Whole Foods ($WFM) used to be the place to go for organic, all-natural, free-range, and GMO-free foods. Whether you were a conscious eater, had a strict diet, or just wanted slightly better ingredients, you could find everything you wanted at Whole Foods. Their foods weren’t necessarily the healthiest ($18 raw milk cheddar, anyone?), but people bought them and felt better about what they ate.
In the last several years, regular grocery stores eventually caught on to Whole Foods’ shtick. Nationwide chains and local grocers started stocking alternatives to processed, refined foods and offered some of the same products on Whole Foods shelves, sometimes for less. Since you can get quinoa, organic apples, and vegetarian ham in the same place you get your lotto tickets, what’s the point of going out of your way to Whole Foods?
This mindset is what’s causing a years-long decline in the company’s stock. Same-store sales are down as more people flock to cheaper alternatives. At the same time, grocery spending is up in America due to slightly cheaper products at any store but Whole Foods. What can the company do when every grocery stores acts like Whole Foods?
They can sell themselves to the highest bidder.
Two major companies are allegedly interested in buying Whole Foods.
Amazon ($AMZN) allegedly spoke with the chain about buying them outright. While talks apparently fell through, this deal would have accelerated Amazon’s Fresh grocery business. It would have also screwed over Instacart, a delivery startup closely partnered with Whole Foods. Amazon’s bottom line and investors would have likely seen a benefit from the deal in the future if it went through, but the $10 billion asking price at the time was a bit too hard to swallow.
Kroger ($KR), a nationwide grocery chain with nearly 3,000 locations, is also rumored to be interested in buying Whole Foods. The company’s acquisition would allow them to expand past their midwestern and southern U.S. locations. It would also allow them to try new store formats out for clientele who want more than just a basic grocery store.
An “activist investor” wants the company to sell ASAP.
Jana Partners, an investment firm, recently bought around 9% of Whole Foods’ entire stock. Jana is an activist investor, someone who buys a large percentage in a company to have a say in the company’s future direction. Now that Jana owns a large part of Whole Foods, they’re trying to get the company to ditch their existing board members and sell to the highest bidder. Since the chain is no longer growing, Jana believes another, bigger company can run Whole Foods more efficiently and make it more profitable.
Should you buy Whole Foods?
The company’s stock is in the middle of a several-year decline, though they’re up by 11.05% this year so far. (Jana’s purchase certainly helped increase the stock’s value.) If another company make a successful bid for Whole Foods, then the stock price will likely increase during acquisition talks and an eventual sale. If Whole Foods continues without someone else running it, the company’s stock might continue to decline.
If you think a company could scoop up Whole Foods for more than it’s currently worth, be sure to do your research before you even think of investing. If you feel the company is doomed, you might want to stay out of this one.