New markets, new challenges await new Whole Foods entity
NEW YORK Chain Store Guide demonstrates. —Whole Foods’ acquisition of Wild Oats was necessary, said chairman and ceo John Mackey, because the growth of organic and natural food “has led to increased competition from many players, most of whom are not dedicated natural food and organic supermarkets, but are considerably larger than we are.” Acquiring Wild Oats will make Whole Foods a better player, but if the company is to enjoy the benefits of its biggest-ever purchase, Whole Foods will have to address significant challenges, as a new report from sister publication
The new entity will combine the 189-store Whole Foods chain with the 110-unit Wild Oats chain (and its various banners) into what will initially be a 300-store chain. The total is likely temporary, as the disposal of some units is likely. According to Chain Store Guide, the initial combined Whole Foods/Wild Oats will control about 17% of the U.S. retail natural and organic market.
Mackey said the merger will be particularly important in helping to drive Whole Foods’ expansion in the Pacific Northwest and Florida. However, the perch Wild Oats provides may be a bit narrow, particularly in major markets where both companies are positioned. Wild Oats operates one store in Washington state and six in Oregon, while it has five in Florida. Of the top 20 or so markets where the Wild Oats and Whole Foods operations overlap, only one is critical. Before the merger, Whole Foods had a 0.6% market share in the Portland, Ore./Vancouver, Wash., market, which will improve to 1.9%, based on its acquisition of seven stores.
THE WHOLE FOODS BUNDLE| WHOLE FOODS | WILD OATS | COMBINED ESTIMATE* | |
| Total Sales | $5.6B | $1.2B | $7.5B |
| Total Stores | 189 | 110 | 300 |
| Sales Per Square Foot | $859.15 | $454.54 | $775.36 |
| Total Square Feet | 6,518,799 | 2,640,000 | 9,278,800 |
| Avg. Sq. Ft. (per unit) | 34,500 | 24,000 | 29,500 |
Store performance rather than overlap may drive many closing decisions. In only two markets does the combined entity’s market share exceed 10%, and even in the municipalities where the situation occurs, those being Santa Fe, N.M., and Boulder, Colo., where Wild Oats is headquartered, the dual entity will control less than 15%.
One initial challenge will be renovating Wild Oats units, particularly its smaller facilities. Whole Foods has experience remerchandising small stores, as it had to do when it acquired Fresh Fields and others, but size does limit its options, especially as regards the elaborate perishables and foodservice departments it now offers in its larger locations. So, size also may be a factor in unit divestiture.
Overlapping Markets–Whole Foods & Wild Oats| Current W.F. Market Share | Post-Merger Market Share | New Store Count† | |
| Santa Fe, N.M. | 11.0% | 14.9% | 2 |
| Boulder, Colo. | 4.3 | 10.3 | 5 |
| Fort Collins-Loveland, Colo. | 5.6 | 7.6 | 2 |
| Trenton-Ewing, N.J. | 4.4 | 6.0 | 2 |
| San Diego-San Marcus, Calif. | 1.3 | 3.8 | 13 |
| Albequerque, N.M. | 1.8 | 3.7 | 4 |
| Denver-Aurora, Colo. | 2.2 | 3.6 | 11 |
| Los Angeles-Long Beach, Calif. | 2.7 | 3.3 | 27 |
| Omaha-Council Bluffs, Neb.-Iowa | 1.9 | 3.2 | 3 |
| Colorado Springs, Colo. | 2.4 | 3.2 | 2 |
| Austn-Round Rock, Texas | 1.9 | 2.6 | 4 |
| Hartford-West/East Hartford, Conn. | 1.4 | 2.0 | 2 |
| Louisville, Ky.-Ind. | 1.3 | 1.9 | 2 |
| Bridgeport-Stamford-Norwalk, Conn. | 1.4 | 1.9 | 2 |
| Portland-Vancouver, Ore., Wash. | 0.6 | 1.9 | 7 |
| San Antonio, Texas | 0.8 | 1.8 | 4 |
| Las Vegas-Paradise, Nev. | 0.9 | 1.6 | 3 |
| Kansas City, Kan. | 0.7 | 1.5 | 4 |
| Phoenix-Mesa-Scottsdale, Ariz. | 0.7 | 1.5 | 9 |
Whole Foods units average about 34,500 square feet while Wild Oats average 24,000.
More critically, perhaps, Whole Foods will have to address a significant sales-per-square-foot spread. Whole Foods averages $859.15 per square foot while Wild Oats does just over half that at $454.54.
Whole Foods also must address the challenge of sales growth. Since 2000, Wild Oats’ sales have essentially been flat while Whole Foods has almost tripled.
For more information contact Chain Store Guide at www.csgis.com.