Scoop Confirmed: Sprouts Announces Acquisition of Sunflower Farmers Market

The Insider - Heard On the Street

Phoenix, Arizona-based Sprouts Farmers Market and Colorado and Arizona-based Sunflower Farmers Market decided to give the tens of thousands of attendees at the natural-organic products' industry's largest annual trade show on the west coast, Expo West, which began in earnest today in Anaheim, a little something to talk about on the show floor and in the always jam-packed area bars and restaurants this weekend.

It's also something the tens of thousands of you who've been reading my reporting about the deal between Sprouts and Sunflower since November 2011 have been waiting for - and which you learned about in Fresh & Easy Buzz months in advance of today because the publications writing about it today are doing so for the first time based on the press release - which is the announcement Sunflower Farmers Market is being merged into Sprouts, which will result in one farmers' market-style chain in the U.S. - Sprouts Farmers Market.

Today Sprouts and Sunflower announced they've reached a definitive agreement to merge Sunflower Farmers Market and its 35 stores into Sprouts Farmers Market, creating a chain of 139 stores with an estimated annual revenue of $2 billion, which is about the total annual sales amount I estimated in my past columns the combined chains would generate.

Like it did with the Henry's Farmers Market deal last year, Sprouts Farmers Market, which is majority-owned by private equity firm Apollo Global Management and has about 200 mostly individual investors, is essentially acquiring Sunflower Farmers Market, although the retailer's are using the term merged. Sunflower will become part of Sprouts. It's identity and name will go away. Apollo will remain the majority and controlling owner of the combined company, Sprouts Farmers Market.

In the announcement today, Sprouts CEO Shon Boney said the deal is expected to close, pending regulatory approval, in the second quarter of this year, which is soon.

He also said the 35 Sunflower Farmers Market stores will be re-branded under the Sprouts banner by the end of 2012, following the same strategy and about five-month time frame Sprouts used in re-branding the Henry's units to the Sprouts' banner in 2011.

Two stores in Temecula, California remain under the Henry's Farmers Market banner because an existing independent natural foods' retailer in the city, Sprouts Natural Market, has filed a lawsuit in Riverside County Superior Court seeking to prohibit Sprouts Farmers Market from changing the names of the two Henry's stores. Until a ruling is made by the court, Sprouts Farmers Market can't re-brand the two units in Temecula from Henry's to Sprouts.

Sunflower's headquarters operations in Colorado (Boulder and Denver) and Arizona (Phoenix) will also be folded into Sprouts corporate headquarters in Phoenix, as was the case with Henry's headquarters in Irvine, California. Like in the Henry's case, Sunflower's offices will remain open for a while but be closed before the year is out.

The combined chain also plans to open up to 13 new stores this year, as I've previously reported. Those stores will all be under the Sprouts Farmers Market banner, Boney said today.

Sunflower also extends Sprouts Farmers Market Farmers into Nevada, Utah, New Mexico and Oklahoma, states where Sunflower has stores but Sprouts' doesn't, along with adding units in California, Arizona, Colorado, where Sprouts currently operates its 104 stores.

Here's what Andrew S. Jhawar, a senior partner at Apollo and the co-head of its Consumer and Retail Industry Group, said about the deal in the announcement release today: "We feel incredibly fortunate to be able to bring together the management and operations of these two growth-oriented grocery retailers who focus on natural and organic products. In doing so, Sprouts will become an even better company offering more value to the nearly 1.5 million customers who regularly shop at the combined company's stores," he said.

"This is a combination that makes great sense given the rapid growth in demand for natural and organic products and the complementary nature of the geography of the two companies. Apollo is excited to support Sprouts' dynamic management team and to help the company prepare for continued growth throughout the United States," the Apollo Global Management senior partner added.

Jhawer played a key role in doing the deal, which is part of Apollo's plans to dramatically grow Sprouts Farmers Market, which is began doing in earnest last year when it merged Henry's, which it owned through its Smart & Final grocery retailing company based in Southern California, into Sprouts, gaining majority ownership in Sprouts Farmers Market as part of the deal.

Stan and Shon Boney, who remain investors in Sprouts and are two of its founders, will continue to be Sprouts Farmers Market's two senior-level executives. Stan Boney is chairman. Shon Boney, Stan's son, is CEO.

Doug Sanders is responsible for the day-to-day operations of Sprouts as its president. He remains in that position. Chris Sherrell, president and CEO of Sunflower Farmers Market, is expected to join Sprouts Farmers Market in a senior capacity.

When I first reported on the negotiations between Sprouts and Sunflower on November 6, 2011, I said the the Sprouts'-Henry's deal was roll up number one in terms of what were the then three competing farmers market-style grocery chains in the western U.S. The deal to merge Sunflower Farmers Market, which became Sprouts' only remaining identical-format competitor after the Henry's deal a year ago, into Sprouts Farmers Market is roll up number two, as I called it in my November 6, 2011 column here.

Sprouts Farmers Market has created a special website to announce the deal with Sunflower, which is identical to the site it set up to announce the Henry's Farmers Market deal.

That website is here. You can read the general announcement about the deal here. The press release statement distributed to the media today is here.

And, in case you're wondering, two of the founders of Sunflower Farmers Market, Libby Cook and Randy Clappnot, who are known only to those of us who work in the industry or who follow it very closely, were mentioned in the deal announcement today.

But that other co-founder, Michael Gilliland, the man who was the CEO and the public and media face of Sunflower Farmers Market from its founding in 2002 until early February 2011, when he resigned after being arrested February 10, 2011 and charged with one count of felony child prostitution as the result of a sting operation conducted by the Phoenix police department, was omitted, which is an omission one can hardly blame - or be surprised about - the board members and CEO's of Sprouts' and Sunflower from making.

Gilliland and Forman have filed motions for and received a series of continuances in his trial over the last year. In fact, the two appeared in the Maricopa County, Arizona Superior Court yesterday for a pre-trial conference, where he was granted a continuance. He was set to go to trial March 15. But it appears the trial has been postponed to April 12, as you can see here.

But considering from 2002, when Sunflower was founded, up until February 9, 2011, the day before his arrest, Michael Gilliland was that public face of Sunflower Farmers Market, it's a bit surreal, at least to those of us who work in the industry or who follow it very closely, to see no mention of him, for obvious reasons, in an announcement of this sort.

Perhaps there's an object lesson in it for the food retailing industry, which is: Avoid using an individual as the public face of your grocery chain or even of a major marketing campaign because the potential downside of doing so can be severely damaging, although in Sunflower Farmers Market's case its board and CEO Chris Sherrell have managed the situation well. Instead, let your stores be the face of the chain to the public.

I'll have more to say about the Sprouts-Sunflower deal in an upcoming column. But for now I'm going to bask in Fresh & Easy Buzz's scoop. Actually that's not true. Instead, I'm going to check in with a bunch of people at Expo West, so I can find out how the announcement is playing in those bars and restaurants tonight.

And although the focus at the mega-show is on healthy, natural and organic food and drink, those bars are always as packed as the show floor is. They're also the best place to pick up what might eventually become the makings of a good scoop. At least that's what I'm told.

- 'The Insider'

Suggested Reading - Sprouts and Sunflower: The Art of the deal coverage

~The first report (ever) - November 6, 2011: Roll Up Times Two? Sprouts Farmers Market In Talks With Sunflower Farmers Market About Possible Acquisition

~The follow up: A deal is done - February 7, 2012: Deal Announcement From Grocers Sprouts and Sunflower Farmers Market on Tap

~Most Recent: Bringing the elements of the deal together - February 13, 2012: Sunflower Farmers Market, Sprouts and Private Equity: The Art of a Soon to Be Announced Deal

Additionally

~Scoop de jour: Read past columns by 'The Insider', including those where he broke the news about the Sprouts-Henry's deal, here.

~Sunflower makes three: Also see these links - Apollo Management, Sprouts Farmers Market, Sunflower Farmers Market and Henry's Farmers Market - for more reporting, analysis and commentary in Fresh & Easy Buzz on the three farmers market-style chains that are now one.

First Look at One of the Two Fresh & Easy Stores Opening In Sacramento Wednesday

Sacramento Bound

Pictured above is the Fresh & Easy grocery market at Watt Avenue & El Camino Avenue in Sacramento, which opens March 7. The photos were taken last week - the one at top during the day, the one above at night - as workers prepared the store for Wednesday's opening. [Photo credit: Fresh & Easy Buzz.]

