Analyst: Kroger takeover of Whole Foods makes sense

Dive Brief:

  • Edward Kelly, an analyst for Credit Suisse, said a merger between Kroger Co. and Whole Foods Market would benefit both retailers, according to Supermarket News.
  • In a research note, Kelly said the possibility of a deal like this occurring is heightened by last week’s report that activist investor Jana Partners has taken a position in Whole Foods.
  • Edward Kelly, an analyst who covers Kroger for Credit Suisse, wrote that a purchase of Whole Foods “would marry each company’s strengths with the other’s weaknesses, (and) unlock massive cost synergies." He added "Kroger now seems to have more incentive than ever to accelerate (mergers and acquisitions) to fill the void of weaker organic growth.”

Dive Insight:

Based on news reports and industry rumors, analysts seem anxious for someone to buy Whole Foods. While Kelly estimated a merger could help increase Whole Foods Sales by more than 3% and save the combined company $400 million to $600 million, there’s been no clear indication that either company is interested in such a deal.

Both firms are probably closely monitoring what’s happening with the potential Albertsons/Sprouts merger. A marriage would likely prompt Kroger and Whole Foods to consummate their deal quickly. While organic is a big draw for many retailers, the arena has become increasingly crowded as more players like Wegmans and Kroger expand their offerings. There also is growing competition from meal kit operators such as Blue Apron and Fresh Direct. 

Whole Foods is not without its current challenges. The company recently announced it was closing nine stores following a disappointing first-quarter earnings report. Reports are that the retailer also is divesting some of its products as it become more focused, a strategy which could lend itself well for a merger. With rumors swirling that many different entities could be logical acquirers of Whole Foods, it remains to be seen whether Kroger — which has built its company by taking over competitors such as Roundy's and Harris Teeter — will made a bid. One reason for it to stay on the sidelines: Kroger has a big presence in natural and organic products, selling more of the product than Whole Foods.

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Filed Under: Grocery Corporate
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