Whole Foods Markets (WFM)

[conix]

Whole Foods in need of a major shakeup

By Carleton English
April 12, 2017 | 9:45am


Over the last six quarters sales at Whole Foods have rotted away like a bunch of overripe bananas.

Many on Wall Street have soured on the grocer as only six of 28 analysts have a buy rating on its shares.

So it was no surprise that Whole Foods shares spiked 10 percent Monday after Barry Rosenstein’s Jana Partners hedge fund announced an 8.3 percent stake in the high-end grocer.

“Finally an activist emerges,” Edward Kelly, an analyst with Credit Suisse wrote in a note Monday.

Many on the Street see Jana’s move as a wake-up call to Chief Executive John Mackey, his management team and entrenched board members who have turned an industry leader into a laggard.


Hedge fund cites Whole Foods for 'chronic underperformance'


Jana is pushing for a board shake-up or an outright sale. Some wonder if Mackey can save the chain.


“Yes, they can [be fixed],” Bill Bishop, grocery expert and co-founder of Brick Meets Click told The Post. “But it would take a major re-engineering of their thought process.”

As the Mackey-led grocer has been asleep at the wheel, other grocers — like Kroger, Costco and Trader Joe’s — have devoted more shelf-space to the natural and organic lifestyle Whole Foods touts.
“The problem is, they were leaders and now others have caught up to them in areas where they stood out from the crowd,” Bishop said. “Others have a pretty good offer but have a significantly lower price.”

“A sense of urgency has been lacking and given the turtle pace of change, customers have been defecting,” Karen Short of Barclay’s said in a note Tuesday.

Jana has created a checklist to revive the Whole Foods brand.
The first order of business appears to be refreshing Whole Food’s deeply entrenched, 12-person board. It is prepared to nominate three directors for the 2018 shareholder meeting.

The hedge fund is also calling on Whole Foods to step up its technology game. Its “chronic underperformance” is due partly to its failure to use analytics to drive customer loyalty programs, JANA said.

The hedge fund also wants Whole Foods to rethink its supply chain.
But analysts say Whole Food’s biggest problem is its pricing. “Grocery shoppers want deals,” Kurt Jetta, CEO of TABS Analytics told The Post.

Whole Foods falls “woefully short” on promotions, Jetta said. “If you’re not everyday low price [EDLP], you have to promote.”
The company could move to an EDLP model for “commodity items such as produce, frozen and grocery” while still charging premium prices for meat, seafood and prepared products, said Short.
While the methods among analysts differ slightly, there is agreement that it was time for an activist to rattle Whole Foods’ cage.

Bishop recalled other grocers that had been targets of private equity firms and hedge funds.

Many of them say: “I wish we had the knowledge and determination to make these changes before,” Bishop said.
Whole Foods did not respond to requests to comment.