The performance of (and potential future for) Whole Foods Market hit the retail headlines in April but how should the US natural and organic grocer look to improve? Staying in the US, a notable acquisition by convenience-store giant 7-Eleven caught the eye. Meanwhile, in Europe, upmarket UK grocer Marks and Spencer looks, after years of shying away, set to take the plunge into the online channel.

What should the future hold for Whole Foods?

April was anything but a quiet month for Whole Foods Market, the US natural and organic grocer trying to kick-start its growth after a period in the doldrums.

On 10 April, US investment fund Jana Partners, an activist shareholder that has, over the years, taking positions to agitate for change at companies including Safeway Inc and ConAgra Foods, announced had taken a 8% stake in Whole Foods and wanted talks with the retailer over its “chronic under-performance for shareholders”.

Jana Partners said it would also look for talks on issues including the make-up of Whole Foods’ board, on how it spends its capital, including the retailer’s fledgling 365 format, on potentially moving some distribution in-house and on starting a review of the company’s “strategic alternatives”.

In response, Whole Foods put out a statement to say it “welcomes investment in the company and is open to the views and opinions of all of our shareholders”.

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Fast-forward a fortnight and a report in The Financial Times claimed US food retail giant Albertsons was mulling a move to buy Whole Foods. The FT said Albertsons, the number two operator of food stores in the US, had held early talks with bankers. Albertsons said it would not comment on speculation, while Whole Foods, which saw its shares rise in the wake of the report, declined to comment.

Three days later, on 27 April, another Whole Foods shareholder, mutual-fund manager Neuberger Berman, reportedly told the retailer it should consider a sale, or a merger with another company.

There is little question Whole Foods has found the going tough in the last couple of years as mainstream US grocers eat into its core natural and organic markets, categories that offer the retailer’s larger, conventional peers ways to boost their own flagging sales.

In Whole Foods’ last full financial year, the retailer saw comparable-store sales decline 2.5%. It also reported lower margins year-on-year. In February, when Whole Foods filed its numbers for the first quarter of its current financial year, the retailer booked another period of falling comps; it also issued new, lower sales, margin and earnings targets for the year as a whole.

Facing investor pressure, a challenge on its hands to revitalise sales and speculation of takeover interest, how should Whole Foods react? The retailer has reportedly hired investment bank Evercore to advise on a strategic review but so far its public comments have remained, unsurprisingly, guarded.

Neil Stern, senior partner at US retail consultants McMillanDoolittle, sees the benefits in a sale to Albertsons and its backers, the private-equity firm Cerberus Capital Management.

“Whole Foods has issues that they need to sort out on their business; the big question is whether they can do it themselves or would they benefit from new ownership. While Albertsons doesn’t offer a lot in terms of synergies, Cerberus can infuse capital and take them out of the public eye for while. It is sometimes better to execute a turnaround privately,” Stern says. “All of this said, Whole Foods still runs some of the best, most productive stores in the industry. I do believe that the company is still well positioned in the market.”

Victor Martino, a California-based food and grocery industry strategist and consultant, says he is “sceptical to a certain degree” about the talk Albertsons is lining up an offer for Whole Foods.

Martino argues Whole Foods, with co-founder John Mackey now again the company’s sole CEO after six years of sharing the role, is looking at other options. “John Mackey wants to keep the chain independent. He does not want to sell. I believe Whole Foods is exploring going private. This is likely one of the top strategic directions it’s exploring with Evercore,” Martino suggests. “Another possibility, and I believe I’m the only one to point it out, is a merger between Whole Foods and Sprouts Farmers Market. A merger between Whole Foods and Sprouts would be smart and would benefit both by creating a dual-format food retailer – Sprouts being the more price-focused of the two – and, further, a merger would, in my view, satisfy Wall Street. Numerous stores would need to be sold or closed.”

All eyes on Whole Foods’ second-quarter results tomorrow (10 May).

