Meet the next Whole Foods ... Kroger

Over the last year, the Kroger closest to my house has expanded its offering of organic and natural foods, not just in selection, but in shelf space as well -- especially in the last few weeks. I even asked one of the workers who was assembling the organic/natural displays and he noted how popular the segment is and how the company is going more and more in that direction. And as if he was revealing some big secret, he even added that the organic/natural foods are more profitable. Back in the day, grocery stores had to operate on razor thin margins, often in the 1-2% range. I don't know exactly how much margins have expanded to in the natural and organic foods, but from an aisle-space standpoint at this particular Kroger, it looks like it is a 300% jump.

I haven't stopped going to Whole Foods entirely, but surely you can guess what happens when the same goods are available in another store for a better price. It also makes me wonder why Kroger hadn't stepped in on the Wild Oats Markets Inc. (NASDAQ: OATS) merger? A surprising anti-trust review of the Whole Foods and Wild Oats deal came up due to fears the merger would create a force dominating the natural foods market. Kroger could probably even argue that it wouldn't have to monkey around with a break-up fee. Acquiring Wild Oats would have some issues, including labor and unions, but the size differential would make this more of a short-term sacrifice rather than a long-term pain. With Wild Oats, Kroger would instantly tackle more of the natural foods market, while simultaneously hurting a competitor.

Jon Ogg is a partner at 24/7 Wall St.; he does not own securities in the companies he covers.