This Healthy Foods Company is Worth an Investment

Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Be it economic slowdown or debt crisis in Europe, people will continue to eat as long as they are alive. This simple logic solves a number of problems for an investor; the food business can never go out of vogue, and an investor can be pretty sure of his or her investments made in food industry. Moreover, with customers becoming highly health conscious and the importance of organic food growing, we've seen the emergence of organic food retailers.

A very noteworthy example here is Whole Foods (NASDAQ: WFM), which offers natural and organic food through its chain of supermarkets. Whole Foods has been performing marvelously, which was affirmed by its recent fourth quarter results, which not only met analysts’ expectations but also delighted investors.

Beyond The Numbers…

New store openings coupled with efficiently-managed costs drove both revenue and earnings higher by 24% and 43%, respectively. Whole Foods opened 7 new stores and added 11 new leases, which contributed to its top line favorably. Also, it managed its costs well through better inventory management and other operating efficiencies. This has been a key to its success since customers have become highly calculative about their spending and retailers’ move of passing on the increase in input prices to customers have not been working well. Hence, managing this problem tactfully was a commendable job done by the company. This has led to a same store sales growth of 8.5%, which is higher than last year.

Additionally, Whole Foods has also been trying to lower its prices in order to attract more and more customers. However, the food retailer is not willing to compromise with its margins and has taken some initiatives to solve the problem. Along with efficiency in production it has resorted to a low-cost structure. It is planning to open stores that are smaller in size but provide a wide variety with less inventory of each product. This will mean lower costs for Whole Foods.

Peer Comparison

Whole Foods has been an excellent performer, especially when compared to its peers like Fresh Market (NASDAQ: TFM) and Kroger (NYSE: KR). The 5-year stock performance of the three industry players is shown in the chart below:

<img src="http://media.ycharts.com/charts/50210010b847ab8c8a4a78546eaaad0f.png" />

WFM data by YCharts

With a 154% surge in stock price Whole Foods has proven to be a great performer. Its quality food and a network of loyal and affluent customers have played important roles. Also, its provides other services, such as cooking classes and dine in restaurants in its stores, which makes it different from Fresh Market and Kroger.

Kroger has been the worst performer when compared to its competitors. Nonetheless, it has been in the green and has been taking initiatives to lure customers. Its new customer loyalty program has worked favorably in its recent quarter. It witnessed increased customer footfall due to the discounts mailed to its privileged customers.

Fresh Market has also been a decent player, with an 85% increase in its stock price. However, it is smaller in size than Whole Foods and is a relatively new player. It is gaining consumer confidence and has been performing well. It recently entered into a partnership with Novamex to sell an aloe vera beverage that is made with aloe vera juice. The new innovative product is expected to lure new customers to its stores.

The Future Shines Bright

Along with posting rocking results, Whole Foods is up for some great moves, which makes it an interesting investment. It plans to open 32 to 34 new stores during the year 2013. And with its new small-store format, this will not only help decrease costs but also boost revenue.

The company also remains focused on pricing. Given the current economic environment, keeping a check on product prices has been a smart move. It continues to plan ways to reduce costs, as well as prices, through value meals.

The organic food retailer has been eying expansion for quite some time now. With a 1,000 new stores in the queue the company has been trying to expand its footprint in Canada and United Kingdom. In fact, it has very few stores in Canada, which leaves the region highly untapped for Whole Foods. Exploring these opportunities makes the retailer attractive.

Concluding Thoughts

Whole Foods’ strategy of increasing its top line through expansion, reducing costs, and offering lower prices to customers is expected to do wonders going forward. It has hit the button at the right time by providing value to customers when they are most sensitive to it. Moreover, consumers’ preferences towards healthy living and natural foods will benefit the natural food retailer. With large production efficiencies and expansion plans in its cards, this company is worth a long term bet.


justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Whole Foods Market. Motley Fool newsletter services recommend The Fresh Market 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.

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