Wednesday morning Tesco's Fresh & Easy Neighborhood Market will make its long-awaited - and long-postponed - launch in metropolitan Sacramento, California, opening two stores, at Watt Avenue & El Camino Avenue and Mack Road and Franklin Boulevard, in Sacramento.

The following Wednesday, March 14, Fresh & Easy will open three stores in three Sacramento-area cities - Folsom (East Natoma Street and Blue Ravine Road), Elk Grove (Elk Grove Florin Road and Calvine Road) and Lincoln (Lincoln and Sterling Road.)

In November 2011 Fresh & Easy Neighborhood Market said it would open a sixth store in the region, at 34th Street and Broadway in Sacramento's Oak Park neighborhood, before the end of March. Fresh & Easy hasn't announced an opening date for that store yet.

Fresh & Easy's Sacramento market region launch is long-awaited, as well as long-postponed, because it was in February 2008 when the fresh food and grocery chain announced its plans to enter the market, listing 19 store locations it said it would start out with.

United Kingdom-based Tesco originally planned to start opening Fresh & Easy stores in metro Sacramento as early as mid-to-late 2009, as part of a planned launch into Northern California. However it postponed the Northern California launch because of Fresh & Easy's poor performance.

Tesco and Fresh & Easy Neighborhood Market also decided not to launch into Northern California in 2010, again because of the chain's poor performance and numerous problems.

Finally, in March 2011, Fresh & Easy launched into Northern California. To date there are 19 stores in Northern California - 16 in the San Francisco Bay Area and one each in Fairfield, which is on the outer border of the Bay Area; Vacaville, which is about midway between Sacramento and the Bay Area; and Modesto, which is about an hour's drive from both Sacramento and the East Bay Area.

The opening of the first two stores in Sacramento on Wednesday, including the unit at Watt Avenue and El Camino Avenue pictured at top, comes a year and five days after Fresh & Easy opened the first two stores in Northern, in San Jose and Danville, as we reported here on March 2, 2011: Fresh & Easy Neighborhood Market Opens First Two Stores in Northern California Today.

Coming this week

We'll have a piece in the blog later this week offering analysis on Tesco's move into the metro Sacramento market, along with a competitive analysis of the key food and grocery retailing players in the region.

Suggested reading below: A primer on Tesco's Fresh & Easy in the Sacramento metropolitan market region

February 9, 2012: Confirmed: First 2 Fresh & Easy Stores Open in Sacramento March 7; 3 in Metro-Area March 14

January 18, 2012: Fast-Growing The Fresh Market Chain On Track to Launch in California This Year

August 3, 2011: Fast-Growing Specialty Grocer The Fresh Market Targeting Mid-2012 For First California Store

August 31, 2011: Tesco Says Sayonara to Japan, Good Morning to Sacramento

August 29, 2011: Meaningful Move or Too Little Too Late? Fresh & Easy Neighborhood Market Planning Early 2012 Metro Sacramento Market Launch

January 12, 2011: First Northern California Fresh & Easy Neighborhood Market Stores Opening March 2; Nine More to Follow March-April

January 10, 2011: Sprouts Farmers Market to Open Second Northern California Store in Roseville No Later Than Mid-April

December 5, 2011: Dollar General Jump-Starts California Launch: Taking Over 5 Centro Mart Supermarkets For Early 2012 Openings

November 22, 2010: Tesco's Fresh & Easy Neighborhood Market Plans Five New Stores in Northern California's Sacramento Region

September 26, 2010: While Tesco's Fresh & Easy Neighborhood Market Postponed, Target Opened 42 'P-Fresh' Fresh Food and Grocery Markets in Northern California

August 17, 2010: Henry's Farmers Market 'Beats' Fresh & Easy Neighborhood Market to Northern California Despite Multi-Year Head Start; Elk Grove Store Opens Tomorrow [Henry's is now part of Sprouts Farmers Market. The Elk Grove store has been rebranded as Sprouts Farmers Market. Details here]

July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store [Walmart is going to start opening Neighborhood Market stores in Northern California this year. More here.]

October 8, 2008: Putting the 'Neighborhood' in Neighborhood Market: 'Localism' and Tesco's Proposed Fresh & Easy Neighborhood Market in Sacramento's Oak Park

February 28, 2008: News & Analysis: Tesco's Fresh & Easy Confirms 19 Store Locations for the Sacramento-Vacaville Region in Northern California

See these links - Fresh and Easy Northern California, Northern California Special Report, Fresh and Easy Sacramento, Fresh and Easy Sacramento Metropolitan Region, Vacaville-Sacramento region - for additional background reading.

Sunflower Farmers Market, Sprouts and Private Equity: The Art of a Soon to Be Announced Deal

The Insider - Heard On the Street

In December 2007 Boulder, Colorado-based Sunflower Farmers Market announced it had raised $30 million in equity financing from La Jolla, California-based private equity firm PCG Capital Partners.

At the time, Sunflower Farmers Market, which was headed up by co-founder and CEO Michael Gilliland, who resigned in February 2011 after being charged by the Maricopa County, Arizona Grand Jury with one count of  felony child prostitution, operated just 13 stores in Colorado, Arizona, New Mexico, and Nevada, and had sales in the $100-$150 million range.

Today, Sunflower Farmers Market, which I've reported has agreed to a merger-acquisition deal with Phoenix, Arizona-based Sprouts Farmers Market, which is majority-owned by private equity firm Apollo Global Management, has 35 stores and about three times the annual revenues it had in December 2007, when PCG Capital Partners made its $30 million equity investment in the grocery chain.

According to my sources, in return for the $30 million equity investment it made in Sunflower Farmers Market over four years ago, PCG Capital Partners, who's managing director Timothy Kelleher is a member of the grocery chain's board of directors, received an approximately one-third ownership stake in Sunflower, the other about two-thirds being held by the founders, corporate officers and other private investors.

In 2007 PCG Capital Partners launched its Corporate Partners Fund, the vehicle it used to invest in Sunflower Farmers Market.

The fund is designed to provide equity growth capital for established businesses, which Sunflower was.

It's also a non-control fund, meaning the private equity firm takes a substantial equity interest in the companies it invests in - and in the case of Sunflower Farmers Market received a board seat for Kelleher as part of the deal -but allows the company's senior management to continue to call the shots on a day-to-day basis.

Back in December 2007 when the private equity firm made its $30 million investment in then 13-store Sunflower Farmers Market, co-founder and then CEO Michael Gilliland and Kelleher said the strategic goal of both parties was to build Sunflower into a chain of 50 stores over a five-year period.

Here's what Sunflower's then CEO Gilliland and Kelleher said (italics below) in a joint-statement on December 17, 2007:

Sunflower Farmers Markets, a Boulder, Colorado-based grocery chain founded and led by Wild Oats founder Mike Gilliland, announced today it has raised $30 million in equity financing from PCG Capital Partners, a private equity firm based in La Jolla, CA.

The funding comes in advance of a major expansion of the Company’s retail locations in both existing and new geographic markets.  Plans include doubling the number of stores by the end of 2009.  Sunflower will launch new locations at a rate of up to eight stores per year, creating a company portfolio of 50 stores throughout the west within five years.    

Sunflower, founded in 2002, currently operates 13 stores in Colorado, Arizona, New Mexico, and Nevada.  The Company’s increasingly popular format offers consumers a full-service farmers’ market-style grocery store featuring the highest quality natural and organic products at the lowest possible prices.

Mike Gilliland, Sunflower’s Founder and CEO, said, "Our value driven approach to the natural foods retailing sector has clearly resonated with consumers.  There is tremendous demand for an alternative to the high price format that has predominated in natural foods for so many years. PCG Capital Partners’ investment will enable us to make this differentiated retailing approach available to millions of consumers throughout the Western United States, including new markets in Utah and Texas.”

Tim Kelleher, Managing Director of PCG Capital Partners, said, "We are excited to partner with a proven entrepreneur like Mike Gilliland.  We believe that Mike and his team have built a model that uniquely combines value with quality in the natural and organic foods segment.  The concept has proven itself over 13 stores in four states.  We anticipate our capital will enable Sunflower to capitalize on its success by replicating the model across many additional markets."

As noted earlier, Sunflower Farmers Market has 35 stores. Current plans - before the talks with Sprouts started in earnest last fall - call for Sunflower to open 6-8 new stores this year, which means it would fall short of that five year, 50-stores goal by nine to seven or so units, making it difficult to hit the financial target set by PCG Capital Partners, Gilliland and Sunflower's board in the fall of 2007, when the private equity firm made its $30 million investment. The chain is well on the way to that goal though.

