Every grocery chain seeking to thrive in the modern world must provide organic kale alongside the Hot Pockets and Fritos.

That point was driven home by merger talks in recent weeks between Albertsons Cos., the second-largest U.S. supermarket chain, and Sprouts Farmers Market Inc., whose 250-odd stores are known for fresh produce and organic offerings. The preliminary discussions may not lead to a deal, according to people with knowledge of the matter.

For Albertsons, which may be beefing up ahead of an initial public offering, taking Sprouts private and adding it to the portfolio would mean a deeper push into foods that appeal to a growing segment of shoppers. Longtime staples like cereal and canned soup have struggled as health-conscious consumers pursue less-processed options.

Thats pushed organics into the mainstream, with the likes of Wal-Mart Stores Inc. and Kroger Co. expanding into a market long dominated by Whole Foods Market Inc. and other niche stores. Albertsons seems ready to jump deeper into the lettuce patch.

Theyre looking to add some sex appeal, said Roger Davidson, an industry consultant. A lot of their stores tend to be boring, standard supermarkets. If they dont do something, theyre going to continue to struggle.

Fresh produce is a draw to brick-and-mortar stores, even as online ordering has devoured swaths of the retail landscape. With Amazon intent on pushing into the business despite its struggles with delivering fresh food, grocers are increasingly focused on the quality of fruits and vegetables.

An Albertsons takeover of Sprouts could help convince investors that theres demand for shares of a giant U.S. grocery chain this year, Davidson said. The company, backed by Cerberus Capital Management LP, operates about 2,300 U.S. stores, including the Shaws, Safeway and Acme chains. The company almost went public in 2015 before pulling the IPO because of turbulence in the stock market. The offering has been on hold almost 18 months.

Cerberus, which manages more than $30 billion in private-equity holdings, distressed debt, credit assets and real estate, first invested in Albertsons in 2006 and then bought stores in 2013 from Supervalu Inc. Albertsons more than doubled in size in 2014 when it acquired Safeway Inc.in a deal valued at about $9.2 billion. The company has a presence on the East Coast, but its stores are mainly west of the Mississippi River. Sprouts has more than half of its outlets in California and Texas, two of the most competitive U.S. markets.

Sprouts is one of the few high-quality growth platforms remaining in grocery and a concept we believe will continue to take market share, Chris Mandeville, an analyst at Jefferies, said in a research note.

Winnie Lerner, a spokesman for Albertsons, declined to comment.

With the IPO in limbo, Albertsons has struggled to find growth. Food deflation has battered the industry over the past year, weighing down sales and prompting price wars that have eroded profit margins. Kroger, the largest U.S. grocery chain, in the fourth quarter posted negative same-store sales for the first time in more than a decade. Its shares have plunged 15 percent this year.

Albertsons faces pressure from both ends. It needs organics to appeal to more affluent customers concerned with health. But its current stores arent quite cheap enough to draw low-end customers who shop at dollar-store chains or Wal-Mart. The price war has gotten even more intense with the German chain Aldi expanding rapidly in the U.S., not to mention the planned arrival of European competitor Lidl this year.

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Grocer looks to grow with organic foods - Arkansas Democrat-Gazette - Arkansas Online