Shocker? Whole Foods Market Is Cheaper Than Kroger
Quartz writer, John McDuling’s recent tweet of a Piper Jaffray chart lends credence to the notion that Whole Foods Market (NASDAQ: WFM) wants to be more mainstream. At least more competitive.
Many people assume organic providers like Whole Foods are more expensive compared to conventional grocers like Kroger (NYSE: KR). Piper Jaffray’s chart gives pause to that bit of conventional wisdom – at least with regard to organic grocers like Whole Foods and recent IPO launch, Sprouts Farmers Market (NASDAQ: SFM).
WholeFoods is cheaper than Kroger and only slightly more expensive than Sprout Farmer's Market pic.twitter.com/S9LW51QE2d
— John McDuling (@jmcduling) March 19, 2014
The fact that Whole Foods might be less expensive than Kroger wasn’t enough of a factor to stop Piper Jaffray analyst, Sean P. Naughton from downgrading the stock from Overweight to Neutral, lowering the PT to $89 from $103.
In his report Naughton said, “We are moving from Overweight to Neutral as we believe slowing op margin expansion, decelerating same store sales trends, and increasing competition will limit multiple expansion.”
On the other hand, Deutsche Bank analyst Karen Short, took a different view, calling Whole Foods a "true innovator." In her report, Short said Whole Foods’ margin structure was not, as bears suggest, at risk.
Instead, she said, Whole Foods was investing in price to improve its "relative price and value position." Deutsche Bank had a Buy rating on Whole Foods with a $60.00 price target.
Then there’s Consumer Reports’ annual supermarket ratings, which asked shoppers about their overall satisfaction. In a recently released report, both Sprouts (5) and Whole Foods (15) ranked well above Kroger (25).
Price and customer satisfaction are important factors in determining overall success in retail, but not the only factors. The degree to which consumers continue to gravitate toward organic or specialty grocers and the ability of those grocers to remain profitable also matter when it comes to companies like Whole Foods Market.
Whole Foods is part of the fast-growing natural and organic food segment. That space grew 10 percent to $81 billion in 2012, versus just three percent growth in the overall U.S. grocery market segment over the same period.
Meanwhile, Whole Foods just announced the purchase of four stores from New Frontiers Natural Marketplace as the company continued to expand, bringing the total number of stores to 377.
Whole Foods CEO, John Mackey, told CNBC’s Jim Cramer just this past December that the company’s long-range goal was eventually to have 1,200 stores in operation.
At the time of this writing, Jim Probasco had no position in any mentioned securities.
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