FIN 660 SNHY Kroger and Whole Foods Risk assessment and recommendation Paper Please combine Kroger 3-1, Kroger 5-1, and Financial Impacts papers together.

FIN 660 SNHY Kroger and Whole Foods Risk assessment and recommendation Paper Please combine Kroger 3-1, Kroger 5-1, and Financial Impacts papers together. Please include all citations and references. Also, add the recommendations section at the end. Recommendations: In this section, you will recommend how the company should proceed through either a merger, acquisition, or neither, and support this using your research and analysis as specific examples. You will need to consider the risk assessments you have conducted when supporting your recommendation. A. Recommend one of the following approaches for your organization, and justify why this is the most appropriate strategy: 1. Merge with the target company. 2. Acquire the target company. 3. Do not merge with or acquire the target company at this time. B. Explain the risks associated with your recommendation above and support how this selection best mitigates these risks to your organization. C. Based on all previous decisions, explain how this deal structure will bring value to your organization. Guidelines for Submission: Your merger and acquisition recommendation report should be 12 to 15 pages in length. Use double-spacing, 12-point Times New Roman font, and one-inch margins. You should use current APA style guidelines for your citations and reference list Running Head: POTENTIAL IMPACTS OF ACQUISITION
Potential Impacts of Acquisition
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POTENTIAL IMPACTS OF ACQUISITION
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Potential Impacts of Acquisition
Kroger is a leading firm in the sale of Whole Foods. It serves as a significant competitor
in the industry and generally needs to increase its asset value to take a more substantial lead in
the market. A plan to acquire Whole Foods would first require the analysis of other factors that
will be associated with the project. Each of the companies involved will need to consider the
accrued benefits (Coyle, 2016). The paper will focus on a based financial analysis of the
acquisition move.
Whole Food Analysis
Whole Food is regarded as a leading natural and organic food store and supermarket in
the US. The organic nature of the company in its production makes it a darling of many
Americans hence posing a significant share on the market. The company has been enjoying an
increasing amount of revenues in recent years. In 2015, the company recorded total revenue
amounting to $15.389 billion, with a gross profit of $5.416 billion. In 2016, the company
recorded total revenue amounting to $15.724 billion, with a gross profit of $5.411 billion. In
2017, the company recorded total revenue amounting to $16.03 billion, with a gross profit of
$5.397 billion (Readyratios, 2020). In 2018, the company recorded total revenue amounting to
$16.124 billion, with a gross profit of $5.4 billion. In 2019, the company recorded total revenue
amounting to $16.2 billion, with a gross profit of $5.6 billion.
The results showed that the company revenues have been on the rise. However, the issue
of profits seemed to lower the desire for its Acquisition by amazon. Costs have reduced the
profits made by the company, becoming a significant issue for Whole Foods. Looking at the
revenues increases the case of the company, and its trends may show a different path if it has to
POTENTIAL IMPACTS OF ACQUISITION
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cist share the costs with Kroger. The expenses have been on a rising trend. For instance, in 2015,
total costs amounted to $14.511 billion, while it took a rise in 2017 to $15.613 billion.
Financial Impacts: (Kroger and Wholefoods)
A.
Acquiring Whole Food will boost the Kroger’s position in the, are where the ability to
compete with other rivalries will be boosted. In this case, acquiring Whole Food’s assets will
make Kroger more capable of handling higher production levels without the need to increase its
assets. Generally, this will lower the possible cists that would be required to expand the
production process.
Whole Food has a recognizable brand across the US market. Generally, having a large
customer base provides an advantage to Kroger, where it will easily continue serving the market
in addition to planning for the expansion (Coyle, 2016). Thus, this makes it easy to market the
products at lower costs. In the long run, Kroger will make significant savings from the process.
Considering the sale trends set forth by Whole Foods, it’s clear that the path has been on
the rise. It serves as a clear indicator that Kroger will be making the right decision on the process
of acquiring the target company. For instance, the total revenue increase from $15.389 in 2015 to
$15.724 in 2016 and $16.03 billion in 2017, and then the setting of a continued trend is a clear
indicator of the positive benefits.
B.
