Amazon may have made an offer to buy Whole Foods Market for $13.7 billion, but that doesn't close the door to other potential suitors — including, perhaps, Walmart.
A JPMorgan report released Thursday raises the possibility that Walmart will make a bid for Whole Foods, raising speculation about other companies that could reel in the one-time darling of the grocery world.
Though the notion of Walmart emerging as a bidder might sound far-fetched, investors aren't counting out the possibility. Whole Foods shares closed Thursday at $43.20, a $1.20 more than the price of Amazon's bid Friday for the chain of more than 465 stores, indicating that investors put a premium on the grocery chain above what the online retailing giant was willing to pay.
Like Amazon, Walmart would view Whole Foods as a relative pipsqueak. Walmart has the largest share of the U.S. grocery market with 26.2%, according to Euromonitor. Whole Foods is eighth with 1.6%.
The two also would come with cultural differences. Walmart is a price cutter that appeals to middle America, while Whole Foods has found loyal customers who prefer organic produce and are willing to pay higher prices for quality.
For Walmart, the real prize may not be Whole Foods, but rather, entering the bidding in order to complicate life for Amazon.
"What they could be doing is driving up the price to make it more expensive for Amazon to acquire," said Euromonitor's head of retailing, Michelle Grant. "The plan runs the risk you end up being the ultimate bidder."
All this chatter raises questions of what others might want to outbid Amazon.
Kroger. The chain is No. 2 on Euromonitor's list of grocers with largest market share with 10.2% and has experience with acquisitions, but it already has a more upscale chain in its portfolio, Harris Teeter. And buying Whole Foods isn't going to help a beleaguered Kroger innovate or compete on price.
Kroger executives could be more worried about chain's 13-year streak of quarterly sales growth having ended, as reported in March, rather than trying to muscle in for Whole Foods. The prospect of a bidding war with Amazon would hold little appeal.
"Amazon has deeper pockets and has more — no pun intended — organic reasons for this deal," said Mark Hamrick, senior economic analyst at Bankrate.com. "Amazon has the ability to thoroughly innovate in this space and if Kroger had already figured out the innovation piece, they wouldn't be where they are right now,"
He predicts Kroger would ultimately fail in bidding with Amazon. But he clearly sees why it would be in Kroger's interest to try to thwart Amazon's plans.
"Kroger needs to fall on a grenade to prevent that deal from happening," Hamrick said.
And if Kroger were to buy Whole Foods, its approach to chains it buys is rather hands-off
"In general when Kroger does acquire companies, they do tend to leave them alone," Grant said. "That’s what (Whole Foods CEO) John Mackey is looking for."
Small chains. Many regional players are privately-held, including Albertsons, Publix, Hy-Vee and ShopRite, and buying Whole Foods might give them a more national profile. Wegmans and Trader Joe's, which are also private, already are overlapping with Whole Foods.
But topping Amazon's bid would be difficult for any of them. Even if they did have the cash, the scale would overwhelm them
"It’s too much for those guys to bite off. It’s a very big buy. It's a national chain and I think that changes the game for these players," said Neil Saunders, managing director of GlobalData Retail.
One exception is Ahold Delhaize, a Dutch company which owns several U.S. regional chains, including Stop & Shop, Food Lion and Giant, and according to its Web site, counts the U.S. as its biggest market with nearly 2,000 stores.
"They might be interested in Whole Foods, because their portfolio tends to be mid-market and lower-income," said Grant, pointing out Ahold has 4% of the U.S. market. "Those banners are concentrated along the Eastern corridor, so Whole Foods would give it a national (reach) and a higher scale of clientele."
Foreign chains. German discount chains Aldi and Lidl have a presence in the United States. Aldi has a four-decade lead on the Lidl, which opened its first stateside stores last week. But other major European heavyweights, like France's Carrefour and Britain's Tesco, might want to buy, rather than build, their way into the U.S. market. Buying Whole Foods would enable them to enter the American market full-force and fully formed. Plus, they have the money need to battle Amazon for Whole Foods.
But they aren't naive. Tesco's venture into the U.S. grocer scene, which began in 2007, ended badly — and it hasn't forgotten.
"A lot of European retailers are very nervous about the U.S," said Saunders. "They're really struggling for growth. They're spending a lot to revitalize stores in their home countries. This would be a big drain on their finances … There are problems here to sort out and it adds more to their plate."
Target. Often thought of in the same big-box category as Walmart, this chain actually is quite different. Acquiring Whole Foods might get in back in the good graces of better-heeled customers who recall its "cheap chic" origins back when it was pronounced "Tar-jay"-- as if it were a French name.
But it's not doing well in the grocery segment.
"With the launch of private label brands in non-grocery categories, like Cat & Jack and Pillowfort, they found what made it special and it’s not grocery," said Grant.
Hamrick thinks Target itself would like to become a target.
"If anything, Target would like to be acquired by Amazon. In some ways, it could help Target potentially gain greater market share in the grocery space," he explained.
Costco. The warehouse club is based on memberships and a revolving array of products ranging from food to housewares to clothing to electronic to jewelry. Its Kirkland house brand is a hit.
Saunders thinks Whole Foods is a mismatch.
"The concern is it’s something very different from Costco’s core business model. They might be uncomfortable with that. It’d be a whole host of new learning for them," he said.
Scott Rothbort, president of LakeView Asset Management and a Seton Hall University finance professor, believes it's a good fit.
"My instinct tells me that if a second bidder emerges, it would be Costco. The Costco membership model is similar to that of Amazon Prime. Whole Foods' business is more complimentary to that of Costco than it is to that of Walmart," he wrote in a note.
Sprouts. This would be a case of a getting called up from the minors. The Phoenix-based privately-held discount-organic chain has close to 270 stores in 15 states, a little less than half the size of Whole Foods.
"That was the 1980s model of takeovers. It just wouldn’t fly today," said Rothbort, recalling the high-flying days of junk debt and leveraged buyouts.
Saunders also suspects a Sprouts bid would be unlikely, due to scope and potential overlap.
"The issue with a little fish swallowing a big fish is it can lead to indigestion, financially, operationally and culturally, because it's such a big entity to absorb. I don’t think sprouts has the expertise or management capability of that kind," he said. "It’d transform the business, but it would be extremely disruptive."
There were rumors in March that Sprouts would merge with Albertsons, Bloomberg reported.
Delivery companies. Instacart may be panicking over Amazon's move to buy Whole Foods, but both it and other delivery businesses might not be able to stop it. They're lacking both the cash and the know-how and the combination of the two would make it hard to secure the kind of cash needed for a deal like this.
"The problem is that with a lot of these players is they just don’t have the money to do this. The other thing they don’t have is grocery expertise. They’re used to running technology platforms, not a grocer. That would spook anyone they went to for financing," said Rothbort.