February 22, 2007
Whole Foods to Sow its Wild Oats
Whole Foods and Wild Oats are competitors no longer. Yesterday, the two companies announced a $65 million deal for Whole Foods to acquire Wild Oats.
“The growth opportunity in this category has led to increased competition from many players, most of whom are not dedicated natural and organic foods supermarkets, but are considerably larger than we are,” Whole Foods Chief Executive John Mackey said in a statement. “The timing for our two companies to join forces could not have been better.”
The deal put to rest speculation about whether Wild Oats would be acquired by a traditional supermarket. The company has begun selling its own brand products in a number of traditional grocery stores.
“Offense is the best defense,” Ken Harris of Cannondale Associates told Reuters. “They were either going to buy Wild Oats, or somebody else was going to do it.”
Mark Husson, an analyst with HSBC, said he was taken by surprise with the deal announcement but had a similar take to Mr. Harris. “Clearly, if they are not fighting each other, they have a much better chance of fighting the competition,” he told The New York Times.
Darrell Rigby, head of global retail practice at Bain & Company, said, “Whole Foods is a very strong company facing a mature market and better competition, and that will require an even better strategy than they’ve had in the past.
“In order to continue growing, you can’t just appeal to the upscale consumers that converted to Whole Foods long ago,” he said. “You have to attract new customers as well.”
Discussion
Question: What is your reaction to Whole Foods buying Wild Oats?
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I admit to being somewhat surprised that Whole Foods would pursue an acquisition like this. While Wild Oats may be a competitor, the pressure on Whole Foods is coming from mainstream retailers like Harris Teeter, Giant Eagle, Stop and Shop, Publix and others; and of course, from the price side from Wal-Mart.
These are two very different management organizations and with both using secondary suppliers like UNFI instead of self distribution (although both have limited abilities in this area). I would think that Whole Foods would continue to refine their shopping experience, get sharper on costs with a better logistics foundation and continue to build beautiful stores
I think taking over a weaker chain, with location issues, square footage issues and with competition rapidly digging into the natural channel, it does not seem that this is an effort that will have the positive outcome they may be looking for.
Competition = waste. Combination = less competition = less waste. Whole Foods’ purchase of Wild Oats shows tremendous vision at both companies. Same with the XM and Sirius merger.
It’s time for more Tweedledum/Tweedledee consolidation. How about Best Buy and Circuit City, Bed Bath & Beyond and Linens N Things, Wendy’s and Burger King and Jack In The Box, T.G.I. Friday’s and Applebee’s, Kroger and Safeway, Sam’s Club and Costco, Lowe’s and Home Depot, Domino’s and Pizza Hut, United and American, Holiday Inn and Marriott? Think of all the shareholders who’d be better off. And how ’bout North Dakota and South Dakota?
Once again, I don’t see the point in trying to predict the future by saying how this will turn out in the years ahead: actual research has shown that experts predict the future no better than anyone else. In my view, both of these organizations did well turning into loyal customers much more than “the granola crowd;” and both of these organizations are/were quite weak in being adaptive. Yes, I will stick to that statement: these are not flexible organizations, despite what all the other panelists might say. I believe the challenge for Whole Foods was, and will be, to see itself clearly and to really face its weaknesses–something I have seen the top of the organization not too ready to do. This will not change with the addition of Wild Oats, which also had the same problem but to a lesser degree. Both of these organizations have been, and are strongly defensive at the upper levels, which means that critical information that is also uncomfortable is not being processed effectively. How this will affect the entire Whole Foods organization could be determined, but not with the limited public information we have on this problem. How Whole Foods processes this High-Intensity Information is, in my view, the most crucial issue, and will have a huge impact on the organization.
The pros and cons of this move are apparent at this moment; what WFM does in the next two years will determine if it was a good move or a bad one.
The savings through reducing redundancy in duplicate departments (marketing, buying, etc.) may be accretive early on but the challenge for WFM is at the store level as their store infrastructure, policy, and procedure is vastly different from WO.