Even though the revenues took a rising curve, there has been a high level of fluctuation in
terms of revenues. Generally, this may cause a major threat to the decision on the equation. For
instance, 2017 net revenues were lower compared to that of 2015, with a margin of $0.019
POTENTIAL IMPACTS OF ACQUISITION
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billion. However, despite the fluctuations, it’s not a clear indicator that the Acquisition would be
a wrong turn. Kroger will need to identify there as affected by the issue of rising expenses. For
instance, most of the cists have been rising from the operating expenses that are likely to go
down after the Acquisition of the company. Based on the objectives set on expanding the firm,
Kroger’s can manage the costs and make more profits as a result of its move.
C.
Financing a market may take any of the three financing aspects; cash, stock, or debt.
Kroger will need to consider any of the three options with the merger of Whole Foods. The debt
option is considered in the case where a target company has a solid balance sheet with a high
potential for profitability. In case the company making a move to acquire the target does not
have enough cash, debt is applicable as long as Kroger has a stable financial status (Brealey,
Myers & Marcus, 2017). Financing by stock requires the acquiring company to make a move and
purchase the shares from the acquired company’s shareholders using cash. The two companies
will share the risks involved. In case, the company acquired will sell shareholders to the
acquiring company. The debt option offers a high level of flexibility and will be the best option
for Kroger to take so that it can deal with the other changes that may occur.
D.
Kroger deal will face various potential risks that may occur as a result of the Acquisition.
First, there is a high probability that Kroger may overpay for it in case it goes for debt financing.
At the same time, it’s not certain that the acquisition deal will lead to success or not. Integrating
the two companies to work together will be a challenge where conflicts arise from the
POTENTIAL IMPACTS OF ACQUISITION
operational and cultural aspects (Singh, 2018). Kroger must make an acquisition strategy early
enough so that the issues do not affect firms’ value.
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POTENTIAL IMPACTS OF ACQUISITION
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References
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2017). Fundamentals of corporate finance.
McGraw-Hill/Irwin.
Coyle, B. (2016). Mergers and acquisitions. Global Professional Publishing.
Readyratios (2020). Whole Foods Market Inc (WFMI) financial statements (2020 and earlier).
Retrieved from https://www.readyratios.com/sec/reports/WFMI_whole-foods-market-inc
Singh, P. N. (2018). Impact of Mergers and Acquisition of Management and Employees. Journal
of Management Science, Operations & Strategies (e ISSN 2456-9305), 2(1), 32-37.
Running Head: KROGER DIVERSIFICATION: INTRODUCTION
Kroger Diversification: Introduction
Introduction: Background
Kroger Company is one oldest the United States’ retailing firms. The company was
started by Bernard Kroger in Cincinnati, Ohio in 1883. Since its inception, the retailing firm has
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KROGER DIVERSIFICATION: INTRODUCTION
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largely grown and is the leading supermarket in America by revenue. Besides, Kroger is the
second-largest retailer in the United States after Walmart. The company is stationed in 35 states
across America and is headquartered in Cincinnati. The main products that the firm deals with
are jewelry and other retail products found in hypermarkets, supermarkets, and superstores.
Because of its diversification in many products on the same roof, the retailer attracts and retains
many customers. It’s the reason the company has maintained its dominance in the industry.
Walmart and other retail supermarkets in the US are the major competitors of Kroger
Company. Therefore, the firm has developed various strategies to out-perform its business rivals
in the retailing industry. According to Evans, Murray, and Schmalensee (2016), the retail sector
has high competition, and its only firms that are competent that can maintain their customers and
brand recognition. Because of the competitive nature of the retail industry, Kroger must use its
competencies to maintain its market position. Also, having effective management and leadership
will be an added advantage to keep rivals at bay.
Objectives
Different organizations pursue different goals. According to Woodruff (2019), goals and
objectives are indicators used to determine whether a firm is sailing in the right direction. The
senior managers of a company are supposed to design objectives that are in line with the
company’s mission and values (Woodruff, 2019). Firms are supposed to set goals that are
realistic and achievable. Kroger Company has set its objectives, and the primary one being
diversification. The firm wants to diversify its investment portfolio to tap on its products’
massive market share. According to Ayers and Odegaard (2017), diversification is important
because it protects a company against potential risks. Besides, diversification help a company
create more channels of earning since it has different business units. The fact that Kroger wants
KROGER DIVERSIFICATION: INTRODUCTION
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to diversify it means the company is headed in the right direction as far as protecting itself
against risks.
The company intends to attain diversification through investing in supermarkets,
hypermarkets, superstores as well as departmental stores. Right now, the company runs different
superstores and supermarkets across the US. The firm has invested in products that can last for
long such as pieces of jewelry to increase its revenue base. All these are in the name of attaining
diversification protocol. Through diversification, Kroger has increased its competitiveness over
its main rivals. Diversification is a good strategy company uses to protect itself against the risk
of take-overs.
