Whole Foods Market: Wild Oats Merger on Track

Whole Foods is offering Gregory Mays, Wild Oats’ interim CEO, a $750,000 bonus to stay on until the sale is completed in April. The merger reinforces Whole Foods Market’s dominant position in natural and organic food retailing in the US and enables the retailer to compete on a firm footing with its mass market rivals.

Another 318 Wild Oats corporate headquarter employees will also be offered a total of $4 million to stay on through a transition period. Since the two companies share a similar outlook, customer base and business values, the merger makes eminent sense, adding Wild Oats’ $1.2 billion in annual sales and 110 stores to Whole Foods’ 180 strong US network.

As health concerns have risen to the top of consumers’ agendas, spearheaded by the obesity epidemic currently gripping the US, the previously organic niche market has been catapulted firmly into the mainstream. This has enabled Whole Foods to deliver an outstanding performance in recent years – characterized by robust like-for-like sales growth and culminating in sales of $5.6 billion in 2006.

Since consumers are willing to pay a premium for the perceived health benefits of organic produce, Whole Foods’ aspirational positioning leaves it well placed to benefit from this boom. However, the retailer came up against tougher competition last year, with both Wal-Mart and Target expanding their organic offers. As the main grocery players have stepped up their game and demand for organic produce has exploded, questions were raised about whether Whole Foods had the necessary buying scale to compete.

The $565 million merger announced last week has put paid to this kind of speculation. Through the acquisition, Whole Foods has considerably strengthened its store portfolio, regional spread and buying power. Furthermore, the retailer will be able to leverage significant operational synergies in bringing the two companies together.

Verdict expects Whole Foods to export its successful business model to transform Wild Oats’ performance. With a stuffy image, sales densities half that of Whole Foods and an ongoing struggle to digest its previous acquisitions, Wild Oats has considerable potential. Whole Foods has 18 acquisitions under its belt, making it well versed in acquiring smaller chains and nurturing them as a platform for further growth.

Wild Oats is an organic retailer espousing community spirit and commanding high customer loyalty. This is evident from the fact its website was flooded with consumers’ concerns about the future direction of the company, when the news of the merger broke. The policy to retain key staff to smooth over the transition period and offer future employment options to all current staff is a shrewd move on Whole Foods’ behalf and enhances its credentials as a responsible corporate citizen.

Source: Verdict Research