MarketWatch  2 hrs ago  Comment 
Whole Foods Market Inc. was looking for ways to boost its flagging sales when Mark Bittman showed up last year at its Austin headquarters to make an unsolicited pitch.
Benzinga  7 hrs ago  Comment 
Reports suggested Amazon.com, Inc. (NASDAQ: AMZN) considered a bold move to acquire Whole Foods Market, Inc. (NASDAQ: WFM), which has many investors confused as to why the online ecommerce giant would want to expand into physical locations. But...
Yahoo  Apr 12  Comment 
Whole Foods, unlike many of the retailers that have been chipping away at its dominance in the natural and organic category, has focused on growing its retail footprint and leaned heavily on United Natural to supply frozen and dry goods.
Wall Street Journal  Apr 12  Comment 
Squeezed by competitors and an activist investor, co-founder John Mackey is being forced to try conventional grocery-store pricing and other supermarket tactics to reverse his company’s flagging fortunes.
Benzinga  Apr 12  Comment 
Shares of Whole Foods Market, Inc. (NASDAQ: WFM) soared earlier this week after notable activist investor Jana Partners and a small group of partners disclosed an 8.3 percent stake in the organic grocer. Many investors assumed Jana's stake would...
Clusterstock  Apr 12  Comment 
Whole Foods stock is having a big week, but investment bank UBS says don't buy into the hype. UBS equity analyst Michael Lasser sent a note to clients on April 10 reinforcing his "sell" rating and $25 price target for the grocer, which would be...
Clusterstock  Apr 12  Comment 
Whole Foods is up again Wednesday morning, higher by 1.5%, after a pair of analyst upgrades and a Bloomberg report that Amazon had considered a bid for the company last fall but never followed through.  Whole Foods is under pressure from...
Forbes  Apr 12  Comment 
Whole Foods is bleeding millions of customers. To grow, it needs to win them back. And to do that it must offer better value to customers than do rivals like Trader Joe's.
Benzinga  Apr 12  Comment 
CNBC Fast Money's Tim Seymour suggested in the segment of the show called "Final Trade" that viewers should consider buying Citigroup Inc (NYSE: C). Karen Finerman thinks Whole Foods Market, Inc. (NASDAQ: WFM) is a buy. Dan Nathan said...
Benzinga  Apr 12  Comment 
Jim Cramer said on CNBC's Mad Money that an acquisition is the only way for Whole Foods Market, Inc. (NASDAQ: WFM) to move higher. He believes that unless JANA Partners has a buyer, investors are going to regret they didn't sell the stock when it...


Whole Foods Market Inc. (NASDAQ: WFM) is the world’s leading retailer of natural and organic foods.[1] WFM has ridden the health & wellness trend, thanks to consumers' perception that organic foods are healthier than their non-organic counterparts. As a result, Whole Foods can charge a substantial premium for the products it carries.

Whole Foods is the industry leader in this segment and enjoys strong brand awareness. The large size of the company gives it the ability to realize economies of scale in its supply chain, which in turn has enabled it to post strong growth in profitability as well as revenues.

To date, the organic movement has been confined to wealthier and more educated demographics. WFM has been the segment’s pioneer and has made good use of the lead time by opening stores in affluent neighborhoods. However, as these areas reach saturation, Whole Foods is beginning to expand to less wealthy neighborhoods. This is bringing it face to face with retail behemoth Wal-Mart, which is expanding its organic food section in light of organic food's growth and healthy margins. Wal-Mart has a history of undercutting its competitors on price, and as Wal-Mart and other traditional grocery stores such as Safeway (SWY) enter the organic foods market, it may be difficult for Whole Foods to maintain its attractive margins and premium prices.

Company Overview

Whole Foods, and its subsidiaries, is the largest chain of natural and organic foods supermarkets in the United States.[2] WMFI operates roughly 299 stores: 288 stores in 38 U.S. states and the District of Columbia; 6 stores in Canada; and 5 stores in the United Kingdom. Whole Foods operates one main business segment: supermarkets that emphasize natural and organic foods.[2]

Whole Foods’ product portfolio includes produce, seafood, grocery, meat and poultry, dietary and nutritional supplements, vitamins, specialty (beer, wine and cheese) body care products, floral and household products and pet products. The company also undertakes catering of prepared foods.

The products are marketed under private labels, such as 365 Everyday Value, Whole Kids Organic, 365 Organic Everyday Value, the Whole Brands family, and Authentic Food Artisan (AFA). Store-made and regionally-made fresh items are sold under the Whole Foods Market label. Allegro Coffee Company, a subsidiary of Whole Foods Market, offers specialty and organic coffees and teas.

The products under the 365 label are positioned as value for money products as this brand provides all the benefits of organic food at lower prices. Expansion of this program to other departments, such as organic fresh vegetables,

Key Trends and Drivers

Comparable Store Sales Remain Whole Foods' Best Gauge for Growth

Comparable store sales, new store productivity and growth in square footage are the main drivers of revenue in the food and retail industry.

