Don't Underestimate Whole Foods
by Jeff Siegel, Green Chip Stocks 
on 11.13.08
Organic vegetables. Image credit:Davidson|Read Associates
It's hard to believe that Whole Foods Market (NASDAQ:WFMI) was trading in the $50 range just one year ago. Today, the stock is struggling to stay above $10 a share. Of course these days, few stocks are immune from the global economic implosion we're dealing with now. But Whole Foods has become that one company that I can't help but to defend. You see, when Whole Foods first went public, it was a punching bag for every armchair analyst and media blowhard that took some kind of sick pleasure in the fact that in the first nine months of its IPO, the stock had dipped more than 30 percent. Of course, we cheered (and profited), after the stock enjoyed a meteoric rise in the years that followed. But now that the stock has been beaten back down again, the naysayers are back with a vengeance.
Now I won't dispute Whole Foods' less-than-stellar short-term outlook for investors. Though this has a lot more to do with overall market conditions than the company itself. But in an effort to rush to take a swing at the Whole Foods pinata, too many analysts are supporting questionable arguments against the organic retail giant.
A Revolutionary Tipping Point
A few months back I read an article in which a very well-known analyst stated that Whole Foods Market could suffer as companies like Wal-Mart and Costco expand into the organic food space. I believe this line of thinking is flawed and highlights the reason that those who analyze green markets from outside (as an observer, rather than an active participant), will always be confused.
As I just mentioned, when Whole Foods first went public, the stock was heavily bashed after it didn't soar in its debut. There were dozens of articles that were essentially the equivalent of a child screaming “I Told You So” over and over again. But what many of these analysts did not take into consideration was the overwhelming long-term potential of the organic food market – and its largest major retailer in the U.S.
This wasn't about an obscure supermarket catering to a few dozen hippie throwbacks from the 60s. The day Whole Foods went public was the day we witnessed the tipping point for a revolution that had been building momentum for more than 40 years – without any major retail presence. At that point, the retail food landscape was about to change for millions of organic food consumers, as well as for millions more who would soon transition their eating habits to include more organics.
Investors that took the time to see the big picture early on – instead of relying on little more than personal prejudices and an inability to even step foot in an organic food market – did quite well with the stock. But now that Whole Foods has been beaten down to levels few thought we'd ever see at this point, some are assuming that the company is losing market share to big box retailers. This is not a safe assumption to make.
Despite the appeal of discounted prices and bulk-order deals, you won't find a wealth of organic consumers roaming through warehouse retailers just to save a few bucks. And even with price premiums (which aren't nearly as overwhelming as some would suggest), most organic consumers want to shop at stores that cater to their healthy, responsible and sustainable lifestyles. This is something the big box retailers can't deliver. I took a trip over to Costco and found no fair trade coffee or non-toxic dishwashing detergent. I took a trip over to Wal-Mart and found few natural alternatives to common pharmaceuticals or biodegradable trash bags. Now understand, I'm not trying to bash these stores. I'm merely pointing out that they simply cannot provide me with what I want as an organic and responsible shopper. And I am one of millions.
My friends, although there's little data to back either side of this argument, I have seen no real evidence that organic consumers are flooding the aisles of Costco or Wal-Mart to get the best deals on free range chickens and organic produce.
Of course, I'm not saying Whole Foods is going to skate through one of the worst markets in recorded history because of customer loyalty. In fact, it was recently announced that Whole Foods had the biggest drop in spending per store visit (compared to other conventional food stores), from January to October. This is not surprising, and I suspect this won't look much better in the first half of 2009. However, tough economic times will not last nearly as long as the overwhelming and continued demand for healthy, organic food. And that's why we can't shrug off the potential of Whole Foods Market. Moreover, the $425 million infusion the company just got from Leonard Green & Partners should not be ignored either. We believe that this will help Whole Foods get through this global economic downturn, while allowing the company to continue its growth. As long as this recession doesn't linger around for more than a year or two, Whole Foods should come out of all of this a lot stronger, and a lot more attractive to investors.
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You underestimate us naysayers, because I never stopped bashing the company, even at $50 a share. In fact, I could care less what their share price is, ultimately I question the business model. Admittedly, it is partially because Whole Foods moved into my home town and knocked out the truly local organic grocery stores that already existed. But, it is also because I think it should be our goal to change the existing grocery stores instead of catering to us hippies. In my opinion, that is the way we will have a true impact on the environment.
I actually believe that approach is working, too. If you look at chains like Kroger and Safeway, you can see that they are changing to be much more environmentally friendly.
Oh, and by the way -- most independent studies I have read show that 'organic' food really is not any better for the environment or for you.
Sorry to be a naysayer.
You may be right on the whole about the big box retailers, but I wanted to say that I found a nice 2 lb bag of Kirkland brand USDA organic Ethiopian coffee beans on my last Costco shopping trip. They are absolutely making an attempt to change, albeit be a slow one.
There are always those that like to kick you when you're down. Sad really.
Lets hope that Whole Foods rallies again like before.
I shop at the local farmers market here in Columbus, Ohio every Saturday for my fresh produce. It's a lot cheaper than Whole Foods because it's all locally sourced (most organics at WF are from California or some other state).
