IPO Alert: Is The Fresh Market Holdings Inc. a Good Investment? (TFM)

TFM

While some of the changes that millennials have brought to the table may have drawn sideways glances from older demographics, it’s impossible to ignore the impact Generation Y levers on the economy. According to a 2018 report by the Pew Research Center, millennials became the largest generation in the U.S. labor force, meaning that whether you like it or not, as a spending bracket, their voice matters.

Arguably, millennial consumption behaviors are most apparent in their food and dining preferences. Since this generation overwhelmingly prefers to spend money on experiences rather than material products per a Harris Poll, it makes sense that millennial wallets would distinguish themselves through culinary choices. And as the American Heart Association states, the entire food supply chain is now catering to these preferences.

On balance, people born between 1981 and 1996 “favor organic foods, dine out more often and value convenience.” While this dynamic doesn’t always cater to healthier outcomes — as an example, restaurants tend to offer saltier fare — millennials are increasingly conscious of what they put in their bodies. Per a recent study, “26% of millennials are either vegetarian or vegan, and 34% of meat-eating millennials eat at least four vegetarian dinners each week.”

Such circumstances may favor the upcoming new listing of The Fresh Market Holdings Inc., a premium grocer that could benefit from an intriguing generational shift.

What Does The Fresh Market Do?

Based in Greensboro, North Carolina, The Fresh Market actually sprouted to life as an idea. On a trip to Europe, founders Ray Berry and his wife Beverly drew inspiration from the open, food-hall-style marketplace common to the region, deciding to bring its charm and intimacy to the U.S. Leaving his stable nine-to-five job, Berry, with his wife's full blessing, poured their life savings into the dream of hosting a warm, inviting shopping experience for the most discerning consumers.

Today, The Fresh Market is a powerhouse in the premium grocery space, featuring the freshest produce, hand-trimmed meats and the finest foods and ingredients the world has to offer. What's more, the company now levers 159 store locations across 22 states. Despite its massive growth from its humble beginnings, The Fresh Market maintains its commitment to quality goods and superior service.

Indeed, the company's attributes don't just exclusively reside in the domain of biased marketing literature. For instance, in 2021, USA Today's 10Best Readers' Choice Awards recognized The Fresh Market as the best supermarket in America, beating out popular companies like Lidl, ALDI, Trader Joe's and Sprouts Farmers Market Inc. SFM.

Much of The Fresh Market's success comes down to its core values, which the company defines as below:

• Passion: Workers don't just view their products as a means to an end but rather take inspiration from the connectivity potential of quality food ingredients.
• Excellence: Eschewing mediocrity for distinction, The Fresh Market establishes high standards and transparent dealings throughout its organizational structure.
• Teamwork: Through sharing a common vision, the company trains workers under a holistic framework rather than as members of isolated silos.
• Hospitality: One of the brand's core attributes, its superior customer service creates memorable experiences and facilitates store loyalty.

In addition to its central ethos, The Fresh Market lives up to its commitment of high standards through community initiatives such as Feeding America. Further, management only sources its animal protein products from certified humane suppliers — a top concern among millennial consumers.

In fact, both millennials and Generation Z are prime consumers of plant-based meat, poultry and seafood, according to a market research report published in November 2020. Thus, any company that doesn’t respond positively to animal welfare issues runs the risk of impugned branding.

When is The Fresh Market IPO Date?

Following the doldrums of 2020 to the end of 2021, the initial public offering (IPO) — or the first time a private company distributes its equity shares to retail (public) investors — was one of the hottest tickets in town. In fact, Reuters reported that last year, new listings around the world raised a record $594 billion.

Currently, investors are witnessing the exact antithesis in the IPO space. Because of Russian President Vladimir Putin’s unprecedented and dangerous decision to invade Ukraine, the temperament of the capital markets has changed dramatically. Few are willing to put their offerings to the test given the possibility that demand could be severely limited.

Therefore, it’s not possible for analysts to assign a likely date on the IPO calendar for The Fresh Market. The only clear details available are that the company will list its shares on the Nasdaq exchange under the ticker symbol TFM. Nevertheless, prospective participants of the potential offering enjoy some positive news from which to draw encouragement.