Comparable store (comp sales) or same store sales reflect the ability of the existing stores (stores greater than one year old) to generate revenue. If the comparable sales growth rises, it implies that there has been a higher turnover of goods for every square foot of existing store space owned by the company. New store productivity is measured as the ability of new stores to generate revenue (per square foot) as compared to existing stores. New stores include stores, which are newly acquired or newly opened in a year. New store performance cannot be compared with existing store sales as the former usually take more time to generate sufficient sales to catch up with existing stores’ performance. An increase in square footage growth implies that each unit would be able to store more goods and thus generate more revenue. Comparable store sales growth rate can decline over the years as stores mature. Revenue per square foot can decrease if there is high rate of new store additions. Mergers and acquisitions in particular can lower revenue per square foot if the acquired entity has lower operating metric values.

Further, due to the conservative advertising policy of Whole Foods Market, new stores take a longer time to break even compared to those of the company’s competitors. The company relies on word-of-mouth publicity, in contrast to the print, television, and online media favored by its competitors.

The table below tracks the historical performance of Whole Foods Market.

Historical Performance of Whole Foods Market
Metric 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year End Store Count 145 145 135 126 163 175 186 276 275 284 299
Comp Stores Sales Growth 8.6 9.2 10.0 8.6 15.0 12.8 11.0 7.0 4.9 (-3.1) 7.1
Average Store Size ('000 Square Feet) 22 25 30 36 32 33 34 34 36 37 38

Whole Foods Store Expansion Must Cater to Specific Regions that Prefer Premium Foods

Whole Foods Market stores have chosen the best locations for their premium priced products by choosing regions (especially the coastal areas) where the demographic profile of the customers, in terms of income, house value and population density is much higher than the U.S national average. However, once these markets get saturated, the company will have to lower demographic standards and expand into lower income areas. This could lead to a slow down in revenue growth of the company in the future, especially as it enters into direct competition with retailers, such as Wal-Mart.

Further, Whole Foods Market is exposed to the risk of consumer demand for natural and organic foods. There is an ongoing debate on health benefits from consuming organic foods as compared to conventional foods. If it is proven that organic foods do not provide the benefits as expected, the stocks of organic food retailers are likely to be impacted. In addition to this, decisions taken by Whole Foods Market in the past (such as to sell live lobsters) have drawn flak from animal welfare organizations and could damage the company’s image.

The expected slowdown in the U.S. consumer spending can also affect specialty retail chains, such as Whole Foods Market, as consumers may turn to lower-cost non-organic produce.

Heavy Regulation in the Organic Foods Market pose Industry Risk to Whole Foods

Organic foods market is subject to several laws and regulations relating to health, sanitation and food labeling. Federal regulatory agencies such as the Food and Drug Administration (FDA), the Federal Trade Commission (FTC), the Consumer Product Safety Commission (CPSC), the United States Departdment of Agriculture (USDA) and the Environmental Protection Agency (EPA) have set stringent standards for the manufacture, packaging, and advertising of organic products. Failure to meet these standards could result in the confiscation of marketing and sales licenses. The compliance costs arising from these regulations would reduce the margins of Whole Foods Market. Further, as Whole Foods market their food as premium and better in quality than other competitors, a significant blow in food control can severely dent Whole Foods' image.

Comparison to Competitors

Whole Foods Market, until recently, faced competition primarily from direct competitors in the organic foods segment, such as Trader Joe’s and recently acquired Wild Oats Markets (OATS). However, a growing industry and attractive margins have brought new players into the organics food market.

With traditional grocers (Safeway, Kroger, and SuperValu (SVU)) as well as global and national retailers (Wal-Mart, Sam’s Club, BJ's Wholesale Club (BJ), and Costco) beginning to offer organic foods in their retail baskets, competition for Whole Foods Market is intensifying.

However, with the acquisition of Wild Oats, which was a direct competitor, Whole Foods Market has attempted to consolidate its position in the market. This acquisition is viewed as a strategic initiative to provide the company long term returns through synergies, reduction in costs and increase in comparable store sales. The comparable store sales growth at Wild Oats is expected to improve within 12 to 18 months, driven by Whole Foods Market retailing experience as well as its ability to make capital investments (Whole Foods Market operates at twice the store productivity in Wild Oats).

The table provided below compares the operational metrics, margins, and capital expenditure (as a % of sales) of Whole Foods Market vis-a-vis its competitors.

Comparison of Operational Metrics, Margins and Capital Expenditure
Company (Fiscal Year) Comp Sales Growth Square Footage Growth Revenue per Square Footage (Millions USD) New Store Additions Closures Average Store Size (Square Feet) Gross Margin (%) Operating Margin (%) Net Profit Margin (%) Capital Expenditure/Sales (%)
Whole Foods Market (WFM) (FY2010)[3] 7.1% 6.0% 882.0 16 3 38,000 34.8% 5.9% 2.7% 2.9%
Safeway (SWY) (FY2009)[4] (4.90%) (0.40%) 509.99 8 23 46,000 28.62% (1.54%) (2.69%) 2.08%
Kroger Company (KR) (FY2009)[5] 0.90% 0.01% 518.47 14 27 60,000 22.60% 1.42% 0.07% 2.99%
SuperValu (SVU) (FY2009) [6] (5.1%) (6.2%) 624.57 40 112 29,000 22.50% 2.96% 0.97% 1.70%

As evident from the table, Whole Foods Market is the market leader with higher comp sales growth, gross margin, operating margin as well as net profit margin as compared to its competitors.


  1. [1]
  2. 2.0 2.1
  3. WFMI 10-K FY2010
  4. SWY 10-K FY2009
  5. KR FY2010 10-K
  6. SVU 10-K FY2009
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