Our friends at Supermarket News announced Whole Foods' intention to sell 32 stores, most of which are closed, in a settlement agreement with the Federal Trade Commission. The stores that will be sold include 19 Wild Oats locations, ten of which were closed by Wild Oats prior to the merger. The 13 stores to be sold that are currently operating include 12 Wild Oats locations and one Whole Foods store. A total of seven Colorado stores, five that are currently operating, are included in the settlement.
Whole Foods also has six months to sell intellectual property and trademarks associated with Wild Oats. This comes on the heels of a long battle with the FTC, in which the company has reportedly spent in excess of $16.5 million to fight the case. So what is the outlook for Whole Foods?
The retailer secured an investment in January 2008, by The Yucaipa Companies, LLC., led by supermarket investment mogul Ron Burkle. I spoke with Andrew Wolf of BB&T Capital earlier this week and he viewed the investment as a big vote of confidence. He also spoke favorably about the store's outlook, despite the unfavorable economic conditions and problems with the FTC. "I think that in the long term, once economy turns, Whole Foods is still very valuable concept. There will still be enough people interested in best quality natural and organic." He went on to comment on the company's current positioning. "Whole Foods core grocery is doing ok, because the customer knows that price points are lower and they are pretty well priced in the middle of the store. It’s the high quality perimeter where consumers are trading down to lesser quality or taking a pass."
Scott Van Winkle, Managing Director of Canaccord Adams, thinks the company may have endured the brunt of the storm in 2008 and positioned themselves well for a rebound. "I think they saw their trough in the pace of the decline of purchasing from consumers in November and December. All of the efforts they have made over the last 9 months are going to start to bear some fruits--slowing down the pace of store development, cost controls they’ve done in Austin, headcount reductions and a hiring freeze, that should result in more attrition, improving margins."
So one might conclude that the company has done a good job managing the forces they can control, now it just needs the macroeconomic conditions to improve. "They’ve already cut prices, given better value, now they just need to educate their consumer that it’s not that expensive at whole foods," added Van Winkle.