US c-store giant 7-Eleven in notable M&A

Already the largest convenience store retailer in the US, last month 7-Eleven added a whopping 1,000 stores to its network in one deal.

7 Eleven, owned by Japan’s Seven & I Holdings, announced on 6 April it had struck a deal to buy just over 1,100 outlets from US fuel retailer and convenience store group Sunoco.

The transaction, worth US$3.3bn, is set to be “one of the largest in 7-Eleven’s history”, the retailer said. It will take its store count in the US and Canada to 9,815.

Joe DePinto, 7-Eleven’s president and CEO, outlined where geographically the deal would benefit the business. “This acquisition supports our growth strategy in key geographic areas including Florida, mid-Atlantic states, north-east states, and central Texas,” DePinto said. “It also provides 7-Eleven entry into Houston, the fourth-largest city in the United States, and a strong presence in Corpus Christi and across south Texas.”

7-Eleven snapped up 140 stores in Canada in March last year but the deal with Sunoco is its first significant move in the US to expand via M&A since a transaction announced in November 2015 in Florida.

The Sunoco stores are located in 19 geographic regions and the deal “provides 7-Eleven with access to key growth regions and cities”, Stewart Samuel, an analyst on the North American retail market for UK-based researchers IGD, says.

Samuel highlights foodservice as an element of the Sunoco stores from which 7-Eleven could benefit. “The deal includes the Stripes and Laredo Taco Company trademarks. Sunoco has been at the forefront of developing an integrated convenience and foodservice offer. At the heart of this is the Laredo Taco Company concept which is available at 450 stores. Recently the retailer introduced a new look offer for the concept, with customers able to directly see the fresh tortilla-making experience. These capabilities will be important to 7-Eleven,” Samuel says. “The retailer has been aiming to update its food-to-go proposition, with a focus on providing freshly prepared and more authentic products to attract new shoppers.”

M&S to trial online food delivery

During Marc Bolland’s time at the helm of Marks and Spencer, rare would be a press conference when he was not asked whether the UK food, clothing and homeware retailer, with a grocery business continuing to perform well in some testing times for the market, would follow its conventional supermarket peers and launch online delivery.

Asked, for example in November 2010 about M&S’s then thoughts about the online market (it did – and does – offer a limited click-and-collect service on items like party food), the former Morrisons chief executive said the retailer would study the channel over the next three years but claimed he was “not in the business of losing money” and would look for a “viable business model”. Bolland, at the time, added M&S faced a different set of operating conditions to other major UK retailers, with its average basket sitting at around GBP35-40 compared to GBP100 or more for its competitors.

A lot of water has passed under the bridge since then, not least the continued rapid growth of the online food market in the UK, including the entry of Morrisons into the market.

There are, of course, numerous challenges to developing an online food business, not least trying to make it a profitable endeavour but M&S, now under the direction of company veteran Steve Rowe, appears to believe expanding its e-commerce food business could be an opportunity for the company.

“We continue to review food online carefully,” Rowe said, according to The Guardian newspaper, which first reported the news. “It has not cost us anything over the last five years by not being online with food. Our customers haven’t moved yet, but they will and we need to ensure that we are ready with the right response. There are unanswered questions over what this means for M&S and we have a team looking at this now with a view to undertaking a soft trial in the autumn.”

Sanford Bernstein analyst Bruno Monteyne said he had “always been surprised” M&S did not have an online food offer “given their high price point implying their customers have the ability to pay for delivery”.

On 29 April, The Telegraph reported M&S planned to start talks with UK pure-play online grocer Ocado over a possible tie-up.

Bernstein’s Monteyne sees two ways an agreement between M&S and Ocado could happen.

“Two options for M&S if they go with an Ocado solution: the CFC central fulfilment solution or in-store picking,” he says. “Typically M&S has customers shop smaller baskets, serving customers in the something-for-tonight or top-up shopping missions rather than the main shop. The economics of central fulfilment are hugely in favour of bigger baskets. Hence, it’s more likely that a solution would be in-store pick for M&S.”