I am not one who considers The Fresh Market a direct, one-to-one competitor with natural foods stores. It does not take more than a few minutes in its stores to see that it has great merchandising, incredible sourcing, a flair for store layout and design—and, like many other specialty grocers these days, a notable presence of natural and organic items. However, The Fresh Market still has a sizable amount of conventional grocery items and gourmet/specialty items that would never pass muster in a natural foods store, even one with fairly lax ingredient standards. That said, the chain’s emphasis on produce and fresh meat parallels some of the fast-growing chains in the natural and organic marketplace. And its execution in these (and other) areas makes it a food retailing force worthy of attention.
Apollo’s decision to take the company private strikes me as very wise. Apollo is a private equity firm that has been around since the early ’90s and owns or invests in a number of well-known brands—ADT Security, Hostess, McGraw-Hill Education and Jacuzzi. A quick Google search about the firm provides many sources of information about many years of strong financial performance. Those in our industry have heard the Apollo name from time to time as it bought into natural and organic businesses, including Sprouts.
As a private equity firm, Apollo receives investments from individuals and institutions which it invests in what it believes to be promising business opportunities in order to generate a return on investment for its investors. So, while it is a single entity, it represents many others. The move to take The Fresh Market “private” removes The Fresh Market from being publicly traded and gives it one entity to which it is accountable—Apollo Global.
Over the past number of years, quite a few companies in the natural and organic space have gone public. Often, these moves have provided the companies with capital to expand and grow and have created very strong returns on investments for those who owned part of them when they were still private. However, this infusion of cash comes with a price tag. Now there are others who own part of the company. They own shares of it because they want it to make money and they want it to do so on their schedule. There are now investors from outside of our industry at the table.
Who to serve?
Some of the firms in our space that have gone public have had real challenges after doing so. While they have enjoyed the influx of cash that was expected, they have not done well serving more than one master.
Good companies are built by taking care of customers. Good products, good service and good attention to detail lead to satisfied customers and long-term growth. Making something right when there has been an error—regardless of the cost to do so—creates confidence in a brand and helps ensure its long-term viability. Some investors, however—and it seems to be larger ones more than smaller ones—are not so patient. They want a particular return on investment each and every quarter. Growth in sales and growth in profits are mandated, regardless of market conditions. Lowered consumer demand, bad news in the press, increased competitive activity or more do not change their demands for the continued quarterly increases.
This can create problems—and we have seen it in our industry.
The cost of growth
While seeing a company with a vision we believe in receive an infusion of cash with which it can grow and expand makes us feel good and proud, it can create problems for which there is no easy fix. If the expected and/or required financial targets are not being hit by natural market growth, there is pressure, often not too subtle, to hit them another way: compete in an aggressive manner, cut labor, lower ingredient standards, change product potency. Find a way to grow the top line; find a way to cut costs and grow the bottom line—each and every quarter. Your old methods of operating your business, the ones that you grew and thrived with, are no longer important or in place.
The investors are competing with customers to be the focus of your business. There are two masters at the table.
The good and the possible
So, from my perspective, the move to privatize The Fresh Market is a good one. Rather than being subject to the whims of those who would buy and sell it publicly, it has to answer to one entity. Even though it is an entity containing many players, its management, hopefully, will return to a person or team at Apollo that understands its business model, its market and its customers. This will give it the support and capital to grow, compete and thrive.
I have a list of firms in our space that I have seen fall victim to going public and not handling the new demands on it well. I would like to nominate them to also going private so that they have the opportunity to do what grew them in the first place.