A new book on Amazon Inc. sheds light on the 2017 purchase of Whole Foods by the primarily online retail giant. And it details the crucial role Boise-based Albertsons Companies played in the deal.
In April 2017, the Financial Times reported Albertsons Companies looked to purchase organics grocer Whole Foods. Then, less than six weeks later, Amazon announced it would buy Whole Foods instead.
Amazon Unbound: Jeff Bezos and the Invention of a Global Empire by journalist Brad Stone took a magnifying glass to many of Amazon’s projects and growth over the last decade. The book goes into depth about how the $13.4 billion Whole Foods deal went down in 2017. And it started with Albertsons.
That same spring, Jana Partners revealed it purchased 9% of Whole Foods’ stock, making it its leading investor. Jana is an activist investor – a firm that comes in, buys a large tranche of stock, and pressured management to make changes. And, according to Stone, execs worried Jana wanted the company to sell itself to Albertsons.
“Whole Foods executives worried that Jana’s plan was to merge the organic grocer with another food giant… Albertsons Companies, an amalgamation of traditional supermarket chains like Safeway and Vons,” Stone wrote.
Jana played a role with a similar idea a few years before. It bought up a large stake in Safeway, just as talks between that California-based grocer and Albertsons started to heat up. Albertsons later purchased Safeway and began to merge the companies.
According to Stone, the plan was for the combined company to take the Whole Foods brand name and “relatively unlevered balance sheet,” but “likely swap out” Whole Foods management in favor of Albertsons execs.
Albertsons tried several different routes to take the public company in the back half of the 2010s. After completing the Safeway merger, it announced it would take the company public in an IPO in 2015. It later pulled the idea after many peer stocks began to falter. In 2018, it announced it would merge with pharmacy retailer Rite Aid, but that project also didn’t come together under intense shareholder opposition on the Rite Aid side.
Taking the company public would give long-time investors a chance to monetize their stakes – some dating back to the 2006 spin-off of the stores during a complex transaction involving Supervalu and CVS.
A tie-up with Whole Foods, like the 2015 IPO attempt and 2018 Rite Aid merger would accomplish that — but it too was not meant to be.
Hail Mary attempt
Founding CEO John Mackey hoped to save his job – and took several steps that spring to keep Whole Foods out of the Albertsons fold. According to a former board member cited in Stone’s book, Mackey made changes to the board and sought a “white knight” to buy the struggling grocer – including private equity firms, Warren Buffet, and others.
Then, the Hail Mary. Amazon.
“One option remained, which almost everyone at Whole Foods Market considered fanciful. Over the years, they had engaged in several fruitless conversations with Amazon,” Stone wrote. “When Bloomberg News reported that Amazon executives had recently discussed acquiring Whole Foods, Mackey asked one of his advisors to place a phone call and try one last time to save the company.”
By 2017, Amazon had dabbled in the grocery business and opened a few small physical retail stores of its own. But the 1990s dot-com startup known for its online marketplace buying a chain of hundreds of grocery stores seemed, at the time, far-fetched.
“Throughout May, as it continued to indulge proposals from Albertsons, Whole Foods negotiated in secret with Amazon, responding to a constant stream of requests for more information,” Stone wrote. “On May 23, Amazon offered to buy the company for $41 a share.”
An Albertsons-Whole Foods deal wasn’t meant to be.
In the years since the Amazon deal, Whole Foods remained mostly stuck in place when it comes to sales. Last week, the Wall Street Journal reported that Amazon’s physical stores segment, which consists mostly of Whole Foods stores, has seen revenue decline each year since 2018 – the first full year after the merger.
“(Whole Foods’) year-over-year revenue decline of 16% in the March quarter was the company’s worst on record,” the WSJ reported – saying foot traffic to Whole Foods remained down.
In the corresponding quarter, Albertsons saw its sales increase from the prior year, driven by an 11.8% increase in same-store sales.
Albertsons finally found its path for long-time shareholders to monetize their stake in the private company, taking it public last summer in a second IPO attempt. After a slow start, the company’s stock appreciated by more than a third since the listing.
The twists and turns of Albertsons
Albertsons’ history gets a bit complicated at times. Joe Albertson founded the chain in Boise in 1939 – and it slowly, steadily grew over the years. In 1999, the company bought Utah-based American Stores and for a time grew to the largest grocer in the nation.
In 2001, Larry Johnston took over as CEO and Chairman. After five tumultuous years, the company sold itself off in 2006. Standalone drugstores went to CVS and rebranded. The bulk of the grocery stores, 1,124, including those in Idaho, were sold to Supervalu. A new company was formed to take over 661 so-called “underperforming” Albertsons stores, led by a consortium of investors led by Cerberus Capital. The Cerberus stores were based in Boise – despite not owning the locations here.
In 2013, after Supervalu struggled with the stores it bought, it sold them to the Cerberus-led company – reassembling the bulk of the grocery company. Headquarters for the company remained in Boise – and now included oversight of the Boise-area stores.
In 2014, Albertsons purchased Safeway – and in the years since worked to transition to many of Safeway’s back office functionality.