Why: Because 41-43 stores - give or take a couple either way - rather than 50 units are to be open by December 2012 (five years from December 2007). That many less stores opened can make a big difference in terms of revenue and profits for a grocery chain on the growth fast-track, which is what the plan has been for Sunflower Farmers Market since 2007.

PCG Capital Partners has an up to seven-year time horizon, in terms of getting a return on equity, in its $30 million investment in Sunflower Farmers Market. As of today, its about four years and four months into that up to seven-year time horizon. Five years is often a magic number when it comes to private equity investments in a company.

The deal with Sprouts, which will be announced soon, will change all that, however. I don't know all the specifics at present, but the private equity firm will either get paid-out fully in the deal with Sprouts or will take some equity in a combined Sprouts Farmers Market-Sunflower Farmers Market, to be controlled by Sprouts, making it whole either way.

Sunflower Farmers Market's equity partners have been angry at Gilliland since his arrest in February 2011, when he was charged with one count of felony child prostitution.

The grocery chain's board moved quickly to get the co-founder to resign, which he did, along with taking various measures, such as removing any references to Gilliland from the company's website and other media, as well as putting out a statement following his resignation saying he would no longer be involved in the company and that he is only a minor investor in the chain.

But the reality is that Gilliland was the driving force behind and public face of Sunflower Farmers Market since it was founded in 2002. Just look at the December 17, 2007 statement I quoted above if you either aren't aware of that fact or doubt it. It was a personality-driven retailer until February 2011 - and Michael Gilliland was that person and personality.

Overall, I think Sunflower has been much better off over the last year as a non-personality-driven grocery chain, just as I would suggest Whole Foods Market has become a much better operation since the company convinced John Mackey to be a bit more zen-like and a lot less the face of Whole Foods'-like.

There has been talk in the past of a possible acquisition of Sunflower by Sprouts or a merger of the two food retailing companies. But Gilliland's being charged with one count of felony child prostitution a year ago this month  - he has yet to go to trial, having asked for and received multiple postponements (current trial date is March 15, 2012) from the Maricopa County, Arizona Superior Court where the case is pending; his lawyer has also appealed the Grand Jury's decision to the Arizona State Court of Appeals (see here) - served as the catalyst for the talks and negotiations between the boards of Sprouts and Sunflower.

All that's left now is the announcement of the deal. And it's a deal that has as much to do with private equity firms - Apollo Global Management being the majority owner of Sprouts Farmers Market and PCG Capital Partners holding considerable equity in Sunflower - as it does about a merging of two grocery chains with similar farmers market-style formats.

- The Insider

[Read 'The Insider's' past columns here, including his scoop on the yet to be announced Sprouts-Sunflower deal and news-breaking reporting and analysis on the Sprouts Farmers Market-Henry Farmers Market acquisition-merger in January 2011.]

Related Stories

February 7, 2012: Deal Announcement From Grocers Sprouts and Sunflower Farmers Market on Tap

January 25, 201: Sprouts Farmers Market and Sunflower Farmers Market Ink Acquisition-Merger Deal

November 6, 2011: Roll Up Times Two? Sprouts Farmers Market In Talks With Sunflower Farmers Market About Possible Acquisition

January 5, 2011: Will 2011 See Sprouts Farmers Market Acquiring Henry's Farmers Market? 'The Insider' Says it Could Be in The Cards

January 7, 2011: Sprouts Farmers Market-Henry's Farmers Market Deal Negotiations Continue; End-Game Could Be Near

January 8, 2011: Smart & Final-Henry's Tell Employees About Deal Discussions With Sprouts Farmers Market; Confirming 'The Insider's' Reports

February 16, 2011: Breaking: Smart & Final Enters Into Agreement to Sell Henry's to Sprouts Farmers Market

Also see: The Insider,  Sprouts Farmers Market, Sprouts-Henry's Deal and Sunflower Farmers Market.

Deal Announcement From Grocers Sprouts and Sunflower Farmers Market on Tap

The Insider - Heard on the Street

It was in this November 6, 2011 column - Roll Up Times Two? Sprouts Farmers Market In Talks With Sunflower Farmers Market About Possible Acquisition - when I first broke the news that kissing cousin format grocery chains Sprouts Farmers Market and Sunflower Farmers Market were engaged in acquisition-merger deal negotiations, with Sprouts' either acquiring Sunflower Farmers Market outright or Sunflower being merged into Sprouts Farmers Market, with Sprouts' as the controlling entity.

On January 25, 2012 [See - January 25, 2012: Sprouts Farmers Market and Sunflower Farmers Market Ink Acquisition-Merger Deal] I reported that Phoenix, Arizona-based Sprouts, which operates 103 stores - a new store opens tomorrow in Yorba Linda, California - in Arizona, California, Colorado and Texas, and Sunflower Farmers Market, which is headquartered in Colorado and has its operations office in Phoenix Arizona, had reached a deal, pending the ironing out of a few details.

Sunflower Farmers Market, which like Sprouts Farmers Market is privately-held, operates 35 stores in Colorado (12), Arizona (7), New Mexico (6), Nevada (2), Texas (2), Oklahoma (1), Utah (3) and California (2).

Those details have now been resolved, according to my sources, and the two farmers market-style grocery chains are preparing to make an announcement about the acquisition-merger deal.

The announcement should come before the end of this week. However, there are some logistical and related issues that could result in the announcement coming a bit later.

Roll up: Sunflower makes two

It's been less than a year since the acquisition-merger deal between Henry's Farmers Market and Sprouts Farmers Market became final on April 18, 2011.

In January 2011, I broke the news in this column - Will 2011 See Sprouts Farmers Market Acquiring Henry's Farmers Market? 'The Insider' Says it Could Be in The Cards - that Sprouts' and Apollo/Henry's were in acquisition/merger negotiations.

I continued to report extensively on the deal talks throughout January 2011 and into February. [See those reports and columns here and here.]

On Wednesday, February 16, 2011, the two grocers announced the deal. [See: Breaking: Smart & Final Enters Into Agreement to Sell Henry's to Sprouts Farmers Market. The day before, on February 15, 2011, I published this: Sprouts Farmers Market's Acquisition of Henry's to Be Announced This Week, As Early As Wednesday.

Henry's was owned at the time by private equity firm Apollo Global Management (through its Smart & Final food retailing company), which was founded by Leon Black, who remains its chief deal-maker.

Apollo and Sprouts' founders and part-owners merged the Henry's Farmers Market chain into Sprouts Farmers Market, with Henry's going away and Sprouts' in control of the combined chains.

The deal made Apollo Global Management the majority owner of Sprouts Farmers Market.

In addition to Apollo, Sprouts has about 200 investors, most of them individuals. The investors range from a few who hold a considerable amount of stock to others who hold a few shares. Sprouts Farmers Market is not a publicly-held company, however.

Stan and Sean Boney, the chairman and CEO of Sprouts respectively, and board members Scott Wing and Kevin Easler - the four men founded Sprouts Farmers Market in 2002 - have minority ownership stakes in Sprouts Farmers Market, along with the investors. The individual investors were in place before Apollo's involvement.

Doug Sanders is Sprouts' president. He's responsible for the chain's operations, reporting to Sean Boney. Jim Nielson, who was president of Henry's Farmers Market, joined Sprouts Farmers Market last year as part of the merger deal. He is Sprouts' chief operating officer, reporting to Doug Sanders.

Co-founders Stan Boney and CEO Sean Boney, who is Stan's son, had wanted to acquire the Henry's chain, which was founded by Stan Boney's father Henry, for many years.

Stan Boney was the chairman and CEO of the then family-owned Henry's chain until 1999, when it was sold to Wild Oats Markets, which was acquired by Whole Foods Markets in 2007. Three years later he started Sprouts Farmers Market with his son and the two partners/co-founders.

The deal with Apollo Global Management was a good one for Sprouts, not only because it brought Henry's in-house but because it also provides the chain with a constant source of investment capital, private equity firm and majority-owner Apollo, which is also something the Boney's were after to help fuel their growth plans for Sprouts Farmers Market.

Apollo has even more ambitious growth plans for the chain that the founders did, which of course is what private equity firms do - grow a business and then eventually sell it and make a profit.

The deal also took one of Sprouts' two farmers market-style kissing cousin format cousins out as a direct competitor. Instead, the kissing cousin, Henry's, moved into the same house, called Sprouts Farmers Market.

That other kissing cousin competitor is, of course - Sunflower Farmers Market.

And soon it will join its farmers market-style format kissing cousins; all three - Sprouts, Henry's and Sunflower - under the same roof, and the roll up will be completed.

