Super Cabbage vs Soviet Safeway
Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
“Whether it’s the restaurant or the supermarket or the kitchen supply shop, it’s hard to think of sector that is more commercialized and more replete with entrepreneurship and innovation. It is all monetized. … Quality customers are often more important to a restaurant than a quality chef.”
Professor Tyler Cowen’s recent book, An Economist Gets Lunch, is his latest success at illustrating “markets in everything” – and like his wildly popular blog, Marginal Revolution, the engaging read’s ideas and insights are also directly applicable to making discerning choices in stocks, partnerships, and other investments.
[continued from "America's Kids: From French Fries to Frenchified"]
Slepko: What is the deal with Whole Foods (NASDAQ: WFM)? Why has Whole Foods continued to thrive even during the recession? Is there a real transformation taking place in America, or is it simply that splurging at the grocery store is a substitute for splurging on bigger ticket items like vacations? Do you see them as an outlier or a trend?
Cowen: I think it’s a trend. Keep in mind, they were hit fairly hard early in the recession, and they rethought a lot of what they did in a smart way. They figured out that certain items were essential, items that brought people in, and they cut back on other things in ways that showed a lot of wisdom. So, they aren’t an automatic story. They are a story about smart management in addition to some basic, favorable trends.
Slepko: After they are done [capturing their target demographic], what are their chances to succeed among minority consumers and overseas?
Cowen: If I look at the Whole Foods here in Northern Virginia, which I frequent, it’s full of people from all parts of the world, all of the time. I wouldn’t say this is a prediction, but I would say they are already serving a diverse customer base…I think the commonality, or better, stereotype is that they have a lot of educated professionals – people that know a lot about food, people with high-incomes. But it’s more than that. There are a lot of young people that shop there because they were brought up there and their favorite stuff is there. It may not be their primary supermarket yet, but that’s still where they go when they can…Overseas I think a lot of retailers have to change a lot, and you find a lot of examples of retail not crossing borders very well.
Slepko: What about more traditional grocers like Kroger (NYSE: KR) or Safeway (NYSE: SWY)? I used to live on Safeway’s China Express, but its quality has really declined over the last decade (and it wasn’t high-quality to begin with). What’s in store for traditional grocers? Do you see their customers being divided up between Whole Foods and something like Great Wall?
Cowen: Around here we call it “Soviet Safeway.” When I have to go to one, I’m just terrified. I know a lot of them have upgraded quite a bit, and are shinier and have brighter lights, and better produce sections now, but I still don’t think they are very good stores. Still, there’s no particular reason to think stores like them will perish, as there is a big slice of America that is just different and still goes to stores like that. I don’t see that changing anytime soon.
Slepko: In one of your most insightful chapters you cover your month-long experiment faithfully and exclusively shopping at the Asian grocery chain Great Wall Supermarket. Will Great Wall ever break through to mainstream status – or is that even the goal of new food retailers now?
Cowen: It’s not their goal and they won’t do it. But they will do well serving the communities they are targeting…Continued immigration is important to their success…[Krogers and Safeway] should learn that you can make things a lot better without the prices being higher, and that you can do well with good vegetables. I understand that the customer segments differ. The Chinese are more interested in eating good greens – but it really works. While not new to the foodie in me, it is still a commercial revelation. If you would just ask me in the abstract, “Here is a supermarket and they carry six different kinds of bok choi, and they have the best greens in your whole area, and they are the third of the price,” I think I would be skeptical.
Slepko: Maybe they just need to re-brand bok choi as “super cabbage,” and maybe that will work. What about home delivery like Amazon’s (NASDAQ: AMZN) Amazon Fresh playing out?
Cowen: That was a big trend in the earlier days of the Internet and it just crashed, but I think it will come back and succeed.
Slepko: Sounds like a classic tech stock experience. What is it that needs to change for it to work? Is society just more accustomed to this sort of shopping now, or is it Amazon that needs to change?
Cowen: A lot of the latter, but I would say that Amazon is in some ways the most impressive, important, and innovative of the web companies. They are still underrated, and Amazon has made a lot of small changes to be awesome at delivery and the world has come along. We are just seeing the start of a bunch of exciting new things in logistics.
[continued in "Retail is Tough to Translate Abroad"]
Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication. The Motley Fool owns shares of Amazon.com and Whole Foods Market. Motley Fool newsletter services recommend Amazon.com 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.If you have questions about this post or the Fool’s blog network, click here for information.