WFM currently works out of 11 regional offices with these offices, for all intents and purposes, having autonomy. This is what got Winn-Dixie in trouble–they had basically the same number of divisions with divisional presidents making decisions on every aspect of their business. As a result inventories got out of control, the home office lost authority, and the divisional presidents became emperors doing what they wanted when they wanted. If WFM doesn’t now reign in their divisions to sing out of the same hymnals as the group in Austin they will risk the same fate as Winn Dixie.
There is a great opportunity now for WFM to gain economies of scale with the new stores. They also have a greater opportunity to close down their regions–all of which have redundant personnel that are currently in the home office. WFM has the chance to make informed decisions in Austin vs. having 11 regions making 11 different decisions. Just the salaries saved from eliminating the redundant personnel will be meaningful to the bottom line but if they choose to create additional redundant regions you can stick a fork in them 5 years from now.
It is time for WFM management to wake up and become more efficient in how they do business. The competition is embracing the natural side of the market but the (successful) competition doesn’t have the redundant layers in their organizations or, in the case of Kroger, are moving to eliminate those redundancies.
I think I am more surprised by the polar reactions of the panel than the actual buy-out. Seems like no middle ground on their opinions. I will take the positive angle in saying that if Whole Foods wants to battle the BIG guys, they will need to become one. I think this step gets them closer to achieving that goal. Now they can concentrate on attacking the mega-corps as they are now on the same playing field.
This is a combination of similarities which should result in a stronger chain. There should be some store closings where they directly compete, but most of their stores can enjoy an unfettered foray into new markets. The real question is what will the stores continue to be positioned as in 12 months? The other concern is if the combination will thrive under a growth of equals or if it will simply become a store extension. Until then, time will tell!
Wow, this on the heels of the XM and Syrius merger news!
Whole Foods has a strategy that works. By buying Wild Oats, they aren’t devaluing themselves or taking on legacy issues…they’re creating new locations and opportunities to grow their own stores with the principles and processes that they know work. If done right, everyone will win in the end…especially those of us who love to shop Whole Foods and are longing for more locations!
If Whole Foods changes the name on the stores from Wild Oats to Whole Foods, then this move would be reminiscent of Wal-Mart’s purchases of Woolco and Pace club stores.
In a similar scenario, this probably makes sense for Whole Foods, because this is essentially a capital expenditure that could be more efficient than other scenarios for expansion.
A few die-hard Wild Oats shoppers might take offense, but consumer trends toward upscale, service and gourmet-fresh point to continued uptake of the organic/natural concept when it is dangled in front of shoppers.
I was going to wax nostalgic about what $65 million used to buy…then I read the story link and found out it’s really $565 million; but even the correct $ amount emphasizes, I think, the relatively small size of the “organic”/healthy sector…fringe player or great growth opportunity?
One topic not yet mentioned in the very good commentary above is the issue of so-called post-merger “synergies.” Most retail mergers tout this as a source of enhanced shareholder value. In practice, synergy is a code word that stands for two types of financial benefits–head count reduction by eliminating redundant corporate functions and increased buying power with suppliers resulting in lower cost of goods.
Certainly the first type of synergy will be a modest benefit to the expanded Whole Foods chain. Right now, if I were a marketing manager or accounting clerk at Wild Oats, I’d be polishing up my resume.
But I’m less optimistic that a “Whole Oats” will gain much on the buying power side. Certified organic product is already in short supply and competition over these food items is intensifying as other major chains expand commitments to include them in their merchandise assortments. Even with 270+ stores, the combined chain will not have greater clout than Wal-Mart, Safeway, and Kroger when it comes to buying from a limited supply of say, organic milk–which of necessity must come from multiple suppliers.
In the words of Sun Tzu, “The best battle won is the battle never fought.” Instead of fighting the other guy who looks like you, this gives Whole Foods the opportunity to focus its efforts and concentrate its resources against the mainstream supermarkets pursuing the natural/organic market. I perceive this as a sound strategic move, out-thinking versus outspending the competition.
