Fresh Fields chain bought by rival Whole Foods Market to pay $135 million

June 19, 1996|By Alec Matthew Klein | Alec Matthew Klein,SUN STAFF

Fresh Fields Inc., a jazzy health-food supermarket chain that opened its first Baltimore store amid great fanfare last month, has been gobbled up by its natural-food nemesis, Whole Foods Market Inc., in a stock merger valued at about $135 million, the companies announced yesterday.

As in banking, telecommunications and broadcasting, the two companies concluded that bigger is better.

"It made sense business-wise to sell, so they did," said analyst Matthew Patsky of Adams Harkness & Hill in Boston. "Whole Foods is already the No. 1 market share leader in the category, natural food retailer, and they picked up the No. 2 player. It creates an over $800 million sales-base natural food retailer that has about 10 percent of the total natural food sales in the U.S."

Since its founding five years ago, Fresh Fields, a privately held 22-store chain based in Rockville, has captured consumers' fancy with its emphasis on organic produce, no-hormone beef and other politically correct merchandise. But, analysts said, sales in stores open at least a year -- a crucial measure of performance -- have been "cannibalized" by Whole Foods and by some of Fresh Fields' newer stores in nearby markets.

It also has faced competition from other supermarket chains, such as Giant Food Inc., that also sell organic foods.

And Fresh Fields has been coping with high overhead costs at corporate headquarters, which was designed to accommodate expansion but ate into earnings -- the company lost about $6.5 million in fiscal 1995 -- analysts said. Even an aggressive price-cutting campaign didn't do enough to drive sales. Fresh Fields officials could not be reached for comment yesterday, but analysts said the chain was left with this option: to grow by selling.

The deal, expected to close in September, also meets the expansion needs of Whole Foods, which already generates nearly $500 million in annual revenue with 47 stores in 12 states. By acquiring Fresh Fields' stores, the Austin, Texas-based chain will gain more than $200 million in yearly sales and additional market share in Virginia, Washington, Pennsylvania, Connecticut, Illinois and Maryland, where Fresh Fields also operates an Annapolis supermarket.

The acquisition will create a one-time charge, but analysts say it will also boost the retailer's fiscal 1997 earnings about 4 cents per share.

Board directors of both companies have already approved the transaction, as have shareholders who own about 69 percent of Fresh Fields shares. But before the deal is final, the companies need the blessing of the U.S. Securities and Exchange Commission and Whole Foods' shareholders.

Pub Date: 6/19/96

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