Touch the Soil News #731 (feature photo – Interior of the largest Whole Foods Market in East Village, New York – CC SA 3.0)
Competition in the grocery business, when combined with the impatience of investors, may bring down grocery prices, but at the risk of broader economic decline in America.
Americans will spend approximately $1.6 trillion on food this year – about half at restaurants and half in grocery stores. Unlike years past, the grocery industry has become concentrated (see News piece #725 Food Titans – Prepare for Battle).
As Americans, we have become used to companies competing. However, the big companies left to compete are no longer just games of private industry. When big grocery chains are forced to compete by lowering prices, they have to squeeze it out of employees and their supply chains. This is often accompanied by a larger whip by investors demanding that grocers turn over more money to them.
Happiness about having lower prices at the grocery store may well not offset the larger woes that visit the nation. With this backdrop, we’ll take a brief look at Whole Foods – the nation’s largest organic grocer and its recent fall into the clutches of Amazon.
For fiscal year 2014, Whole Foods posted a net income of $579 million. For fiscal year 2016, Whole Foods posted a net income of $507 – a drop of 12 percent over the past two years. For the first six months of fiscal 2017, Whole Foods net income was $194 million – a 35 percent drop compared to the first six months of fiscal 2016 when net income was $299 million.
Coming out of the sky blue in March of 2017, was an investment group called Jana Partners. They were able to stage a “surprise” acquisition of 8 percent of Whole Foods stock. Within weeks of taking such a large piece of Whole Foods stock, Jana Partners was calling to put its own “pawns” on the board of directors and boldly suggested that Whole Foods sell itself.
Whole Foods CEO John MacKey, recently told news reporters that Jana Partners is just looking to make a fast buck by precipitating a fast sale. Mackey called them “greedy X!*^%$^* – we don’t want to repeat what he actually called them. Mackey accused them of putting out propaganda aimed at destroying the reputation of himself and Whole Foods.
When a company’s earnings decline – such as those at Whole Foods – the investors that own the company often want change. Jana Partners is what has come to be termed an “activist investor.” It means they want to micro-manage the company board and executive officers in a way that gets them more money according to their position. Why do companies then have a board of directors if they are just puppets?
The decline in profitability at Whole Foods was not necessarily the fault of Whole Foods management or its employees. The nation’s largest grocer – Kroger Foods – saw a dramatic decline in its earnings for the first quarter of 2017. In the first quarter of 2016, Kroger had net income of $696 million. For the first quarter of 2017, Kroger had net income of $303 million – a drop of 56 percent (compared to Whole Foods drop of 35 percent).