- The Insider

[Readers: Go to these links - Apollo Management, Mike Gilliland, Sprouts Farmers Market, Sprouts-Henry's Deal, Sunflower Farmers Market, The Insider,  Henry's Farmers Market - for an extensive selection of related stories.]

Sprouts Farmers Market and Sunflower Farmers Market Ink Acquisition-Merger Deal

The Insider - Heard on the Street

In my November 6, 2011 column - Roll Up Times Two? Sprouts Farmers Market In Talks With Sunflower Farmers Market About Possible Acquisition - I reported that representatives of Arizona-based Sprouts Farmers Market and Colorado-headquartered Sunflower Farmers Market were engaged in negotiations regarding either an outright acquisition of Sunflower by Sprouts' or a merger-type acquisition of Sunflower Farmers Market into Sprouts Farmers Market, with Sprouts' and its majority-owner private equity firm Apollo Global Management absorbing Sunflower into Sprouts' corporate structure and operations, like it did with the Henry's Farmers Market deal last year.

Today I can report that, according to my sources, Sprouts Farmers Market and Sunflower Farmers Market have reached an agreement in principle for such an acquisition-merger, which they currently plan to announce no later than two weeks from today, assuming some additional details and specifics can be worked out between the two farmers market-style grocery chains.

My sources tell me representatives of both grocery chains have signed a memo of understanding or letter of intent to merge the two food retailing companies, with Sprouts Farmers Market in the lead role, and that those additional details and specifics are currently being negotiated on by the two chains.

Neither Sprouts Farmers Market or Sunflower Farmers Market has publicly announced they've been engaged in deal talks, nor have they confirmed or denied my November 2011 report. Additionally, based on my research using the major Internet search engines, no other publications besides Fresh & Easy Buzz have reported on the deal talks to date.

Sprouts Farmers Market currently operates 103 farmers market-style grocery stores in California, Arizona, Colorado and Texas.

The retailer closed three stores - Rollingwood, Sunset Valley and Anderson Lane -  in Austin, Texas, in December 2011. The store closings were the result of having too many units too close to each other in Austin, following the Henry's Farmers Market merger last year. Henry's had some Sun Harvest banner stores in Austin which were nearby existing Sprouts locations, resulting in the duplication issue. No other Henry's or Sun Harvest banner stores have been closed to date.

Sunflower Farmers Market operates 35 farmers market-style stores in eight states in the Western U.S. - Colorado (12), Arizona (7), New Mexico (6), Nevada (2), Texas (2), Oklahoma (1), Utah (3) and California (2).

The Sunflower format, as was the Henry's Farmers Market format, is virtually identical to Sprouts Farmers Market's format.

Based on information given Fresh & Easy Buzz by the chain late last year, along with my analysis of added sales from new stores open since then, I estimate that Sprouts Farmers Market currently has annualized sales in the $1.2 billion-to-$1.4 billion range.

Additionally, based on conversations with sources at Sunflower Farmers Market, I estimate the chain's current annual sales to be in the $600 million-to-$700 million range.

Neither grocery chain is publicly-held. Therefore Sprouts and Sunflower don't released annual sales publicly as a matter of record. However, senior executives of both chain's publicly mentioned annual sales numbers in interviews last year. I expect a mention of those metrics to be made again as part of any deal announcement.

Both Sprouts Farmers Market and Sunflower are expanding rapidly, focusing in large part on the same Western U.S. States.

For example, both farmers market-style grocery chains are putting a major new store opening emphasis in Northern California for 2012, where each plans to open numerous new stores this year.

Sprouts and Sunflower both also plan to open new stores (one each respectively) in Phoenix, Arizona this year, along with in Colorado.

Sunflower Farmers Market though, unlike Sprouts, has a wider geographical reach with its growth strategy, currently operating in eight states, compared to Sprouts Farmers Market's presence in four states, which are California, Arizona, Colorado and Texas.

For example, in 2011 Sunflower Farmers Market expanded into Northern California and Oklahoma, where it plans to open at least one new store this year, which will be its second unit in the state.

Sunflower currently has two units in California, in Roseville near Sacramento and in Modesto, which is in the Northern Central Valley. It currently has plans to open four new stores in Northern California this year.

Sunflower Farmers Market has no current plans to open stores in Southern California, which is where Sprouts has the highest number of stores out of its total store base.

Sprouts Farmers market currently plans to open at least three stores in Northern California this year.

A deal with Sunflower Farmers Market (a combined Sprouts Farmers Market and Sunflower) will give Sprouts' an immediate presence in four additional states - Nevada, Utah, New Mexico and Oklahoma. All four of these states fit well geographically with where Sprouts Farmers already is geographically.

Additionally, Sunflower's growth focus in Northern California, which mirrors that of Sprouts Farmers Market - and the fact it has no stores in Southern California (no duplication) - is also synergistic in terms of a combined Sprouts' and Sunflower, as is the fact the two grocery chains operate stores of the same farmers market-style  of which are virtually identical to the Henry's Farmers Market chain. Sprouts' has now changed all the Henry's and Sun Harvest stores to the Sprouts Farmers Market banner.

To put is directly, a year ago there were three farmers market-style grocery chains in the U.S. - Henry's, Sprouts and Sunflower - all operating in the same Western U.S. states. Today there are just two - Sprouts (with the combined Henry's) and Sunflower Farmers Market. If all goes according to plan, there soon will be just one such chain, Sprouts Farmers Market (the combined Sprouts, Henry's and Sunflower), otherwise know as the house the Boney family built.

A little over one year ago I broke the news in this January 5, 2011 column - Will 2011 See Sprouts Farmers Market Acquiring Henry's Farmers Market? 'The Insider' Says it Could Be in The Cards - that Sprouts Farmers Market and the owner of then Irvine, California-based Henry's Farmers Markets were engaged in talks involving an acquisition/merger deal between the two farmers market-style grocery chains.

In a series of follow-up columns - and in various news stories published in January and February 2011 in Fresh & Easy Buzz, we further reported and developed the story, adding new information about the deal talks between private equity firm Apollo Global Management, which owned Henry's through its Southern California-based Smart & Final LLC retail company and is now the majority-owner of Sprouts Farmers Market.

On February 15, 2011 Apollo Global Management announced through Smart & Final that it would merge its Henry's Farmers Market chain with Sprouts, in a deal that would give Apollo majority ownership of Arizona-based Sprouts Farmers Market (the combined Sprouts and Henry's chains), with Henry's being absorbed into Sprouts' existing corporate structure and operations.

On April 15, 21 I reported that the Sprouts-Henry's deal would be final on April 18. [See: Sprouts Farmers Market's Acquisition-Merger of Henry's Farmers Market to Be Final On Monday, April 18.]

On April 18, 2011, Sprouts Farmers Market announced the deal was final in a press release. [See: Sprouts Farmers Market Confirms Our April 14 Scoop: Sprouts' Acquisition-Merger of Henry's Farmers Market Final Today.]

The Devil is always in the details, as I carefully noted at the top of this column. But, according to my sources, where things stand today, what I've called the (farmers market-style food and grocery retailing format) "Roll Up Times Two" (Henry's being the first one) is on the way, unless the Devil messes with those details.

- The Insider

[Readers: Our extensive reporting, analysis and commentary of and on the Henry's Farmers Market-Sprouts Farmers Market deal in 2011, the Sprouts'-Sunflower deal talks, and much more can be found at these links: The Insider, Sprouts Farmers Market, Sprouts-Henry's Deal, Sunflower Farmers Market, Apollo Management, Henry's Farmers Market.]

One-Year On: Bristol Farms Adds 4,500 New Natural, Organic, Local and Gluten-Free Items to its Stores

Click on the letter above from CEO Kevin Davis to enlarge it.

Southern California Market Region

It's been about one year since Bristol Farms' senior management team and the private equity firm Endeavour Capital acquired the Southern California-based specialty grocery chain from Supervalu, Inc., which obtained the trend-setting upscale chain some years' earlier as part of its buyout, in partnership with the Cerberus private equity firm, CVS Pharmacy and a couple other players, of Boise, Idaho-based Albertson's Inc.

As we wrote about in detail in this story last year - October 29, 2010: CEO Kevin Davis, Execs and Investment Firm Buy Upscale Southern California Bristol Farms Chain From Supervalu, Inc. - the deal to buy Bristol Farms from parent Supervalu was quarter-backed by CEO and President Kevin Davis, who spent many years at the specialty grocery chain while it went through numerous ownership changes.

