Cramer: Jana Better Have a Buyer Lined Up for Whole Foods

 | Apr 11, 2017 | 7:41 AM EDT
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You knew one day someone would come for them. There's no way the stock of a well-known, profitable brand company like Whole Foods (WFM) could stay at $30 as long as it did before an activist takes a stake and tries to make a change or instigate a sale.

So the announcement that Jana Partners along with some associates has taken an 8.8% stake in the company it shouldn't be all that shocking. Nor should the 10% jump in the stock be all that surprising either. The prospect of a heavyweight activist fund that's had some success moving on Whole Foods was, in the end, a pretty likely occurrence, given the long history of supermarkets attracting activists and the even longer history of constant mergers in the group.

What happens now, though? What do you do with the stock of Whole Foods, which has had flat earnings for four years and hasn't been able to keep up to date with all of the competition from every nook and cranny? Do you double down betting something happens, some event that gets the stock back to the old days four years ago, when it was in the mid-$60s?

Or do you ring the register right here, right now?

I think the latter's pretty tempting, when you consider the natural organic landscape since that glorious high not that long ago.

Whether it be from the luxury end with a company like Wegmans or from the boutique side with Sprouts or the private Fresh Market, or the inexpensive club end with Costco (COST) , or the low end from Target (TGT) and Walmart (WMT) or the deliver-to-your-door Amazon (AMZN) , they are all coming for Whole Foods.

And if you want a totally inexpensive knock-off with an incredibly rich parent, then go to Trader Joe's, like the one down the block from me with the endless lines to get in, and buy the stuff that's sold at what seems to be well below cost.

And why not? With 435 stores, Whole Foods isn't big enough to box anyone out. Its formula of natural and organic, once so novel, is now everywhere, aided by inexpensive private label products now made by Treehouse Foods.

You knew that Whole Foods was cornered when you could start wandering through the aisles of any of the more than 2000 Krogers (KR) where natural and organic, particularly private label natural and organic, is side by side with the regular brands but cheaper, because it's their own label. Sometimes arguably cheaper, something no one thinks about when it comes to Whole Foods.

Walmart and Target, which had been oblivious for so long, have now caught up with Whole Foods and in many cases passed them. I remember seven years ago when I went to a Walmart in North Adams Massachusetts and asked for rice cakes and was sent to the rice krispie aisle. Now they have acres of the stuff.

Target's really gotten aggressive in order to attract young moms while Costco, which had fought the whole move for so long, has now gone all in with its club prices, while Wegmans is a one-stop shop for all including natural and organic and everything else.

It isn't like Whole Foods hasn't tried to differentiate since it came under assault. Many of its stores are novel. Its own 365 brand is competitive. It has fabulous prepared food.

But it's got an expensive reputation that it can't seem to lose, especially when it comes to those prepared foods and, in many cases, it doesn't even seem to want to be competitive. Where's its fabulous loyalty program like the now-acquired Panera (PNRA) ? It's nascent. Where is its convenience/delivery program? Outsourced to others.

Plus, Whole Foods wants to do good, putting stores up in inner cities and difficult locations to negotiate where the payoff may be long term, in a short-term society. It is a great member of the community, but that's something that doesn't matter to activists. The one near me has integrated the wares of local purveyors so well, but their goods are mighty expensive.

It's a pleasure to go there, with its breezy aisles and roof top garden. But millennials don't want to stop at a beautiful, expansive top floor and have a craft beer. They hate shopping and are frugal, so making shopping nicer and longer means nothing.

Can Jana's representatives make a difference? Hmmm. I see how Glenn Murphy is a nominee and how he is listed as having turned around Gap (GPS) . Really? Is Gap turned? I don't think so. The former CEO of Harris Teeter's involved. One of the reasons I liked Kroger so much is that there was so much low-hanging fruit when it bought Harris-Teeter and turned it around.

The chief marketing officer of Safeway (SWY) included in the slate? I always thought that Safeway could learn a thing or two from Whole Foods about marketing. A well-known chef and a well-known supermarket analyst, Meredith Adler, is on board. Frankly, if the Whole Foods people wanted the advice of either one, they could have just called them. You don't need them on the board. You need them in the stores, if they are going to make a difference.

But I don't know at this point if anyone can make a difference. Not with that competition.

So, the question is: what does Jana really want? What does it really think it can do? It isn't just buy back stock. The company's taken on a billion dollars in debt taking down the share count from 373 million shares to 318 million in four years. Hasn't done a thing.

Now, I know that with its various regional heads, and overt decentralization, Whole Foods does have way too much overhead. That could change. The company's goal for ages had been to double the store count and then to even triple it, but to no real avail if the same store sales weren't increasing. To much fanfare it unveiled the 365, a cheaper version of Whole Foods, two years ago -- but the website lists only three of them.

The company had set out to become more in touch with its customer, but I don't know what happened to that initiative. And then one of the best guys in good, Co-CEO Walter Robb, left the organization with little fanfare or even, at least to me, kindness, leaving CEO John Mackey to be storming around telling us everything's fine. It would have been better to put the money in better technology, including point of sale and customer relations management.

I don't even know if it matters now.

The issue for me is: had Whole Foods been passed by? Who would want it now? The goal of everyone in the food business is to kill it. I don't suspect that the wildly independent John Mackey is going to give up the reins very easily. If anything, he will ignore Jana and just keep doing it his way.

All of this means to me one thing: it's a great idea to try to get Whole Foods to be run more profitably, except Mackey doesn't suffer anyone gladly, including this slate of individuals.

The best hope, and perhaps the one Jana has in its pocket? A foreign buyer who wants to take on the German Trader Joes. Because right now Mackey's not going anywhere, and neither is his style of business.

In other words, the big gain may have been made unless Jana has someone lined up. I don't think his slate's going to make a difference, and I don't think he has enough stock to do the trick for a business that's being eaten alive by everyone else in the food store universe.

So the legend of Whole Paycheck, with is image that only the rich can afford to go there, can't seem to be shaken. And the buyers of the stock? Other than strategic, I think they just can't get much higher without paying too much vs. this moribund group.

Yes, if food inflation does come back, Jana might be bailed out. That's held the stock back, too. But every dollar up from here fully reflects that. Yep, only a sale can make this thing go higher. Jana better have a buyer lined up, or you will wish that you sold right here, right now, today.

(What will move markets this quarter and how should investors position themselves ahead of time? Jim Cramer sat down with four of TheStreet's top columnists recently to get their views. Click here to listen to his latest Trading Strategies roundtable with them and read their advice for stocks, bonds, forex and gold.)

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