The only positive that I can see is that they prevented another supermarket chain from buying Wild Oats. Buying their weaker competitor has the possibility of weakening them more than strengthening them. I feel they would have been better served by using their resources to improve their existing operation and attract new customers. Integrating Wild Oats will distract them from this for quite some time.
This was a strategic move that will prove to be interesting. Just buy the competition! The high-end consumer that can afford to shop at these stores will continue (and are probably disappointed), but the key is converting others to the market, as Wal-Mart, Supervalu and others expand their healthy food selections.
Whole Foods and Wild Oats are at the beginning of the bell curve of a trend to focus on health and what we eat. As the public becomes more and more educated on what the chemically processed foods do to our bodies, they will seek an alternative. Whole Foods must launch an aggressive “educate consumers campaign” explaining the benefits of paying a premium for the same products and the cause and effect of consuming chemicals, additives, sugar, etc. If the perception is, “The aging process will be reversed, we’ll live longer and healthier,” consumers will be flocking to the store.
I like this. Yes, Whole Foods is buying an inferior competitor. Sales per square foot at Wild Oats is consistently lower than Whole Foods. And Wild Oats stores are significantly smaller, as well. But being half as good as Whole Foods still means you are doing well.
Whole Foods should be able to improve Wild Oats with their superior operations and labor practices. There are a few markets where stores overlap, such as in Santa Fe, New Mexico where they are within a few blocks. Why close the stores when both are over-performing compared to conventional supermarkets? If they are both doing well close together, by all means keep them both open in the future. Sure, there will be a few closings, but I don’t think it will be widespread.
Why not keep the private label flowing to conventional supermarkets? Whole Foods and Wild Oats have very little overlap with most supermarkets in the USA. I would guess that 95% of the people in this country have no reasonable access to a Wild Oats stores. Their store counts are insignificant compared to the rest of the industry. The purchase price is so small that it’s just a fraction of the market cap of Whole Foods.
Sales growth at Whole Foods and same store sales are still impressive, despite the fact that Wall Street has been disappointed. Wall Street’s expectations and real life achievements are often mutually exclusive. To me, this is really not such a huge event. While both companies are well known in their niche market, overall their market share in the supermarket industry is insignificant, for now.
Strategically, Whole Foods has made the right decision in acquiring Wild Oats. Although Whole Foods is by far the stronger of the two, there will now be an opportunity to leverage the synergies and their position in the market. I would have to agree with an earlier comment; that Whole Foods should remodel and rebanner the Wild Oats Stores and leverage the Wild Oats brand in selling organics to other chains. In a few years we will look back and realize just how good this really is.
Everybody lives to sow their wild oats? So Wild Oats owners did just that when Whole Foods came along and said, “We’ll make you financially fat and organically sound.”
Sooner or later it was potentially possible that comely Wild Oats would marry up with someone rather than stay single. Is the new groom, Whole Foods, the best mate? Who knows? It might be so simple as macho Whole Foods coveting the pretty Wild Oats lady so deeply and not liking the idea of someone else wooing her. If so, this is jealousy with a golden halo.
On a scale of 1 to 10, this deal is a 9. It would have been painful to watch Wild Oats being acquired by a traditional supermarket. It will buttress Whole Foods, but not dramatically so. There are some really good people at Wild Oats, and I hope they aren’t given walking papers. It was sadly obvious that Whole Foods was beating Wild Oats when they both served the same market. I’d walk a mobbed Whole Foods, then drive the mile or two to a relatively empty Wild Oats. If it were up to me, I’d rebanner the Wild Oats to the Whole Foods name, but keep the private label Wild Oats offering they have now to mainstream supermarkets. I’d find synergies, and pick up the merchandising/strategy/tactics that were working for Wild Oats. Wild Oats was no slouch, IMHO. I wish them all well.
