As was reported by several of us here at Blogging Stocks a few weeks ago, Whole Foods Market (NASDAQ:WFMI)looks to purchase one of its largest competitors, Wild Oats (NASDAQ:OATS). This has been the speculative rumor in the niche grocery merchandising field for a few years and it finally came to pass. Whole Foods sees newly intense competition in the health food market from competitors like Trader Joe's and others. My guess -- it does not want to lose mainstream grocery customers to the likes of discount food retailers Target Corp. (NYSE:TGT) and Wal-Mart Stores, Inc. (NYSE:WMT).
In an effort to reach the increasingly health-conscious grocery consumer, both discount chains have stepped up offerings of healthy items and particularly organic grocery items. More and more consumers are discovering that many mainstream, processed foods are filled with unhealthy chemicals and they are now demanding more healthy eating options. As a result, Target in particular is stepping up its efforts to attract that consumer (more so than Wal-Mart, in my experience so far). That puts the more niche but growing retailers like Whole Foods and Wild Oats in the somewhat-cloudy crosshairs of the $52 billion Target and $380 billion Wal-Mart.
I do believe, however, that while the customer demand for more healthy foods will not only continue but rise over time, smaller (but still huge) retailers like Whole Foods and Trader Joe's will continue to attract a certain kind of shopper who almost flat-out refuses to buy groceries of any kind at mass merchants. The thing is -- Whole Foods is going to become one of those mass merchants with the Wild Oats purchase. Will that dilute the brand?
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Reader Comments (Page 1 of 1)
3-20-2007 @ 11:06AM
chef31 said...
So Wholefoods and Tader Joes need to worry about Target and Wal-Mart?
Ever since I started hearing about there two chains wanting to carry organics I've been looking/shopping and haven't been impressed at all.
Wal-Mart has about 25' of aisle dedicated and Target has 2 aisle. They both have under 400 products, and employees that have no idea about the difference between conventional and organic. Can you save half a buck on a common item like crackers? Yes, but need pantry items,fresh produce or meats and your out of luck.
I just don't see how a chain like Wal-Mart w/ 400 products is going to effect stores like Wholefoods that carries 30,000 items. I'm personally not going to make an extra trip to Target to buy six common items sold at Wholefoods to save $2 or $3 dollars. If anything Target and Wal-Mart are going to make more customers aware of natural/organics and feed into shopping at a full grocery sore than an aisle or two.
4-24-2007 @ 5:10PM
Lisa said...
I'm a firm believer in "shoeleather research" in addition to looking at technical analysis before buying a stock. WFMI is an example of a stock waiting for "shoeleather research" before I decide whether to buy or not. I'm not too whippy on Wild Oats, because the local store had drifty staff, and their selection wasn't as good as when they first opened. The local store had also failed a couple of health inspections--NOT a good sign. Whether the problems at Wild Oats will persist once Whole Foods Market opens a larger store (and, presumably, closes the smaller Wild Oats store) remains to be seen, but right now things don't look good. The remodeling project to convert a closed Shopko into a Whole Foods Market isn't proceeding very quickly. There's a half-empty shell where the new store should be, and no major signs of activity.
Bottom line: I'll be watching and waiting for the new store to open, then watching for a good year after that. If Whole Foods can eliminate Wild Oats' management problems, then I'll buy the stock and shop at the store.