Dive Brief:
- Albertsons has entered preliminary talks with its bankers concerning the possibility of acquiring Whole Foods, according to anonymous sources briefed on the subject and interviewed by the Financial Times.
- Whole Foods, meanwhile, has reportedly hired investment bank Evercore to advise it on a possible sale.
- Albertsons also is reported to be interested in acquiring Sprouts Farmers Market, though according to FT these talks have stalled.
Dive Insight:
Just five years ago, Albertsons had fewer than 200 stores and $4 billion in sales. Today, the company has 2,300 stores and rings up $60 billion in annual sales.
This eye-popping growth comes courtesy of an aggressive acquisition agenda by Albertsons and owner Cerberus Capital Management. The chain has snapped up United Supermarkets, Tom Thumb, and more than two dozen stores belonging to Haggen. Two years ago, its acquisition of Safeway made it the second-largest traditional grocery company behind Kroger.
By acquiring Whole Foods, Albertsons may finally be able to push through an IPO it has long sought, which would allow it to raise money and pay down some of its considerable debt. That debt load likely would swell further with an aquisition of Whole Foods.
The company is ambitious, but it also happens to be an effective manager. As part of their 2006 acquisition of Albertsons, Supervalu and Cerberus divided up the company’s stores. Whereas Supervalu struggled to turn around its locations, Cerberus saw its store count improved. Eventually, Supervalu sold 900 of its 1,100 to Cerberus.
Albertsons and Cerberus have a reputation for controlling costs and lowering prices, while at the same time giving local managers autonomy over product assortment, merchandising and other practices. The company’s ability to rein in costs could be a huge benefit for Whole Foods, which recently began implementing its own cost-cutting strategies. The hands-off approach could enable Whole Foods’ managers to cater to the customers they know best.
At the same time, Albertsons’ challenge would be much more than just controlling costs and empowering managers. Right now, Whole Foods doesn’t offer a compelling enough shopping experience to inspire people to leave Kroger, Wal-Mart, Costco and the other retailers that have taken their share of the natural and organic market Whole Foods once controlled. Fixing this problem will take a multi-layered, innovative approach for Albertsons, or whoever might lead Whole Foods in the future — including the company itself.