Davis has an extensive background in the food-grocery retailing business in Southern California, including working as a store manager, district manager, corporate vice president of sales/advertising and senior vice president of marketing at Ralphs, which is the largest grocery chain in the region.

Kevin Davis joined Bristol Farms after leaving Ralphs, which he first joined in 1974 as a retail grocery clerk. Kroger Co. bought the Ralphs and the Food 4 Less chains in Southern California from billionaire supermarket industry investment guru Ron Burkle in the 1980's.

This month, a year after he, his management team and the investment firm took over ownership of Bristol Farms, Davis is announcing what he says is the launching of the specialty grocery chain's "most important change to our merchandising plan in our 28 year history."

That change, Davis says in a letter to customers and potential customers featured at the top of this week's Bristol Farms' advertising circular (see at top), is the "adding of over 4,500 new organic, natural, local and gluten-free products, combined with more specials and more everyday values on key brands throughout the store."

"We’ve added more shelves, more items, more variety, and more value to the extraordinary products and unique Bristol style customer service our shoppers expect and deserve," Davis writes in the letter addressed to shoppers included in this week's (November 16-29) advertising circular, and posted at the top of this story.

The addition of the 4,500 new organic, natural, local and gluten-free SKUs into the 13 Bristol Farms stores (12 in Southern California and one in San Francisco) looks to be completed, based on visits we've made to three stores over the last couple weeks, and conversations with workers in those stores. Bristol Farms also operates a natural foods store in Santa Barbara under the Lazy Acres name.

Davis also wrote a brief post on the Bristol Farms company blog on November 8 announcing the merchandising initiative. The content of the advertising message to customers in this week's ad circular is taken from that post.

Bristol Farms has also unveiled the special logo - "Great Taste Just Got Better: More Organics, More Natural, More Local and More Value! - (pictured at top) as a way to tout and promote the addition of the 4,500 new SKUs in the respective product categories noted above.

The logo is being used throughout the grocer's stores, as well as on its website and in printed media materials.

The addition of the 4,500 new natural, organic, locally-produced and gluten-free products is a natural for Bristol Farms because the small chain's focus since the first store was opened in 1982 in Rolling Hills, California, has been on the specialty-natural-organic-fresh foods niches.

In its early days Bristol Farms became best-known for the numerous specialty and gourmet groceries it stocked in the stores, along with its extensive and high-quality fresh-prepared foods offering. Scouting and introducing unique specialty and gourmet food products remains something Bristol farms prides itself on doing.

The grocer built on this positioning and added more and more natural and organic products into the 1990's.

The 1990's, however, brought major new store growth to Southern California from natural-organic grocery chains like Whole Foods Market, Wild Oats Markets (now part of Whole Foods) and its Henry's Farmers Market chain (now part of Sprouts Farmers Market), along with others, therefore making Bristol Farms' specialty grocer niche one that's today occupied by a lot of competitors, including Whole Foods, Trader Joe's, Gelsons, Sprouts and others, such as Tesco's Fresh & Easy, which has opened 105 stores in Southern California since November 2007, and is increasingly being positioned by Tesco as a specialty grocery chain.

A focus on "local" in general, not just offering locally-produced products, has also been a hallmark of Bristol Farms popularity in Southern California.

For example, in 2000 when Bristol Farms' acquired the old Chasen's restaurant building in Beverly Hills/West Los Angeles, which was known as the gathering place for Hollywood's biggest stars, it incorporated many of the  famed eating and watering hole's existing design elements into the store it constructed , and that still stands at the location, including keeping the high-backed leather booths Chasen's was famous for, and re-using them in the store's restaurant-dining area. About a half-century ago then actor and future President Ronald Reagan proposed to his second wife, actress Nancy Davis (no relation to Kevin we're told), who became First Lady, while sitting in one of those booths during dinner at Chasen's.

A year earlier, in 1999 Bristol Farms acquired another landmark business, this one in Hollywood. The grocer retained many local elements of that landmark business, the former Chalet Gourmet, in the design of its grocery store at the location in Hollywood.

Earlier this year Kevin Davis said, in relation to the acquisition of Bristol Farms from Supervalu

He also said at the time the now "locally-owned" grocer was interested in opening additional locations in Northern California, where there's just one store in San Francisco, if the right location were to come along.

Our 'The Insider' columnist offered one suggestion for Bristol Farms' in Northern California in his May 30, 2011 column here. Andronico's new owners, Renovco Capital, which finalized its acquisition of the grocer at the end of October and is working fast and hard to turn the six-store San Francico Bay Area operation around, might be interested in talking turkey down the road.

The San Francisco Bristol Farms store is inside the big, vertical San Francisco Centre shopping mall on Market Street downtown. The store's focus in more on ready-to-eat and ready-to-heat fresh-prepared foods than it is on groceries, although it includes a small assortment of groceries, fresh foods and perishables. There's also seating inside the store, where breakfast, lunch and dinner is offered to eating-in as well as for take-out.

Since the October 2010 buyout, Bristol Farms has also been improving and beefing-up its in-store deli/fresh-prepared foods offering, which was already extensive. For example, the grocer recently introduced a new line of high protein and fiber-packed ready-to-eat "energy salads," featuring varieties like Italian Salad with Middle Eastern Couscous, Wheatberry Salad, Quinoa Salad and Edamame Tofu Salad.

Fresh bakery is another department where Bristol Farms has over the decades created a signature image. It was one of the first grocers in Southern California, for example, to introduce a full line of in-store baked fresh artisan breads, doing so in the 1980's.

Another in-store bakery feature Bristol Farms started many years ago - and it should use it more aggressively in its current marketing and merchandising efforts, in our analysis - is its "One of A Kind" baked goods program, in which it creates and offers a unique item that's generally not available at any of its competitors. A few of its "One of A Kind' baked goods items have included: Texas Chocolate Cake, Carrot and Pumpkin Cake, Bristol Farms' Gourmet Brownies and various unique varieties of fresh-baked scones.

Bristol Farms is also expanding its private brand program, developing and introducing more products under its "Bristol Farms" brand, such as a line of cookies it debuted this summer, which feature conventional varieties like chocolate chip, ginger, snickerdoodle and iced oatmeal, along with two certified organic vanilla and lemon wafers.

The specialty grocery chain also recently introduced a new line or organic fruit preserves under its "Bristol Farms" brand, and has expanded its own-brand line of organic herbs and spices as well.

The grocer is also branding many fresh meat, pork and poultry items under the "Bristol's Own" private brand, which is a new and more aggressive branding effort than its made with the categories in the past.

Bristol Farms finds itself independent and in a very competitive niche in Southern California.

Not only are there numerous grocers like Whole Foods, Trader Joe's, Tesco's Fresh & Easy, Gelsons and Sprouts focusing today on the specialty, natural, organic, fresh food and gluten-free categories - and have their own brands of products in the respective categories along with selling manufacturers' brands - the once very niche categories have become much more mainstream, which is why Safeway Stores, Inc., for example, features an extensive selection of specialty, natural and organic foods in its Lifestyle format Vons stores and more-upscale Vons Pavilions markets in Southern California, as does Kroger-owned Ralphs in its same-banner stores, as well as in its more-upscale Ralphs Fresh Fare units.

Both the Safeway and Kroger-owned chains (Vons and Ralphs, which are the top two grocers in the region) feature their own brands of organic, natural and premium food and grocery products as well. Supervalu-owned Albertsons, the third-largest grocery chain in Southern California by market share, also offers its own brand, Wild Harvest, of natural and organic food and grocery products.

Bristol Farms, now celebrating its first year of independence from Supervalu, Inc., has to carve out its own niche in competitive Southern California, having on one side the giants - Safeway (Vons), Kroger (Ralphs), Supervalu (Albertsons) - each offering a strong assortment of private-brand and manufacturer-branded specialty and organic foods in each of their respective chains - while the numerous specialty grocers in the market region - Whole Foods, Sprouts, Trader Joe's, Gelsons, Fresh & Easy and others - push at it with similar positioning and product offerings from the other end.

As a result, it's worth watching what Bristol Farms' management team, 17 members of which are now owners as well as employees, does in the coming year or two to attempt to differentiate the grocer from the specialty format-focused competitors noted above and others, while at the same time offering consumers a reason to shop at its stores, even though increasingly many of the same products it offers are available at the thousands of mainstream supermarkets and other format food and grocery stores in the region.

Roll Up Times Two? Sprouts Farmers Market In Talks With Sunflower Farmers Market About Possible Acquisition

The Insider - Heard on the Street

Representatives of Arizona-based Sprouts Farmers Market and Colorado and Arizona-based Sunflower Farmers Market are engaged in discussions about a possible acquisition by Sprouts of Sunflower, which operates 35 farmers market-style grocery stores in eight Western U.S. states, according to my sources.

