Why was Whole Foods for sale?
Let’s look now at the reasons behind Whole Foods Market’s (WFM) reason for selling to Amazon (AMZN). Whole Foods has long been credited with cultivating customer interest in natural and organic foods in the United States. The company had little competition in its early years and enjoyed industry-leading margins and comps (comparables).
As competition increased, Whole Foods failed to compete with the low-priced products on the shelves of Kroger (KR) and Walmart (WMT). Its comps declined, and its margins plunged. It went from the best performing grocer to one of the worst performers, recording negative comps for seven consecutive quarters.
The entry of Jana Partners
About two months ago, activist investor Jana Partners pressured Whole Foods into a strategic shake-up. Jana pushed the company’s management to evaluate the reasons behind its’ “chronic underperformance” and wanted changes at the senior management and board levels. In May 2017, WFM appointed a new chief financial officer and five independent directors.
The pressure from Jana was so high that Whole Foods’ chief executive officer John Mackey commented in Texas Monthly that “these guys just want to sell us because they think they can make forty or fifty percent in a short period of time. They’re greedy bastards, and they’re putting a bunch of propaganda out there, trying to destroy my reputation and the reputation of Whole Foods because it’s in their self-interest to do so.”
Jana Partners has an 8.3% stake in Whole Foods Market. It’s currently Whole Foods’ second largest shareholder.
If you want to add exposure to Whole Foods, you can consider the Market Vectors Retail ETF (RTH), which invests 1.7% in the company.