First, management initially registered its intention to go public (following its tenure as a publicly traded entity between 2010 to 2016 before going private) on July 16, 2021. However, the company did not pull the trigger last year, and this year, the Russian attack on Ukraine completely upturned the modern global order.

Still, The Fresh Market filed an amended Form S-1 IPO prospectus with the U.S. Securities and Exchange Commission (SEC) on March 11, 2022, a clear signal that insiders want to take the premium grocer public sooner rather than later.

Naturally, the risk of going public under present circumstances is that all eyes will be watching The Fresh Market. Should the offering stumble, it will hurt not only the grocer but the broader IPO space. As well, the negativity could prevent the food marketplace from accruing the investor dollars it may have attracted under peacetime conditions.

However, The Fresh Market ultimately caters to an indispensable industry: food and water. No matter how advanced a society becomes, its residents cannot ignore basic essentials. Under this framework, then, The Fresh Market IPO could be more attractive than a business tied to technological or discretionary sectors.

Some business categories you can defer spending on. The products underlining The Fresh Market provide no such luxury.

On the other hand, investors should avoid unjustified exuberance. Though The Fresh Market is important to the U.S. food supply chain, it’s one cog among many. In addition, the grocery industry is extremely competitive, a circumstance that soaring consumer inflation will likely exacerbate.

What Analysts are Saying About The Fresh Market IPO

In March of last year, The Fresh Market submitted a preliminary filing for an IPO. Back then, analysts’ opinions were mixed, reflecting both the opportunities and concerns about TFM stock. On one side, grocery stores benefit from constant and relatively predictable demand. But on the other side of the fence, some people expressed cynicism regarding Apollo Global Management, the company that bought out TFM in 2016.

According to a report from the Triad Business Journal, “David Livingston of DJL Research, a leading grocery analyst, warned that private equity firms such as Apollo have been known to use IPOs to raise money with the intention of getting money out of the company prior to a sale. They also have been known to slash budgets.”

“Jennifer Bartashus, a senior industry analyst at Bloomberg, agreed that an IPO is the start of a common exit strategy for private equity firms.” Still, she “also pointed out that stocks of consumer goods have been strong during the COVID-19 pandemic.” This demand profile stems from both pandemic-related disruptions to restaurants along with millennial consumer behavioral patterns.

But with the economic backdrop sharply pivoting in 2022, it’s an open question how TFM will perform in the IPO arena.

The Fresh Market Financial History

In the year ended Jan. 31, 2021, The Fresh Market generated nearly $1.9 billion in revenue atop net income of $26.9 million. These figures compare favorably to fiscal 2020’s tally of $1.52 billion in sales and a net loss of $65.4 million.

Nevertheless, the biggest concern arguably is fiscal stability. In February 2021, Moody’s Investors Service, which is under Moody's Corp. MCO, upgraded The Fresh Market’s credit rating to B3 from Caa1.

However, “B3 is assigned to companies, issuers and securities that are considered speculative and carry a greater degree of risk than investment grade bonds. Caa1 reflects poor standing and a high credit risk.”

The Fresh Market Potential

While The Fresh Market’s IPO could indeed be a cynical ploy that Apollo engineered to gain what it can from the grocer’s debut, TFM aligns well with millennial interests. Given this demographic’s purchasing power, it’s not something you can ignore easily.

That said, IPOs are risky and the current geopolitical backdrop makes them that much more treacherous.

Where to Buy The Fresh Market IPO Stock

Those preparing for The Fresh Market’s debut have options. First, you can acquire shares at the open, necessitating knowing how to buy stocks. Or you can dial up the risk factor by applying for pre-IPO participation or acquiring shares at their initial offering price.

Either way, you will need a brokerage to get started. Below is a list of best brokers to consider.

• Interactive Brokers
• SoFi
• Tradestation

TFM Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

TFM Pre-IPO

To lock in your exposure to TFM stock prior to public investors bidding up shares on its debut, you may consider opening an account with Freedom Finance. However, be warned that not all IPOs rise above their initial offering price.