- Kroger should make a counter offer for Whole Foods, Loop Capital’s Andrew Wolf wrote in a note to investors this week, according to CNBC. The deal is financially feasible, he noted, and would make the Cincinnati-based retailer the largest natural and organic retailer in the industry by far.
- Kroger’s wealth of grocery data would benefit Whole Foods, which seeks to rationalize its pricing and store merchandising. Both companies would gain crucial efficiencies and wouldn’t overlap considerably, since less than 10% of Kroger stores are located near a Whole Foods.
- Amazon’s deal is expected to go through in the second half of this year, provided a counter offer doesn’t emerge. Barclays has put the odds of a successful acquisition between Amazon and Whole Foods at 60%, with 40% reserved for a counter bid coming in.
There are numerous reasons why a Kroger bid for Whole Foods makes sense. The Cincinnati-based chain is familiar with buying and running other retailers. Its acquisitions include Ralphs on the West Coast, Roundy’s in the Midwest, Harris Teeter on the east coast, and a host of other notable operations, like prepared-foods specialist Mariano’s in Chicago.
Kroger also has proven expertise managing natural and organic products. Ironically, it’s one of the mainstream chains whose involvement in the space depleted Whole Foods’ dominance during the past several years. The company has beefed up its national brand offerings as well as its private label lines. Its Simple Truth natural and organic brand is a sterling example, earning $1.7 billion in yearly revenue.
As Loop Capital’s Wolf notes, Kroger’s data prowess, which began more than a decade ago when the retailer partnered with analytics firm dunnhumby, is considerable. Whole Foods could certainly benefit from this as it needs to implement smart pricing that entices customers while maximizing value for the company.
There are plenty of reasons why the deal wouldn’t work, too. While Kroger is a seasoned acquirer of grocery businesses, it mainly focuses on strong regional grocers rather than national ones. Also, the company hasn’t made a significant acquisition in years, preferring instead to focus on its own stores’ growth and development, from its ClickList services to technology and new formats.
And while a bid of $50 a share would be “about neutral” to Kroger’s earnings, the company has to seriously question whether it would win a prolonged bidding war with the deep-pocketed Amazon.