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Whole Foods' Shareholder Battle Sets Up A Clash Of Foodie Gurus

Whole Foods Market Inc. Chief Executive Officer John Mackey was supposed to spend this week celebrating the release of his new book, a paean to vegan eating that debuts on Tuesday.

Instead, he’s facing a looming battle with Jana Partners, an activist investor that bought a stake in the grocery chain and is now threatening to shake up the board, overhaul operations -- and possibly push for a sale.

Decrying Whole Foods’ poor performance, Jana has enlisted a team of food and retail luminaries that includes former CEOs from Gap Inc. and Harris Teeter. The investment firm also tapped food author and former New York Times columnist Mark Bittman as a consultant, a sign that Jana is ready to dig into the nitty-gritty of organic produce.

“Bittman can provide tremendous leadership in understanding how to appeal to Whole Foods’ core customer,” said Asit Sharma, an analyst at Motley Fool. “They want to see if there’s a way to both improve execution and polish up a brand that’s lost more than a bit of its luster.”

Jana’s blitz on Whole Foods sent the shares up 10 percent, their biggest rally in more than two years. Before the gain, the stock had climbed just 1 percent in 2017, lagging behind the 5.2 percent advance of the Standard & Poor’s 500 Index.

Investors are betting that Jana can either fix Whole Foods or sell it for a good price. The investment firm disclosed an 8.3 percent stake in a filing, saying it would seek talks with management and push for a review of Whole Foods’ strategic alternatives. Jana also may nominate at least three directors to help lead a turnaround.

The clash follows Whole Foods’ worst sales slump in more than a decade. Despite helping pioneer the organic-food movement, the grocery chain is increasingly losing share to mainstream supermarkets. Its same-store sales -- a key benchmark -- have declined for six straight quarters.

The Austin, Texas-based company said on Monday that it is “open to the views and opinions” of its investors. “We are committed to driving value for all Whole Foods Market shareholders and will continue to act to achieve this important objective,” it said in a statement.

Jana named three potential board nominees who could be part of a proxy fight next year: Glenn Murphy, who previously ran Gap; Thomas Dickson, the ex-CEO of Harris Teeter who helped sell that chain to Kroger Co.; and Meredith Adler, a former equity analyst who serves as a food consultant.

The firm also brought on Bittman and skin-care executive Diane Dietz as advisers. Bittman, who teaches at Columbia University’s school of public health, is a celebrity in culinary circles. He wrote the “How to Cook Everything” series and appeared in Showtime’s “Years of Living Dangerously.”

Like Mackey, Bittman encourages a vegan lifestyle -- but less aggressively. His “Eat Vegan Before 6:00” book promotes the idea of reserving meat and dairy for evening hours.

Mackey’s Mission

With this team of experts scrutinizing Whole Foods, Mackey is under more pressure to shape up the company quickly. A central question is whether the 63-year-old executive can handle day-to-day operations. Until the end of last year, he shared the CEO job with Walter Robb, who was more focused on that role.

When Mackey began running Whole Foods on a solo basis, he took full responsibility for rehabilitating a business that he co-founded in 1980 with a single store. Mackey built the company into an organic-food powerhouse, but it’s not clear how he will turn it around now.

“He’s been fantastic at building the brand, but you wonder if he has the bandwidth to be the operations guy, too,” said Jennifer Bartashus, an analyst at Bloomberg Intelligence.

Mackey also is pursuing a sideline as an author and food advocate. His new book, “The Whole Foods Diet,” makes the case for the health benefits of a vegan lifestyle.

In announcing its investment, Jana vowed to reassess everything from Whole Foods’ brand to the way it schedules worker hours. The firm also will examine the grocer’s new 365 concept: a chain of smaller stores aimed at younger shoppers.

Kroger Sale?

Still, it may be difficult for Jana to improve performance in the short term, said Brian Yarbrough, an analyst at Edward Jones. Even as Jana’s food gurus do their best to restore the company’s allure, an outright sale to a buyer like Kroger may make more sense, he said.

“It will be very tough to speed up the turnaround process,” he said. “The most upside would be with a sale.”

While Whole Foods needs to tighten up its operation and control costs, the company also has to reconnect with the food trends that fueled its growth in earlier days, according to Roger Davidson, an industry consultant. Whole Foods was once one of the only places to buy natural and organic foods -- an advantage it no longer enjoys.

“The industry has really upped its game,” Davidson said. “They have to open that gap again.”

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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