Shares in high-end grocery retailer Whole Foods (NASDAQ: WFMI) have slid around 20% since early November. The most obvious explanation for the pullback -- investors remain concerned that a weakening housing market and continued turmoil in the credit markets could result in a slowdown at Whole Foods.
However, the company is more resistant to these pressures than many investors realize. Americans have shown an increasing desire to eat healthier -- a trend that has allowed sales of organic foods to grow at three times the rate as those at conventional groceries. As the largest retailer of organic products, Whole Foods is well-positioned to benefit from this trend.
Moreover, while the company is the clear leader in the organic grocery niche, it's still a minnow compared to traditional grocery giants like Safeway and Kroger. With only around 200 stores spread across the U.S., the U.K. and Canada, Whole Foods still has plenty of untapped markets to expand into over the coming years.
Two additional factors are also weighing on the shares at the moment. The first is a general fear regarding the potential impact of increasing competition in the organic foods market. In recent years, traditional grocery chains have been adding to their selection of organic foods. At the same time, new entrants, such as Britain's Tesco, are also targeting the space more seriously. However, Whole Foods remains the undisputed leader in this market and offers the widest product selection. Furthermore, there's plenty of room for multiple competitors in this growing space.
Finally, the U.S. Federal Trade Commission (FTC) continues to pursue an antitrust case against Whole Foods' merger with rival Wild Oats Market. However, the FTC's case is weak and was strongly rejected by a judge earlier this year. The courts also rejected the government's attempts to block the merger pending an appeal -- Whole Foods has now completed the deal. It's highly unlikely that an appeals court will overturn the deal and break up the merger.
If you are interested in more analysis from Paul Tracy, you can find it at StreetAuthority.com
Reader Comments (Page 1 of 1)
11-28-2007 @ 1:06AM
leosatter said...
Just out of curiosity….Do you know where I can get quality organic/vegan ingredients online? I am now trying to order from online stores only because of various reasons…….can you help me with any suggestions??????
There is only one place, out of all that I have tried that really stood out for true quailty, and that is Celebrityfoods.
If you can help me grow my list of quality services or stores, where I can buy my food, I would greatly appreciate it.
Thank you!
12-06-2007 @ 2:33AM
TKF said...
I believe that the Whole Foods Market is waiting to explode based on the continual reporting of issues with food, after food, after food by the FDA. People don't seem to have "awaken" to "organic or whole" foods as of yet. Am I being too optimistic about the emergence of companies like WFMI? Thanks.
3-11-2008 @ 12:32PM
dianne said...
I am very worried about Whole Foods and I am a stock holder. They are moving away from the top quality products and buying more on price. No bigger evidence with what is happening in their cheese section. My passion! Cheese.
Their products are getting worse and most must have preservatives on them. As a cheese eficionado who has traveled around Europe eating cheese, it is obvious that many of the WF cheeses are loaded with mold preservatives. These are supposedly not allowed but they are there. And the people behind the counters don't really have the knowledge to know. I realize that there are so many types, but they are not educated on even the basics. But many even have the preservatives listed on the labels. I am afraid that once it becomes evident that they are not on their original mission, there will be a backlash. Consumers don't like to feel fooled. It's not so "Whole" anymore.