I think the takeover of Wild Oats was a move that needed to happen. To create a successful niche in any market takes time, energy and passion. To see it being eroded by a weaker competitor’s drive for growth calls for drastic measures. I am referring of course to the distributing and merchandising of Wild Oats products into operations like Stop & Shop and Peabody, companies that needed educating and mentoring in the natural foods industry. What a wonderful way for someone to develop a new department within their existing operation. The last time something like that happened was at Hypermarket USA (the union of Wal-Mart and Cullums), the forerunners to the Wal-Mart Supercenters of today.
I agree with the comments that buying Wild Oats should create new opportunities, locations and formats for Whole Foods. Who says “one size fits all” needs to work for Whole Foods or any other retailer?
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I admit to being somewhat surprised that Whole Foods would pursue an acquisition like this. While Wild Oats may be a competitor, the pressure on Whole Foods is coming from mainstream retailers like Harris Teeter, Giant Eagle, Stop and Shop, Publix and others; and of course, from the price side from Wal-Mart.
These are two very different management organizations and with both using secondary suppliers like UNFI instead of self distribution (although both have limited abilities in this area). I would think that Whole Foods would continue to refine their shopping experience, get sharper on costs with a better logistics foundation and continue to build beautiful stores
I think taking over a weaker chain, with location issues, square footage issues and with competition rapidly digging into the natural channel, it does not seem that this is an effort that will have the positive outcome they may be looking for.
Competition = waste. Combination = less competition = less waste. Whole Foods’ purchase of Wild Oats shows tremendous vision at both companies. Same with the XM and Sirius merger.
It’s time for more Tweedledum/Tweedledee consolidation. How about Best Buy and Circuit City, Bed Bath & Beyond and Linens N Things, Wendy’s and Burger King and Jack In The Box, T.G.I. Friday’s and Applebee’s, Kroger and Safeway, Sam’s Club and Costco, Lowe’s and Home Depot, Domino’s and Pizza Hut, United and American, Holiday Inn and Marriott? Think of all the shareholders who’d be better off. And how ’bout North Dakota and South Dakota?
Once again, I don’t see the point in trying to predict the future by saying how this will turn out in the years ahead: actual research has shown that experts predict the future no better than anyone else. In my view, both of these organizations did well turning into loyal customers much more than “the granola crowd;” and both of these organizations are/were quite weak in being adaptive. Yes, I will stick to that statement: these are not flexible organizations, despite what all the other panelists might say. I believe the challenge for Whole Foods was, and will be, to see itself clearly and to really face its weaknesses–something I have seen the top of the organization not too ready to do. This will not change with the addition of Wild Oats, which also had the same problem but to a lesser degree. Both of these organizations have been, and are strongly defensive at the upper levels, which means that critical information that is also uncomfortable is not being processed effectively. How this will affect the entire Whole Foods organization could be determined, but not with the limited public information we have on this problem. How Whole Foods processes this High-Intensity Information is, in my view, the most crucial issue, and will have a huge impact on the organization.
The pros and cons of this move are apparent at this moment; what WFM does in the next two years will determine if it was a good move or a bad one.
The savings through reducing redundancy in duplicate departments (marketing, buying, etc.) may be accretive early on but the challenge for WFM is at the store level as their store infrastructure, policy, and procedure is vastly different from WO.
WFM currently works out of 11 regional offices with these offices, for all intents and purposes, having autonomy. This is what got Winn-Dixie in trouble–they had basically the same number of divisions with divisional presidents making decisions on every aspect of their business. As a result inventories got out of control, the home office lost authority, and the divisional presidents became emperors doing what they wanted when they wanted. If WFM doesn’t now reign in their divisions to sing out of the same hymnals as the group in Austin they will risk the same fate as Winn Dixie.
