Is The Amazon Of Whole Foods

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Online supplement seller (NASDAQ: VITC) expanded its health food offerings to attract shoppers who want Whole Foods Market (NASDAQ: WFM) quality without paying Whole Foods' prices. Carlotta Mast, at New Hope 360, reported that announced a plan to become the Wal-Mart (NYSE: WMT) of Whole Foods. and Whole Foods both sell health food, so that part of the analogy works. A look at's financials shows a company more like online discounter (NASDAQ: AMZN) than Wal-Mart, though. and's business models work well enough together that the retailers already teamed up to sell health food online. As an online retailer that could disrupt the hot health food sector, is worth a look.

Low Price Strategy's operating margin definitely makes the online supplement seller look more like than Wal-Mart or Whole Foods.'s aggressive discounts result in a .9% operating margin. goes a step further with its discounts, running in the red with a -6.3% operating margin. Natural Grocers by Vitamin Cottage, (NYSE: NGVC) another rapidly growing small cap supermarket that sells health food and vitamins, reported a 3.9% operating margin. Wal-Mart has a much stronger 5.9% operating margin itself, while Whole Foods reports a 6.4% figure.'s competitors do have economy of scale advantages to consider; although could gain additional economy of scale benefits if these discounts result in more rapid growth.

Rapid Growth

Discounts already helped achieve a high growth rate recently. In its latest quarter, 3Q 2012, reported $82.2 million revenue, a 29.6% gain over 3Q 2011. Health food's popularity definitely helped here, but also managed to beat other health food stores' figures. Whole Foods reported 23.6% quarterly revenue growth for 4Q 2012. also surpassed Natural Grocers by Vitamin Cottage, which reported 28.3% quarterly revenue growth for 4Q 2012. even beat's 26.9% 3Q quarterly revenue growth figure.

Balance Sheet does have some cash reserves to sustain its expansion strategy, as the company reported $35 million cash and zero long term debt. Natural Grocers by Vitamin Cottage earns profits, but its $3.3 million cash balance and $26.4 million long term debt still come out worse than's figures. Whole Foods' $1.22 billion cash hoard greatly surpasses these smaller grocers though, and its $24 million long term debt isn't an issue. With $5.25 billion cash and zero long term debt, wins the balance sheet comparison with the grocers easily. Partnership lists web visibility as a risk factor in its 2011 annual report, but the online grocer did find one way to reduce its dependence on traffic from Google, by setting up an storefront. Shoppers who visit directly can find because of the web retailers' partnership, which reduces's need to buy ads on other advertising channels. and the storefront at do offer many products from the same health food suppliers, such as Annie's Homegrown and Hain Celestial. could use its size to negotiate better deals with third party health food suppliers and undercut on price, although gains some security from its private label brands.'s annual report mentions that its own brands provided 23% of its 2011 sales, including organic food sales from its Best of All brand and organic juice sales from its Smart Basics brand.

Takeaway's launch shows that's approach has potential. Web companies in other sectors, like the online jewelry seller Blue Nile, realized that brick and mortar stores remain vulnerable to price competition. also made a good decision when it made a deal with, since the online retail giant shares many of's strengths and has less vulnerability on price than physical grocers. An investment in could take a while to pay off, but has demonstrated that investors will invest for the long term if a company has an appealing long term plan.

Eric Novinson owns shares of Whole Foods Market. The Motley Fool owns shares of and Whole Foods Market. Motley Fool newsletter services recommend and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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