The talks and negotiations have been going on for slightly over a week, although perhaps longer, according to the information I have.

I stress ... What's going on are discussions of a real and serious nature, but a deal between the two grocery chains has not been reached as of today, according to my sources.

Sprouts and Sunflower operate very similar farmers market-style format grocery stores.

Both privately-held chains focus on offering value-priced natural and organic food, grocery (across all store categories) and related products in their respective stores, which also are about the same size, averaging about 28,000 to 33,000 square feet. Both chains also use fresh produce as a key proposition, building their store formats and product offerings, which are nearly identical, around large produce departments designed to look like an indoor farmers market.

It was just 10 months ago when I first reported (here) that representatives of Arizona-based Sprouts Farmers Markets and then Irvine, California-based Henry's Farmers Markets were engaged in talks involving an acquisition/merger deal between the two farmers market-style grocery chains, which share a common family tree.

In a series of follow-up columns - and in various news stories by Fresh & Easy Buzz published in January and February, we further reported and developed the story, adding new information about the deal talks between private equity firm Apollo Global Management which owned Henry's through its Southern California-based Smart & Final LLC retail company and is now the majority-owner of Sprouts, and Sprouts Farmers Market.

On February 15 of this year Smart & Final announced an agreement to sell Henry's Farmers Market to Sprouts, in a deal that would make the owner of Smart & Final and Henry's the majority-owner of Sprouts.

According to my sources, Apollo Global Management owns slightly more than 50% of Sprouts Farmers Market. The rest of the food and grocery retailing company, which currently operates 106 stores in four Western U.S. states, is owned by members of the Boney family (the founding family of what became Henry's Farmers Market) - Stan Boney is chairman and his son Shon is CEO - who founded Sprouts, two other co-founders, Scott Wing and Kevin Easler who also serve on the board, and nearly 200 investors, ranging from a few who own a good-sized stake in the grocer, to the majority who own small shares. The various investors existed prior to the Henry's Farmers Market deal with Apollo.

In my April 15 column I reported that the deal between the two parties would be final on April 18. [April 15, 2011: Sprouts Farmers Market's Acquisition-Merger of Henry's Farmers Market to Be Final On Monday, April 18.]  Also see: January 24, 2011: 'The Insider' - End-Game Could Be Near in the Sprouts Farmers Market-Henry's Farmers Market Deal Talks.

On April 18, 2001, Sprouts Farmers Market confirmed the deal was final in an announcement. [April 18, 2011: Sprouts Farmers Market Confirms Our April 14 Scoop: Sprouts' Acquisition-Merger of Henry's Farmers Market Final Today.] At that point the mainstream business and grocery industry trade press all wrote stories about the deal, although a couple publications picked up the reporting in Fresh & Easy Buzz prior to the April 18 public announcement by Sprouts and Apollo Global Management.

Sunflower Farmers Market was founded in 2002 by Michael Gilliland and some partners.

Gilliland is the former co-founder and CEO of Wild Oats Markets, Inc., which was acquired in 2007 by Whole Foods Market. Gilliland had left Wild Oats and started Sunflower Farmers Market before the Whole Foods acquisition of Boulder, Colorado-based Wild Oats, which at the time was the Austin, Texas-based chain's main competitor in the the natural-organic food and grocery retailing space.

He served as CEO and was the public and media face of Sunflower Farmers Market until February of this year, when he resigned that position and his seat on the board after being arrested in Phoenix, Arizona and charged with solicitation of a minor prostitute for the purpose of sex.

Gilliland has plead innocent to the charges. He was originally supposed to go to trial in Maricopa County Superior Court (Arizona) on August  9. However, he has requested and received three continuances from the court since then, for trial dates set for September, then October and now November 14, which is his current trial date.

The reason Gilliland and his attorney have given the court for the continuances, according to court documents I've seen, is that the co-founder and former CEO of Sunflower Farmers Market, who still owns shares in the chain, has been traveling out of state. He has a pre-trial conference set for tomorrow (November 7), in advance of his scheduled November 14 trial in Arizona.

Sunflower Farmers Market, which although it maintains its corporate headquarters in Boulder, Colorado where the chain was founded also has an operations-oriented headquarters facility in Phoenix, Arizona where Sprouts is headquartered, hasn't let the controversy surrounding Gilliland's arrest and resignation prevent it from carrying on its operations and rapid growth strategy, which has been in place for a few years.

Immediately following Gilliland's resignation as CEO and from the board on February 10, 2011 - which was two days after his arrest - Sunflower's board began distancing the grocery chain from Gilliland. Two days later on February 12, Sunflower's board, which is headed by Bennett Bartoli, named then-president Chris Sherrell acting CEO. In late April the board made Sherrell permanent CEO of Sunflower Farmers Market.

Along with naming Sherrell as acting CEO on February 12, Bartoli and the board said in a statement that Gilliland would no longer have any involvement with the chain he co-founded and up until his arrest has been the public face of.

The board also said in the announcement that Gilliland and the board said in a statement that Gilliland would no longer have any involvement with the chain he co-founded and up until his arrest has been the public face of. The board also said in the announcement that Gilliland was now a  "minor investor" in Sunflower Farmers Market. All past articles featuring Gilliland - and there were many - posted on the Sunflower Farmers Market website, for example, were removed the day he resigned, as part of disassociating him from the chain and its image.

Since Gilliland's resignation and Sherrel's taking over as CEO in February, Sunflower Farmers Market has launched into two new market regions, opening two stores in Northern California and one unit in metro Tulsa, Oklahoma.

Sunflower opened its first store in Northern California, which was also its first unit in the Golden State, in Roseville near Sacramento on May 11. The second Sunflower market opened last month in Modesto, California. Modesto is in the Northern Central Valley, about 100 miles from Sacramento.

The farmers market-style format grocery chain so far plans to open four additional stores in Northern California next year (in spring and summer) - one unit in Sacramento, two stores in San Jose, and one unit in nearby Mountain View. It's been looking for additional store locations in Northern California as well, with a focus on the San Francisco Bay Area and metro Sacramento regions.

On August 21 Sunflower Farmers Market opened its first store in Oklahoma. That store is in Oklahoma City.

Oklahoma City has recently become ground zero for natural-organic food retailing chains. For example, in July the Natural Grocers' chain opened a store in Oklahoma City. And on October 12 Whole Foods Market opened a store there. The new 35,000 square-foot Whole Foods market is about a mile from the about 28,000 square-foot Sunflower market opened in August.

Sunflower currently has a second store scheduled to open in Oklahoma in early 2012. That unit is in Edmond.

With the addition of stores in California (all currently in and planned for the northern part of the state) and Oklahoma this year, Sunflower Farmers Market now operates 35 stores in eight states in the Western U.S. - Colorado (12), Arizona (7), New Mexico (6), Nevada (2), Texas(2), Oklahoma (1), Utah (3) and California (2).

The grocer also currently has a few planned new stores in the pipeline in its existing market regions. For example, Sunflower announced in late October that its planning a 28,000 square-foot store in the Rimrock Crossing Shopping Center in Grand Junction, Colorado.

Sunflower already has plans to open its thirteenth store in its home state next year. That store, at East Colfax Avenue and Garfield Street in the Denver area, is currently set for a late 2012 opening, CEO Chris Sherrell said in the October press release.

I also know from my sources that in addition to searching for numerous future locations in Northern California, as I've noted, Sunflower also has been looking for more additional store sites in all eight states but most particularly and aggressively in Oklahoma and Utah, along with Northern California.

Until fairly recently Sunflower was focusing on searching for numerous new locations in Texas, where Sprouts has been opening and has added numerous stores with the acquisition of Henry's Sun harvest markets in the state, which were part of the deal this year.  But more recently Sunflower has switched that focus and emphasis to next door Oklahoma.

Sprouts Farmers Market currently has 106 farmers market style grocery stores in four western states - Colorado, Arizona, California and Texas.

Assuming the price was right, An acquisition of Sunflower Farmers Market would be fairly positive from synergistic standpoint  for Sprouts and Apollo, which as I've said in my previous columns earlier this year wants to grow the chain rapidly.

For example, Sprouts has no presence in four of the Western U.S. states where Sunflower has its 35 stores - New Mexico, Utah, Nevada and Oklahoma.

