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Whole Foods Market Flies High on Kroger Takeover Buzz

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Snapshot

Whole Foods Market’s (WFM) stock rose 6.7% on October 6, 2016, amid rumors of Kroger’s (KR) interest in buying the natural and organic food retailer. Whole Foods Market, which has struggled this year in the intensely competitive grocery segment, saw its stock fall 16.5% through October 5.

The takeover speculations boosted its share price 4.9% on October 6 and trimmed its year-to-date losses to 12.4%.

Kroger (KR) ended October 6 on a positive note, gaining 1.8%. Kroger’s stock price gain can also be linked to news regarding retail behemoth Walmart (WMT).

In its October 6 investor meeting, Walmart discussed its plans to curb new store openings to increase the focus on its e-commerce business. The stock prices of Dollar Tree (DLTR) and Dollar General (DG) also gained momentum and recorded intraday gains of 4% and 3.1%, respectively.

The SPDR S&P Retail ETF (XRT) fell 0.3% on the day. XRT holds ~5% in Whole Foods, Kroger, Walmart, Dollar Tree, and Dollar General. The S&P 500 Food and Staples Retail Index fell 0.6%, compared to a flat S&P 500 Index.

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The supermarket and grocery store industry

The supermarket and grocery store industry is the largest food retail channel in the United States. According to the U.S. Census Bureau, grocery stores accounted for ~90% of the country’s food and beverage store sales. Supermarkets are the most important segment in the grocery store channel, accounting for ~95% of total grocery store sales.

Retail food players have had a difficult 2016, mostly due to rising deflation and an increasingly competitive landscape. Organic and natural food players have had a particularly tough time competing with lower-priced products from the mainstream grocers and big box retailers.

Series snapshot

In this series, we’ll evaluate Kroger’s (KR) interest in Whole Foods Market (WFM), briefly discuss WFM’s past performance and current situation, and compare the valuations and stock market performance of the two companies.

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