Amazon buying Whole Foods Market
In a blockbuster deal that adds even more heat to the already competitive supermarket industry, online line giant Amazon is acquiring Whole Foods Market in an all cash transaction valued at $13.7 billion, or $42 a share.
The deal, which is Amazon's largest transaction to date, benefits both companies, said analyst Neil Saunders, managing director of GlobalData Retail. But he sees it as potentially "terrifying" to other supermarket retailers.
"Although Amazon has been a looming threat to the grocery industry, the shadow it has cast has been pale and distant," Saunders said. "Today that changed: Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat. The only mitigation is that the more niche appeal of Whole Foods will, at least for the time being, limit the threat to other players."
John Mackey, co-founder and CEO of Whole Foods, will remain chief executive of the grocer after the deal closes. Stores will continue to operate under the Whole Foods banner, and the company's headquarters will remain in Austin, Texas. The transaction is expected to close during the second half of 2017.
“This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers,” stated Mackey.
Analyst Saunders noted that the purchase fulfills Amazon's ambition to be a serious player in the grocery market, giving it an established business that it can transform through its technology and supply chain expertise along with a well-known and well-regarded brand that can, ultimately, be sold across Amazon platforms.
"For Whole Foods, the deal will come as a relief," Saunders said. "The one well-regarded grocery chain has been under pressure for a couple of years and has struggled with sales, margins, and profits. Amazon is effectively a white-knight that has come to its rescue."
Other analysts pointed to the timing of the announcement, which came the day after German discount grocer Lidl made its long-awaited entry into the United States, with plans to open 100 stores within the year.
"Jeff Bezos is a master of PR," said Kelly Sayre, analyst, retail/CPG, IHL Group. "He is brilliant at timing announcements for coopting the news cycle. The drone story and Amazon Go stories of the last two years just happened to coincide with Black Friday weekend. It is not lost on us as analysts that this announcement just happens to coincide with the day(s) that Lidl opened its first stores in the U.S., and Walmart bought Bonobos. And it came just after Aldi announced a 3.4 billion level of investment in expanding in the U.S."
Sayre noted that the deal puts a spotlight on the shifting business model of the U.S. supermarket industry, which she said has been underinvesting in IT, customer experience, and associate training for decades.
"The business model has always been made by impulse items and selling shelf-space to manufacturers," she said. "That model is changing rapidly. Those who adapt will be just fine. Those that don’t will continue to be marginalized. The battle between Walmart and Amazon will just continue to escalate."
It would seam to me if Amazon wants a brick and mortar store outlet, it would outright buy Sears/Kmart for a song. They could make a killing rebuilding the Sears brand and also implement the Amazon name at both Sears and Kmart stores. Amazon could buy the company for a very big discount!
Supermarket giant cuts profit outlook
The Kroger Co. lowered its earnings guidance amid a decline in Q1 same-store sales as price competition in the supermarket industry intensifies.
Sales rose 4.9% to a better-than-expected $36.3 billion for the quarter ended May 20, up from $34.6 billion last year. Same-store sales excluding fuel declined 0.2%, the second consecutive quarter of decline.
Net income totaled $303.0 million, or 32 cents per share, down from $696.0 million, or 72 cents per share, for the same period last year. Adjusted EPS was 58 cents, in line with forecasts. Kroger recorded a $25 million LIFO charge in the first quarter of 2017, compared to a $15 million LIFO charge in the same period last year.
"We are driving our strategy of lowering costs to reinvest in ways that provide the right value to our customers," said Kroger chairman and CEO Rodney McMullen. "We're pleased that identical supermarket sales in the last nine weeks of the first quarter were positive, and that has continued in the second quarter to date."
Kroger expects full-year earnings in the range of $2 to $2.05 per share, down from its previous guidance of $2.21 to $2.25 per share.
Kroger and other stores need competition to keep them in line for the consumers lowest prices. I applaud the German stores Aldi and Lidl for coming to the USA. Now if we can get Tesco and White Rose from the UK to come to the states we will be even better than before. Aldi, Lidl, Tesco and White Rose, please consider opening stores in the Colorado Springs area!!
Natural-foods grocer’s CEO fights attacks made by investor
Already under the gun to improve business operations, Whole Foods Markets’ founder and CEO finds himself in a new struggle.
The natural-foods grocer’s chief executive John Mackey is in the middle of a battle with activist investor Jana Partners — a hedge fund that upped its stake in Whole Foods to more than 8% in April. The move put Mackey on the defensive, provoking him to refer to the firm as greedy, and comparing them to "Ringwraiths," the villainous characters from the "Lord of the Rings" series, according to Texas Monthly.
In the report, Mackey added, “These guys just want to sell us, because they think they can make 40% or 50% in a short period of time. They're greedy bastards, and they're putting a bunch of propaganda out there, trying to destroy my reputation and the reputation of Whole Foods, because it's in their self-interest to do so."
According to the report, the hedge fund is pushing for major changes at the grocery chain, including a board shakeup and a possible sale of the company. However, Whole Foods has already undergone a significant reorganization.
In May, the natural-foods retailer named a new chairwoman and five new independent directors. It also appointed a former Kohl’s executive as CFO.
“With today’s additions to the board, and changes in our board’s leadership, we are well positioned as we enter the next phase of our evolution,” said John Mackey, co-founder and CEO of Whole Foods. “We believe that we have the right plan – and the right team – to execute on our initiatives at an aggressive pace, deliver results and enhance value for our shareholders.”
However, some shareholders disagree with Mackey’s plight, and instead believe it’s time for a new business model. "This isn’t the rapacious hedge fund versus the conscious capitalist. That's a straw-man argument. The business is hemorrhaging customers,” an anonymous Whole Foods shareholder said in the report.
In May, the chain reported that its same-store sales fell for the seventh straight quarter, declining 2.8%.
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