There is a great opportunity now for WFM to gain economies of scale with the new stores. They also have a greater opportunity to close down their regions–all of which have redundant personnel that are currently in the home office. WFM has the chance to make informed decisions in Austin vs. having 11 regions making 11 different decisions. Just the salaries saved from eliminating the redundant personnel will be meaningful to the bottom line but if they choose to create additional redundant regions you can stick a fork in them 5 years from now.
It is time for WFM management to wake up and become more efficient in how they do business. The competition is embracing the natural side of the market but the (successful) competition doesn’t have the redundant layers in their organizations or, in the case of Kroger, are moving to eliminate those redundancies.
I think I am more surprised by the polar reactions of the panel than the actual buy-out. Seems like no middle ground on their opinions. I will take the positive angle in saying that if Whole Foods wants to battle the BIG guys, they will need to become one. I think this step gets them closer to achieving that goal. Now they can concentrate on attacking the mega-corps as they are now on the same playing field.
This is a combination of similarities which should result in a stronger chain. There should be some store closings where they directly compete, but most of their stores can enjoy an unfettered foray into new markets. The real question is what will the stores continue to be positioned as in 12 months? The other concern is if the combination will thrive under a growth of equals or if it will simply become a store extension. Until then, time will tell!
Wow, this on the heels of the XM and Syrius merger news!
Whole Foods has a strategy that works. By buying Wild Oats, they aren’t devaluing themselves or taking on legacy issues…they’re creating new locations and opportunities to grow their own stores with the principles and processes that they know work. If done right, everyone will win in the end…especially those of us who love to shop Whole Foods and are longing for more locations!
If Whole Foods changes the name on the stores from Wild Oats to Whole Foods, then this move would be reminiscent of Wal-Mart’s purchases of Woolco and Pace club stores.
In a similar scenario, this probably makes sense for Whole Foods, because this is essentially a capital expenditure that could be more efficient than other scenarios for expansion.
A few die-hard Wild Oats shoppers might take offense, but consumer trends toward upscale, service and gourmet-fresh point to continued uptake of the organic/natural concept when it is dangled in front of shoppers.
I was going to wax nostalgic about what $65 million used to buy…then I read the story link and found out it’s really $565 million; but even the correct $ amount emphasizes, I think, the relatively small size of the “organic”/healthy sector…fringe player or great growth opportunity?
One topic not yet mentioned in the very good commentary above is the issue of so-called post-merger “synergies.” Most retail mergers tout this as a source of enhanced shareholder value. In practice, synergy is a code word that stands for two types of financial benefits–head count reduction by eliminating redundant corporate functions and increased buying power with suppliers resulting in lower cost of goods.
Certainly the first type of synergy will be a modest benefit to the expanded Whole Foods chain. Right now, if I were a marketing manager or accounting clerk at Wild Oats, I’d be polishing up my resume.
But I’m less optimistic that a “Whole Oats” will gain much on the buying power side. Certified organic product is already in short supply and competition over these food items is intensifying as other major chains expand commitments to include them in their merchandise assortments. Even with 270+ stores, the combined chain will not have greater clout than Wal-Mart, Safeway, and Kroger when it comes to buying from a limited supply of say, organic milk–which of necessity must come from multiple suppliers.
In the words of Sun Tzu, “The best battle won is the battle never fought.” Instead of fighting the other guy who looks like you, this gives Whole Foods the opportunity to focus its efforts and concentrate its resources against the mainstream supermarkets pursuing the natural/organic market. I perceive this as a sound strategic move, out-thinking versus outspending the competition.
The only positive that I can see is that they prevented another supermarket chain from buying Wild Oats. Buying their weaker competitor has the possibility of weakening them more than strengthening them. I feel they would have been better served by using their resources to improve their existing operation and attract new customers. Integrating Wild Oats will distract them from this for quite some time.
This was a strategic move that will prove to be interesting. Just buy the competition! The high-end consumer that can afford to shop at these stores will continue (and are probably disappointed), but the key is converting others to the market, as Wal-Mart, Supervalu and others expand their healthy food selections.
