Dive Brief:

• Sprouts Farmers Market could be the next takeover target in the grocery industry, according to The Street, citing research from Oppenheimer analysts and the Financial Times.
• Shares of Sprouts dropped 6.3% last week to $21 on the news that Amazon had agreed to purchase rival natural and organic grocer Whole Foods.
• The drop in share price, according to Oppenheimer, represents “an attractive entry point to get involved with a very high-quality retailer.”

Dive Insight:

This isn’t the first time Sprouts has been touted as an acquisition target in recent months. Back in March, reports named fast-growing Albertsons as a possible buyer for the discount natural and organic chain. That interest seemed to cool, however, as sources inside Albertsons said the two sides couldn’t come to terms.

Following Amazon’s blockbuster $13.7 offer for Whole Foods, Sprouts’ name has emerged once again as a tempting buy option. The retailer has recently hinted it’s open to being acquired and a drop in stock price could just be the catalyst a large retailer needs to move on the deal.

Beyond its attractive stock price, Sprouts could be an effective foil to Whole Foods’ development under Amazon. The Phoenix-based chain has already proven it can cut into Whole Foods’ market share with lower-priced alternatives to many of the same products offered by the industry pioneer. Moreover, Sprouts has grown quickly, with a contingent of East Coast stores complementing its western stronghold. By the end of this year, the retailer will boast nearly 300 stores nationwide.

Under a larger company, Sprouts could accelerate its growth and gain some crucial efficiencies. But for all the company’s promise, it is still in the early stages of its development, having gone public just four years ago, and it doesn’t have the brand strength that Whole Foods has. Also, Sprouts could struggle against an Amazon-owned Whole Foods if the partnership, as many predict, will lower the retailer’s notoriously high prices.

Another acquisition in the natural and organic space does seem likely. If not Sprouts, perhaps private equity-owned The Fresh Market or another discount chain like Lucky’s Market could attract a bid. Kroger has invested in Lucky’s, while Meijer has backed Fresh Thyme Farmer’s Market. Perhaps retailers will expand their investments as natural and organic continues to go mainstream.