National Anthem,” Wolff once quipped…Red West is dead. The former boyhood friend and member of Elvis Presley’s “Memphis Mafia” passed away earlier this month after serving as both Elvis’ close confidant and actor in 18 of Elvis’s films until “The King’s” death in 1977. Shortly before Elvis passed, West co-wrote one of the most controversial books about “The King’s” troubled life – “Elvis: What Happened?” The colorful West, 81, first met Elvis when they were both students at Humes High School in Memphis, TN. “Elvis was always different. We had crew cuts and wore T-shirts and blue jeans; Elvis had the long ducktail, the long sideburns, and he wore the loud clothes and naturally was a target for all bullies. One day, luckily I walked into the boy’s and three guys were going to cut his hair, just, you know, to make themselves look big or make them feel big or whatever, and I intervened and stopped it,” West recalled in 2008 interview…veteran character actor Martin Landau has also recently entered the gates of cinema heaven. Landau, whose career got off to a fast start when he played Leonard, the creepy henchman who worked for secretive bad guy Phillip Vandamm (James Mason) in the 1959 Alfred Hitchcock iconic film “North By Northwest,” had a distinguished career that lasted more than 60 years and featured nearly 100 movie and TV roles. He became best known for playing secret agent Rollin Hand in the classic TV series “Mission: Impossible” (1966-1973, although Landau appeared in episodes during the first three seasons only). Perhaps his crowning acting achievement was receiving a supporting actor Oscar for his performance as a broken-down Bela Lugosi in Tim Burton’s “Ed Wood (1994).” He was 89 when he passed and was still active until three years ago.
