While Wall Street endorsed the proposed marriage of natural grocers Whole Foods and Wild Oats, some retail experts said the deal may not help the companies compete against mainstream grocers and discounters that are edging into their territory.
The deal “may make them bigger, but I don’t see how it makes them any more competitive,” said Kevin Coupe, founder and editor of MorningNewsBeat.com, a Darien, Conn.- based website for the food-retailing and -manufacturing business.
Coupe worried that eliminating its biggest natural and organic competitor has the potential to make Whole Foods complacent. It also could drive up prices because Whole Foods will have to service the debt it took on to complete the deal.
“If they wanted to eliminate one of their big competitors, they aimed at the wrong target,” he said. “The competitors I would be worried about are Target and Wal-Mart.”
Retail behemoth Wal-Mart as well as mainstream grocers including Safeway and Kroger-owned King Soopers have steadily increased their organic offerings. Safeway has launched what it calls “lifestyle stores” that include softer lighting, wooden floors and expanded organic and prepared offerings. The company hasn’t revealed sales at those stores but said they experienced a “substantial increase in sales.”
Safeway and other mainstream grocers are “understanding that today’s consumers want healthier food, and they’re willing to pay a higher price for it,” said Jon Schallert, a retail consultant in Longmont.
“I don’t think Whole Foods or Wild Oats has done a really good job of explaining how their organic food is that different from these major chains,” he said.
Nonetheless, Schallert described the merger as inevitable and said it will give the combined companies greater leverage and advertising power along with cost advantages.
Vendors who work with both companies were pleased with the merger and dismissed concerns that the combined company would use its size to squeeze them for lower prices.
“We basically price everything pretty much the same way. We’re not in the commodity business,” said Mel Coleman Jr. of Coleman Natural Foods LLC, which works with both chains.
Ric Kraszewski, co-founder and vice president of Whale Tails Tortilla Chips in La Jolla, Calif., said both chains have been supportive of his fledgling company, which donates 10 percent of profits to preserve whale habitats.
“From a vendor standpoint, it becomes easier because you’re going to be dealing with only one distribution system,” he said.
Experts were uncertain what kind of impact the deal would have on smaller regional players such as Longmont-based Sunflower Market and Lakewood-based Vitamin Cottage.
Laurie Demeritt, president of the Hartman Group, a consulting and market-research firm based in Bellevue, Wash., noted that the type of die-hard organic fan who could be turned off by an increasingly larger corporate chain represents only a small part of the market. For the most part, buyers in that category are already shopping at local co-ops and farms rather than either chain.
Sunflower Market founder Mike Gilliland said he doesn’t expect the merger to affect his company.
“We’re trying to appeal to a different niche of the market,” Gilliland said. “We competed with both of them before, so I don’t think things will change.”
Gilliland founded Wild Oats and served as its chief executive before the company’s board replaced him.
Investors sent shares of Boulder-based Wild Oats Markets Inc. up 17.1 percent to $18.41 Thursday, the first trading day following news that Austin, Texas-based Whole Foods Market Inc. would buy the company in a cash-and-debt deal valued at $700 million. Shares of Whole Foods gained 14.3 percent to close at $52.11.
Staff writer Kelly Yamanouchi contributed to this report.
Staff writer Kristi Arellano can be reached at 303-954-1902 or karellano@denverpost.com.
BY THE NUMBERS
$18.41
Wild Oats Markets’ closing stock price Thursday, up 17.1 percent following Wednesday’s acquisition by Whole Foods Market
$52.11
Whole Foods’ closing stock price Thursday, up 14.3 percent on news of the deal
$700 MILLION
Value of the cash-and-debt deal
$1.2 BILLION
Wild Oats’ annual sales
$5.6 BILLION
Whole Foods’ annual sales in fiscal 2006
