Yucaipa Buys Into Whole Foods

JON SPRINGER

AUSTIN, Texas — Funds associated with Ron Burkle's Yucaipa Cos. last week revealed they had acquired 7% of Whole Foods Market in a move one analyst said heralds a change in the entrepreneurial posture of the iconic natural foods retailer.

A filing with the Securities and Exchange Commission showed Yucaipa had been acquiring stock in Whole Foods on the open market at prices between $8.94 and $10.53 per share since late November. The 7% stake in Whole Foods would make Yucaipa the retailer's fourth-largest shareholder and the second significant investor to take a stake in the struggling retailer since Leonard Green and Partners acquired 17% of the company in November in a move to help Whole Foods fund ongoing expansion and debt service.

Yucaipa has a long history of investing in supermarket operators, including Wild Oats Markets, the one-time rival to Whole Foods that Whole Foods acquired in 2006. Yucaipa's former investments include Pathmark Stores — which, like Wild Oats, was sold to a rival in a deal Burkle had a hand in engineering — as well as Dominick's, Smith's Food & Drug and Ralphs.

Typically, Yucaipa takes stakes in companies trading at low valuations, then seeks board seats and often installs its own managers. According to sources, Burkle became interested in investing in the natural foods space several years ago. He considered investing in Whole Foods, sources said, but because his influence there would have been modest, he opted to invest in Wild Oats instead.

Scott Van Winkle, an analyst at CanaccordAdams, Boston, told SN that there seems to be a long-term investor base taking a stake in Whole Foods.

“What it indicates is there's going to be a much more aggressive look at what the future is going to hold for Whole Foods, how they operate, how they spend money, how they staff,” he said. “Every decision they make is going to be a little more scrutinized now, with a couple of new investors with financial minds and an investment to take care of.

“You're seeing a change, from an entrepreneurial founder's focus on growth to, now, the next level of growth. And the next level of growth isn't revenue dollars. It's kind of ‘growing up,’ in the form of driving a more efficient, more economically driven cost model.”
— Additional reporting by Bob Vosburgh and Elliot Zwiebach