While Sprouts could enter these states fairly rapidly if it wanted to because its decentralized distribution system makes doing so easier than for a self-distributing chain - Sprouts uses a natural-organic foods wholesaler to distribute the majority of products to its stores - an acquisition of Sunflower would obviously make that entry immediate, giving it six stores in New Mexico, three units in Utah, two stores in Nevada and one unit plus more on the way in Oklahoma.

Acquiring such an existing store base makes it easier for a grocer to locate and open additional stores at a faster pace then entering from scratch does.

It also immediately adds sales to the bottom line.

Another plus for Sprouts is that Sunflower has no stores in Southern California, where the majority of its stores now are because of the Henry's acquisition. Therefore, there would be no duplication in Southern California, a key market for Sprouts, with an acquisition of Sunflower Farmers Market, and therefore no need to close any existing stores.

Another plus is Northern California, where both Sunflower and Sprouts are expanding rapidly. Sprouts currently has four stores in the region - one each in El Grove and Roseville near Sacramento, and two in the San Francisco Bay Area, in Sunnyvale (South Bay area) and Dublin, which is in the East Bay Area.

So far Sprouts Farmers Market has two stores set to open in the region next year. Those stores are in Walnut Creek, which isn't far from Dublin in the East Bay Area, and Citrus Heights, which is in the Sacramento metro area, just like El Grove and Roseville are.

Sprouts is also currently in the approval process with the city for a store in Santa Rosa, which is in the North Bay Area. Additionally, the farmers market format grocer is looking for numerous additional store locations in Northern California.

The four stores Sunflower Farmers Market plans to open next year in Northern California are all potentially good fits - and locations - for Sprouts. The two units in San Jose and the one store in Mountain view are near the existing Sprouts market in Sunnyvale, for example, and Sprouts Farmers Market currently doesn't have stores in any of the two cities.

Further, the two stores Sunflower Farmers Market plans to open in Sacramento next year fit into Sprouts' focus on the Sacramento metro region. At present it has no stores set to open in 2012 in Sacramento proper. The two planned Sunflower units would give it two such stores. Citrus Heights, where Sprouts will open a store in early-to-mid-2012, is right next door to Sacramento, and Elk Grove and Roseville, where Sprouts and Sunflower both have existing stores, are nearby.

The Sunflower store in Roseville is far enough geographically from the Sprouts unit that I think Sprouts Farmers Market could probably keep it in operation, were an acquisition to become reality. It could even operate it under the Sunflower name, which might not be a bad idea if it were to keep it open.

Regarding Colorado and Arizona, Sprouts' top two states in terms of store-count along with California - which also are where Sunflower Farmers Market has 19 of its 35 stores (12 in Colorado with 2 more planned, and 7 in Arizona - there is some location duplication but it's actual fairly limited, according to my analysis.

A few Sunflower Farmers Market units in each state may need to be closed. Some of the stores might also be able to be operated under the Sunflower banner, although I think Sprouts would eliminate it like they've done with the Henry's banner. But the minimal duplication is manageable as I see it - and far from a deal stopper.

Earlier this year Sprouts' said the acquisition-merger with Henry's would create a food and grocery retailing company with about $1-$1.2 billion in annual sales. I estimate, adding in new stores opened since the deal was finalized, along with those units planned for the first half of 2012, that Sprouts Farmers Market is on-track to have about $1.5 billion in annual sales soon.

Sunflower Farmers Market has annual sales of about $600-$650 million, based on information I've obtained from sources at the retailer over the last year.

Therefore, were a deal to be done between Sprouts and Sunflower - and I stress the two parties are only talking at this point - I estimate it would make Sprouts Farmers Market a grocery chain with about $2 million in annual sales, which is more than double Sprouts' annual sales before the Henry's deal happened this year.

What I know is that Apollo Global Management has the capital available to do a deal.

I also know it wants to grow Sprouts rapidly. Acquisitions make such rapid growth happen much faster than an organic growth-only approach does.

Sunflower Farmers Market is also in a state of flux, with the resignation of Gilliland, which is something it's managed well. The post-Gilliland Sunflower is open more to change than the chain was while he was still CEO, for example.

It also has investors in the company who when they made the investments a few years ago were then looking at an about five-year time horizon to get some pay back.

Sunflower is also growing rapidly, which takes a lot of cash - new stores, new employees, ect. Some of that growth can come out of cash flow and previous loans and investments. But the rapid new store growth plan Sunflower Farmers Market is following is also going to take new money, in my analysis and opinion.

So, based on what I've laid out above, the stage is set rather well - synergies, cash available, common needs - for an acquisition of Sunflower by Sprouts Farmers Market. But of course, the Devil is always in the details.

Most important, the farmers market style formats are near-identical, as was the case between Henry's and Sprouts. Apollo wouldn't have likely done a roll up of Henry's with Sprouts were the formats not virtually the same.

As such, a second roll up, this time of Sunflower, is the next logical step for Apollo/Sprouts.

It also eliminates the only remaining significant farmers market-style format competitor.

Many operators and investors attach significant value to this element alone when considering a deal. For example, a considerable amount of the motivation behind Whole Foods Market's acquiring Wild Oats in 2007, which was performing poorly but was its leading competitor in terms of directly related formats, was to remove it as a competitor, which is something co-founder and co-CEO John Mackey has stated publicly.

As of today what's going on between the representatives of Sprouts and Sunflower, who all know each other, particularly at the board and senior executive levels, is a real and serious discussion of a possible acquisition of the latter by the former. Executives at neither chain are confirming it, which is wise and as you would expect to be the case.

Stay tuned. I may have more soon.

- 'The Insider'

[Readers: Click here to read all past columns by 'The Insider' about the Sprouts'-Henry's deal. Also, click the following links - Sprouts Farmers Market and Sunflower Farmers Market - for related stories about Sprouts Farmers Market and Sunflower Farmers Market.]

The Superquinn Irish Sweepstakes Offers An Opportunity For Whole Foods Market On the Emerald Isle

Pictured above: Superquinn's newest supermarket, an urban unit below a residential complex, at Heuston South Quarter, St. Johns Road West, Dublin, Ireland.

News/Analysis/Commentary

A syndicate of banks, including the main debt-holders Bank of Ireland, AIB and National Irish Bank, announced today the 51-year-old Irish supermarket chain Superquinn is being put into financial receivership due to the struggling grocer's debts, which are said by its creditors to be in the range of €400 million, which is about $635 million based on today's Euro-to-dollar conversion rate.

The banks said in the statement today they've appointed Kieran Wallace and Eamonn Richardson of the KMPG accounting firm as the receivers.

The recievers' charge from the bank creditors is to find a buyer for the 23-store Superquinn supermarket chain, which was founded by Fergal Quinn in 1960 and sold by the family to the Select Retail Holdings consortium in 2005 for about €450 million (slightly more than the current debt-load), post-haste.

Here's what one of the receivers, Eamonn Richardson, said today: "The Group [Superquinn owner Select Retail Holdings], which has been operating in a tough trading environment, has been heavily indebted, primarily due to property related loans. Therefore, this receivership, together with the planned sale as a going concern is a positive development for Superquinn, its employees and customers. We hope to be in a position to release further details on a proposed sale in the coming days."

The statement also said Superquinn's current CEO, Andrew Street, will remain in charge of the supermarket chain during the receivership process.

The banks and receiver administrators added in the statement today they're "confident of a successful sale of the business to a suitable buyer with a view to maintaining the Superquinn brand, the existing Superquinn stores, all of the jobs in these stores, and the highly regarded Superquinn product and service offering."

That's a tall order. But we imagine the creditors would settle for any one element out of the four listed above if the acquisition price is right.

The Superquinn brand does have iconic status in Ireland. For readers in the U.S. or elsewhere unfamiliar with the Irish grocer, think Ralphs in Southern California or H-E-B in Texas, for example, two chains with decades of operation and solid brand equity.

Therefore, the buyer - say any of the UK's top grocers like Waitrose, Morrisons, Tesco, Walmart-owned ASDA or Sainsbury's, for example - will have a struggle in deciding whether to change the banner, although if a big chain does buy Superquinn, it would probably eventually change the banner to its own, regardless of what it does in the interim.

Superquinn says it has about 2,800 employees at its stores located throughout Ireland and at its headquarters offices.

The chain had 24 stores until 2009, when it closed its store in Dundalk. Superquinn also fired 400 employees the same year, including those who worked at the shuttered supermarket.

It's hard to say because of the heavy debt load, but in our analysis the two leading candidates to acquire Superquinn are probably the UK supermarket chains Waitrose and Morrisons. Of the two, Superquinn's up-market format and fresh foods-focus fit Waitrose best from a merchandising standpoint, in our analysis, although the fit is also a good one for Morrisons.

