Is Whole Foods Unable To Compete In The Organic Grocery Space?
Goldman Sachs’ Stephen Tanal believes Whole Foods Market, Inc. (NASDAQ: WFM) is experiencing a “competitive barrage,” losing market share in its core organic and natural business.
Tanal downgraded the rating on the company from Neutral to Sell, with a price target of $31.
While Trader Joe’s and The Fresh Market Inc (previously traded (NASDAQ: TFM)) have been taking share from Whole Foods, the analyst mentioned that the largest challengers were Costco Wholesale Corporation (NASDAQ: COST) and The Kroger Co (NYSE: KR), which are focused on delivering value through price and quality.
“COST dominates price, while KR boasts convenience as an added edge. Taken together, the group has raised the competitive bar in natural and organic: a differentiated product offering is no longer sufficient,” Tanal stated.
How It Impacts Whole Foods
Competition had led to consistent deceleration in Whole Foods’ same-store sales, with the company’s first negative comps since 2009 being reported for 4Q15–2Q16.
“Wellness has gone mass, and it is not coming back, never again to be relegated to niche specialty retailers serving price-insensitive, early adopters. We expect tough results from WFM’s existing stores to more than offset profits from new store openings,” the analyst pointed out.
However, Tanal also expects Whole Foods to see opportunity for store growth. Goldman Sachs’ capacity analysis suggests that the chain could grow to 1,047 stores in the United States, which represents 2.4X the current footprint.
Tanal also expressed concern that growth in stores might not translate into growth in earnings.
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Latest Ratings for WFM
|Jan 2017||William Blair||Initiates Coverage On||Market Perform|
|Nov 2016||Bank of America||Downgrades||Neutral||Underperform|
|Sep 2016||Barclays||Initiates Coverage on||Equal-Weight|
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