Expansion objective
When Kroger diversifies, it will automatically expand since diversification will lead to
more acquisitions. For example, the jewelry store that the company has invested in is an example
of expansion in diversification. According to Warshawsky (2016), a company massively grows
when it invests in different products. Expansion is one way of increasing revenues because of the
increase in sales in various stores. By doing this, a company can maintain its position in the
market (Warshawsky, 2016). To attain this, Kroger Company is acquiring small retail stores to
achieve expansion and growth. The enormous profits amount generated from the firm is used to
expand more.
Possible takeover
Since 1883, the year Kroger was founded, the firm is run like a family business. This
scenario has helped the company to protect itself against potential takeovers by other retailers in
KROGER DIVERSIFICATION: INTRODUCTION
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the industry. Rather, Kroger has acquired other retail companies in the sector, making it to grow
stronger and bigger. The company is financially stable, and hence takeover is almost impossible.
To avoid acquisitions from suppliers or investors, the company aims to sell a specific number of
shares to the general public. Since Kroger is not a weak firm, it is not a targeted for takeover
unlike small firms that is weak financially. Investors usually target small and vulnerable firms
for takeover. It hard for investors to acquire Kroger Company because of the company’s market
position and effective leadership that keeps it soaring high in terms of performance.
Conclusion
Different companies in different industries have different objectives. Some of the
common goals of companies in various industries are to satisfy the needs of their customers and
to increase their market share. Also, companies aim to be competitive as much as possible to
avoid losing their customers and revenues. However, Kroger aims to diversify its investments to
protect itself against risks resulting from investing in one portfolio. The firm has effective
leadership and management that have made it successful in the industry over the years since its
incorporation. The company has stores in almost every state of the United States. This expansion
has helped Kroger to become competitive and to generate enough revenues to finance its
activities.
References
Ayers, J. B., & Odegaard, M. A. (2017). Retail supply chain management. CRC Press.
KROGER DIVERSIFICATION: INTRODUCTION
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Evans, D., Murray, S., & Schmalensee, R. (2016). Why online retail sales are much larger than
the US census data report. SSRN Electronic Journal, DOI: 2F10.2139%2Fssrn.2716266
Kroger Company (n.d). https://www.kroger.com/
Warshawsky, D. N. (2016). Food waste, sustainability, and the corporate sector: a case study of a
US food company. The Geographical Journal, 182(4), 384-394.
Woodruff, J. (2019). The importance of clear objectives, directions, and project plans. Chron
Business. Retrieved from https://smallbusiness.chron.com/importance-clear-objectivesdirections-project-plans-32965.html
Running Head: KROGER DIVERSIFICATION: TARGET COMPANY
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Kroger Diversification: Target Company Whole Foods
Introduction
Kroger Company is one of the leading food retailers in America. The firm has emerged as
the largest retailer because of its strategy to diversify through investing in values channels.
KROGER DIVERSIFICATION: TARGET COMPANY
Despite many risks the company faces, it has managed to be successful because the stores that
are poor in performance are neutralized by those performing well (Mun et al., 2019). Currently,
the company is dealing with many products such as gas, grocery items, and jewelry as well as
pharmaceutical products. According to Shi et al. (2018), Kroger has more than 2500 stores that
generate over 95% of its annual revenue. Therefore, for a company like Kroger, its target
companies are those in the retail industry such as Sprouts Farmers, Weis Markets, and Whole
Foods.
Target Company
Whole Foods Market (WFM) Inc. is Kroger’s target company. WFM is supermarket
chain based in the United States that exclusively deals with natural foods. The company stores
sell natural foods that do not have enhancers like preventatives, flavors, and colorants (Suwala,
2015). With takeover of WFM, Kroger Company will be the biggest organic food retailer in
America. By acquiring WFM, Kroger will create a large market base since WFM supermarkets
are located at proximity with Kroger’s stores. According to Tom (2017), the competition to steal
shoppers will be less when firms merging are close.