Tesco, which is the food and grocery sales market share leader in Ireland with a 27.1% share, according to the most recent figures (12 weeks ended April 18, 2011) from Kantar Worldpanel Ireland, might also be interested in acquiring Superquinn, although we believe the competition authorities would likely veto any such deal because of its dominance in the Republic.

Also from Tesco's perspective as the market share leader in Ireland, as it is in the entire UK, the cost-benefit analysis - 23 stores (14 of which are in the metropolitan Dublin area) with about €400 million in debt - makes little sense in terms of a Tesco buy, at least in our analysis.

Ireland's second-largest supermarket chain by market share, Dunnes, (23.6% according to Kantar) and number three Supervalu (19.5%), which isn't affiliated with the U.S. grocery chain of the same name, might also be interested in buying Superquinn, which according to Kantar Ireland has a 6.4% share of the national market, which is down from 6.9% last year.

However, in our analysis, competitiveness would also be a potential political issue for both chains, as would the simple fact Superquinn's heavy debt load might not justify buying a competitor grocer with a declining 6.4% market share, although that share is pretty good for 23 stores.

Walmart's ASDA chain and Sainsbury's, Tesco's top two competitors in the United Kingdom and which according to Kantar have a meager combined 1.5% market share in Ireland, might also be interested in Superquinn, although of the two we think Sainsbury's would be the more likely grocer to perhaps make a bid because of its closer fit (than ASDA's) from a merchandising standpoint with Superquinn. In fact, in our analysis Superquinn would be a good play for Sainsbury's if it can get a good deal.

Whole Foods Market's Irish Opportunity

But it's not just UK-based chains that Superquinn presents an opportunity for in our analysis.

For example, we think the Superquinn "Irish sweepstakes" offers an interesting strategic opportunity for Austin, Texas USA-based Whole Foods Market, which currently has just five stores in the UK, four of which it acquired when it bought the small Fresh & Wild chain a few years ago. The fifth store,Whole Foods' only built-from-the-ground-up unit to date in the UK, is its 80,000 square-foot High Street Kensington mega-market in London, which it opened in 2007. All five stores are in and around London, England.

Earler this year Whole Foods Market co-founder and co-CEO John Mackey said the natural grocery chain plans to at least double the number of stores it has in the UK over the next five years.

Thus far the natural grocer has signed two new leases in London's Richmond and Fulham districts, which is nearly half-way to that doubling. The two stores are scheduled for late 2012 or early 2013 openings.

Whole Foods Market is also opening its first store outside the London area soon, in the city of Gifnock, which is a fairly high-income suburb just south of the city of Glasgow. Walter Robb, Whole Foods' co-CEO, said in a talk given earlier this year we attended that additional stores are being planned in metropolitan Glasgow, Scotland.

The Texas-based natural and organic grocery chain has been struggling and losing money in the UK for years, although its getting closer to break-even with its operations there. In its fiscal 2010 year Whole Foods' lost £3.06 million (about $5.8 million) in its UK operations, which was down significantly from the previous year's loss of £4.36 million (about $7 million).

On top of that improvement, Whole Foods' mega-Kensington High Street store in London turned a profit for the first time since 2007 in the grocer's latest quarter, along with experiencing strong comparable store sales in the double-digits.

Whole Foods Market says its committed to expanding in the UK. In fact, last year co-founder/co-CEO Mackey  said publicly that if the natural-organic grocer had to choose between Canada and the UK - its two international divisions outside the U.S. - it would choose the UK.

Despite this commitment, Whole Food Market suffers from a lack of critical mass in the UK.

It's also not clear to us if Whole Foods' focus on London and the surrounding environs makes much sense, considering the competition from up-market grocer Waitrose, which offers a substantial selection of natural and organic foods and has a strong brand franchise in the UK. This geographical focus in fact is something Whole Foods agrees on in part, which is why it's expanding into Scotland - to geographically diversify.

In our analysis, Ireland, which shares a long kinship with the United States where Whole Foods is a huge success, is as good or better a potential market for the natural grocer as England or Scotland is.

And Superquinn, which shares numerous merchandising and operational elements with Whole Foods Market - a focus on fresh foods; local foods procurement, merchandising and promotion; natural, organic and specialty product offerings; a high-level of customer service; and more - is as good an acquisition fit as Whole Foods' could find across the pond, in our analysis, assuming it could get a good deal on the 23-store chain, considering the heavy debt-load it's carrying.

Superquinn operates as a conventional supermarket along with its specialty and fresh foods focus. This isn't something that fits Whole Foods Market's culture or strategy in the U.S. But Ireland isn't the U.S. And different countries often call for different approaches and strategies, including within those regions or nations.

For example, after it acquired chief rival Wild Oats Markets in 2007, it sold the then hybrid conventional-natural-specialty 30-plus-store Henry's Farmers Market chain to Southern California-based Smart & Final, giving as the reason that operating such a chain wasn't part of its culture or strategic plans. We suspect that might be the case with Superquinn, although it need not be.

But that wouldn't have to be a problem for Whole Foods Market were to acquire the Irish supermarket chain.

For example, under one scenario, it could keep all of the Superquinn units that make sense from a demographic and lifestyle perspective (Whole Foods' key data point in terms of store locations is percentage of college graduates and consumers who've attended college), change the banner to Whole Foods Market on those stores and sell off the remaining Superquinn markets, using the proceeds to help pay down the debt.

Another scenario, regardless of how many units it were to keep, would be to co-brand the stores using the iconic Superquinn brand in combination with the Whole Foods name - or keep the Superquinn name completely, which might be its smartest strategy.

Doing this wouldn't be unheard of for the grocer. For example, Whole Foods Market operates a few stores in the U.S. that don't have the Whole Foods Market name, including the Harry's Farmers Market stores in Georgia, which were acquired via acquisition a number of years ago.

The Harry's stores in fact are a hybrid conventional-natural-organic-specialty format. In other words there's precedent for the natural grocer's doing so.

Therefore, in our analysis it wouldn't be a stretch, and perhaps would be a wise move, for Whole Foods Market to operate the Superquinn stores, in this scenario, as a hybrid format, keeping the best of what the 51-year-old Irish chain offers and adding some of the best elements from Whole Foods, such as its focus on organics. Both Whole Foods Market and Superquinn put a major focus on fresh foods - produce, meats, deli, in-store bakery and fresh-prepared foods - which is a natural marriage.

We also think Whole Foods' decentralized culture and operations structure, particularly as it pertains to its UK operations but also the way it operates in the U.S., would serve it well were it to acquire Superquinn and operate it as a best-of-both-chains-type hybrid conventional-natural-organic-specialty food and grocery chain. It could retain many of the Superquinn people, who all have a local focus, and blend them with the Whole Foods' UK folks, who already understand the grocer's culture, for example.

Superquinn also operates an online ordering and home delivery business, which could allow Whole Foods Market to extend its business and sales on the Emerald Isle far beyond the 23 (or however many Superquinn units it would end-up keeping) brick-and-mortar supermarkets.

When Irish eyes are smiling

The Devil is always in the details when it comes to deals like Superquinn, particularly since the chain has a heavy debt-load, a declining market share and negative sales growth. Kantar Ireland's figures for the period described earlier have Superquinn with negative sales growth of about 5%, for example.

But it is also under such circumstances - heavy debt and a decline in market share - that good deals can also be made. In those cases ... God is in the details.

As far as Whole Foods Market - which recently announced its long-term strategy is to go from slightly over 300 stores currently in America to 1,000 units, which could easily more than triple the grocer's current annual sales of nearly $9 billion - goes outside the U.S. (a few stores in Canada and the UK), an acquisition of Superquinn and a presence in Ireland is certainly something the Austin, Texas-based grocer should seriously look into, in our analysis.

After all, from a historic and cultural perspective, is there really any better and more logical place for an American grocer to go overseas than Ireland, where nearly every resident either has a family member or friend who at one time or another has lived in the U.S?

Whole Foods Market is also a known brand name in Ireland because of the extensive travel and trade relationships between the two countries.

Like the U.S., Ireland is in an economic slump. But also like in the U.S., there continues to exist in Ireland a food and grocery retailing up-market. Superquinn offers a opportunity for Whole Foods Market to perhaps participate in that niche, as well as to jump-start its strategy across the pond and from there across the channel.

Like we said, both the Devil and God are in the details. But we do think Superquinn is worth a look for Whole Foods Market. After all, co-founder and co-CEO John Mackey's Irish eyes do remain clearly focused across the pond.