Whole Foods and Wild Oats are at the beginning of the bell curve of a trend to focus on health and what we eat. As the public becomes more and more educated on what the chemically processed foods do to our bodies, they will seek an alternative. Whole Foods must launch an aggressive “educate consumers campaign” explaining the benefits of paying a premium for the same products and the cause and effect of consuming chemicals, additives, sugar, etc. If the perception is, “The aging process will be reversed, we’ll live longer and healthier,” consumers will be flocking to the store.
I like this. Yes, Whole Foods is buying an inferior competitor. Sales per square foot at Wild Oats is consistently lower than Whole Foods. And Wild Oats stores are significantly smaller, as well. But being half as good as Whole Foods still means you are doing well.
Whole Foods should be able to improve Wild Oats with their superior operations and labor practices. There are a few markets where stores overlap, such as in Santa Fe, New Mexico where they are within a few blocks. Why close the stores when both are over-performing compared to conventional supermarkets? If they are both doing well close together, by all means keep them both open in the future. Sure, there will be a few closings, but I don’t think it will be widespread.
Why not keep the private label flowing to conventional supermarkets? Whole Foods and Wild Oats have very little overlap with most supermarkets in the USA. I would guess that 95% of the people in this country have no reasonable access to a Wild Oats stores. Their store counts are insignificant compared to the rest of the industry. The purchase price is so small that it’s just a fraction of the market cap of Whole Foods.
Sales growth at Whole Foods and same store sales are still impressive, despite the fact that Wall Street has been disappointed. Wall Street’s expectations and real life achievements are often mutually exclusive. To me, this is really not such a huge event. While both companies are well known in their niche market, overall their market share in the supermarket industry is insignificant, for now.
Strategically, Whole Foods has made the right decision in acquiring Wild Oats. Although Whole Foods is by far the stronger of the two, there will now be an opportunity to leverage the synergies and their position in the market. I would have to agree with an earlier comment; that Whole Foods should remodel and rebanner the Wild Oats Stores and leverage the Wild Oats brand in selling organics to other chains. In a few years we will look back and realize just how good this really is.
Everybody lives to sow their wild oats? So Wild Oats owners did just that when Whole Foods came along and said, “We’ll make you financially fat and organically sound.”
Sooner or later it was potentially possible that comely Wild Oats would marry up with someone rather than stay single. Is the new groom, Whole Foods, the best mate? Who knows? It might be so simple as macho Whole Foods coveting the pretty Wild Oats lady so deeply and not liking the idea of someone else wooing her. If so, this is jealousy with a golden halo.
On a scale of 1 to 10, this deal is a 9. It would have been painful to watch Wild Oats being acquired by a traditional supermarket. It will buttress Whole Foods, but not dramatically so. There are some really good people at Wild Oats, and I hope they aren’t given walking papers. It was sadly obvious that Whole Foods was beating Wild Oats when they both served the same market. I’d walk a mobbed Whole Foods, then drive the mile or two to a relatively empty Wild Oats. If it were up to me, I’d rebanner the Wild Oats to the Whole Foods name, but keep the private label Wild Oats offering they have now to mainstream supermarkets. I’d find synergies, and pick up the merchandising/strategy/tactics that were working for Wild Oats. Wild Oats was no slouch, IMHO. I wish them all well.
I think the takeover of Wild Oats was a move that needed to happen. To create a successful niche in any market takes time, energy and passion. To see it being eroded by a weaker competitor’s drive for growth calls for drastic measures. I am referring of course to the distributing and merchandising of Wild Oats products into operations like Stop & Shop and Peabody, companies that needed educating and mentoring in the natural foods industry. What a wonderful way for someone to develop a new department within their existing operation. The last time something like that happened was at Hypermarket USA (the union of Wal-Mart and Cullums), the forerunners to the Wal-Mart Supercenters of today.
I agree with the comments that buying Wild Oats should create new opportunities, locations and formats for Whole Foods. Who says “one size fits all” needs to work for Whole Foods or any other retailer?