Background of Target Company
Whole Foods Market was founded by four entrepreneurs who merged their respective
business. The people who created WFM were Clarksville Natural Grocery owners Mark Skiles
and Craig Weller as well as Lawson Hardy and John Mackey who were Safer Way Natural
Foods owners. The created WFM in 1980, and since then, the company has massively grown,
and now it specializes in natural foods. The company headquarters are in Austin, Texas. The
company started with few stores in Austin, and due to its success, it expanded to Dallas and
Houston, and later to West Coast and New Orleans. The company’s expansion in the 1980s was
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KROGER DIVERSIFICATION: TARGET COMPANY
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quickened by acquiring other organic foods outlets such as Nature’s Heartland in Boston,
Wellsprings Grocery located in NA, Bread & Circus in MA, and Gooch’s Natural Foods Markers
in LA (Tom, 2017). By 2005, the company had expanded its presence in the international market
by acquiring United Kingdom-based Fresh & Wild stores.
Currently, WFM specializes in different farm products ranging from groceries, home
goods, and prepared foods. The company’s stores acquire its products from domestic farmers and
sell to local and overseas wholesalers. Suwala (2015) notes that also the company specializes in
farm produce from regions that are neighbors to satisfy needs of its diversified customer base.
Because of the line of products the company deals with, its main competitors are Sprouts
Farmers Market Inc. and Trader Joe’s. These two firms have similar customers that love fresh
products, and they offer their products at a lower price than WFM.
Management Structure
Since WFM was incepted, it has gone through major management structure changes. For
example, the co-CEO structure ended in 2017 when John Mackey, one of its founders, was
named the sole CEO. Keith Manbeck is the CFO; she has worked in an executive position for
various companies such as Nike and Kohl (Tom, 2017). Other notable figures are Rob Twyman,
Scott Allshouse, and Omar Gayes who serve as regional executive vice-presidents (Tom, 2017).
Omar Gayes has risen from being a dishwasher in the company to the rank of the vice president.
The company’s organizational structure is made of four divisional structures that include
four-level hierarchy, geographic divisions, functional structure, and teams in each division.
According to Tome (2017), the 4 levels are Austin’s headquarters, offices in different regions,
warehouses, and the stores. Right now, WFM is based in three countries; US, UK, and Canada.
Regional presidents are the one in charge of local offices, and their work is to customize WFM
KROGER DIVERSIFICATION: TARGET COMPANY
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products to the standards of a specific region (Suwala, 2015). The teams are made up of
salespeople who are tasked with marketing a particular product line. According to Beatty (2017),
Whole Foods structured is tailored to meet the demands of customers and to enable it to fit any
geographical region.
Assessing Performance
Since being bought by Amazon for $13.5 billion, WFM has continued to register higher
sales (Nadar, 2018). The company has outshined major competitors such as Sprouts Farmers and
Kroger, which have recorded a decline in stock and sales. For example, in 2017, Kroger and
Sprouts Farmers registered a reduction of 8.1% and 6.95% of sales respectively, while WFM
registered an increase of 0.72% (Nadar, 2018). The company has attracted a lot of consumers
from its direct competitors as a result of Amazon takeover.
In conclusion, Whole Foods Market is the target company for Kroger. The company is
performing well in terms of market base. The company is a good target for Kroger because of the
line of products it deals with. WFM deals with organic products that have no additives such as
colorants, preventatives, and flavors. Whole Food has an elaborate management structure with
defined roles of each leader. The company is relatively performing well when compared to its
major rivals.
References
Beatty, O. (2017). Cultivating an Alternative Paradigm in Urban Areas to Achieve Greater Food
Certainty in the United States.
KROGER DIVERSIFICATION: TARGET COMPANY
Mun, C., Kim, Y., Yoo, D., Yoon, S., Hyun, H., Raghavan, N., & Park, H. (2019). Discovering
business diversification opportunities using patent information and open innovation
cases. Technological Forecasting and Social Change, 139, 144-154.
Nadar, D. S. (2018). Amazon’s Acquisition of Whole Foods: A Case-Specific Analytical Study
of the Impact of Announcement of M&A on Share Price. IUP Journal of Business
Strategy, 15(2).
Shi, Y., Lim, J. M., Weitz, B. A., & France, S. L. (2018). The impact of retail format
diversification on retailers’ financial performance. Journal of the Academy of Marketing
Science, 46(1), 147-167.
Suwala, E. K. L. (2015). Internationalization of grocery retailers in emerging markets–general
considerations and economic impacts.
Tom, J. (2017). Strategic Marketing Plan for Whole Foods Market Inc. Retrieved from
https://www.aauni.edu/data/files/justine-vera-tom.pdf.
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