I hate going into Safeway and waiting in line at the register with the Star, & the Enquirer, and the cigarettes, and their bored employees. My local Whole Foods has started to print their receipts double-sided; Safeway's reciept wastes more paper for one item than Whole foods does for 15. I don't see any other company that keeps Meaning it like Whole Foods. Not Trader Joe's. When my daughter had a milk allergy--Nobody sold organic soy milk and baby food for less and generally they still don't and even if the Costco Cavern sells one organic item for less it isn't worth the extra gas or the waste of time or the plastic bag they wrap it in. I like that they built near a bike trail and encouraged bikers to come in.
If people are spending their whole paycheck at Whole Foods, it's because they're spending it on the items they can't buy anywhere else but at a premium. And, well, were all grown ups you've got to learn to handle your plastic habits.
I'm frustrated at Co-op's who didn't move into areas like health care or housing instead of dying on the vine. So it's okay if Whole Foods goes down but WalMart survives? We buy from local farmers (and grow a bit of our own) whenever we can but that isn't often in this sprawling suburban area.
Disclosure: I own 120 shares of Whole Foods which doesn't add up to much lately. And no way do I want people to stop criticizing when it's valid, but sometimes critics eat their own first and then who is left?
Whew! Got that off my chest.
Hey now,
I'd like to go on the record as saying I've consistently kicked them from day one. I live in Austin, you see, and every time i ride my bike ofn 6th near there I gotta deal with all the yuppie ass SUVs streaming from that mothership like space fighters from the Battlestar Galactica. You should see all the hyperconsumer madness - ok, I guess, not so much these days:)
About the most I can afford from that place is some fruit and some peanut butter. Really, should just yuppies be able to afford healthy food?
-Patrick-
Hey now,
I'd like to go on the record as saying I've consistently kicked them from day one. I live in Austin, you see, and every time i ride my bike ofn 6th near there I gotta deal with all the yuppie ass SUVs streaming from that mothership like space fighters from the Battlestar Galactica. You should see all the hyperconsumer madness - ok, I guess, not so much these days:)
About the most I can afford from that place is some fruit and some peanut butter. Really, should just yuppies be able to afford healthy food?
-Patrick-
"Oh, and by the way -- most independent studies I have read show that 'organic' food really is not any better for the environment or for you."
Hmmm, really? I guess you missed the studies showing that organic foods actually have more antioxidants, vitamins, etc than conventional food. And to even postulate that pesticide and fertilizer overuse isn't bad for the environment is ridiculous. I'd direct you to The Omnivore's Delima, for starters. Pollan points out that, in many instances, large-scale organic farms still have an environmental impact, but it's much lower.
For JUST ONE example, the Finger Lakes of upstate New York are threatened by agricultural pollutants, like pesticides and fertilizers, according to the EPA. This is mostly caused by the wineries on the shores and hills around the lakes. There is an increasing trend, now, towards organic wineries. Hard to argue that this trend won't improve the water quality!
ALL farming causes impact (in fact everything you do has impact, no matter how green) - with intensive organic horticulture combined with animal and green manure for soil building you can have your own balanced "ecosystem" and spend less soil, less fertilizers and get better and more food.
Organic farming is more expensive for two reasons: it is more labour intensive (you have to watch things closely and there's lots of manual work) and it has commercial potencial for "gourmet" buyers.
It's expensive in farmer's markets for the first reason and expensive in Whole Foods for the second- either way organic production is encouraged.
What is better generally costs more and you can always save on clothes and transportation but you shouldn't save on your food.
Organic is a good investment, if not economic then at least in your health and the environment.
Look for any greenie who is still kicking Wholefoods, get past the fact that their veggies are more expensive or possibly from Chile. If they didn't carry the whole range of produce you'd have even more aggressive words for them about how they barely have any food on their shelves. I'm not entirely defending them but the people who keep arguing for their local CSAs or the farmer in town against Whole Foods, tell me the name of the farmer who I'm going to go to in Miami, FL who manufactures in his home non-toxic, natural shampoo who can sell it to me. Give me the address of the farm that sells organic cotton t-shirts or wait, that's right, it's more environmentally sustainable if we all run around naked and don't shower. Come on people we live in a different time where you have to come up with creative solutions. I'm not saying they've done all they can do but if you don't constructively encourage them to make changes then are you suggesting that it's better to raze all the WFs and purchase Pert Plus toxic shit instead or simply pour vinegar on our heads? They have made strides to improve over the years and continue to do so with pressure from the public. Sure, buy your food from the local farmer or grow your own. I'd suggest that over WF but there are days when you are tired and yes you can actually go over to a WF a purchase a natural frozen dinner. I will not go without my natural shampoos and lotions and guess what, I can't get it anywhere else but there. I'm not interested in sitting in my kitchen mixing together everything in my fridge for an hour so I can apply moisturizer to my skin for 5 minutes.
Look for any greenie who is still kicking Wholefoods, get past the fact that their veggies are more expensive or possibly from Chile. If they didn't carry the whole range of produce you'd have even more aggressive words for them about how they barely have any food on their shelves. I'm not entirely defending them but the people who keep arguing for their local CSAs or the farmer in town against Whole Foods, tell me the name of the farmer who I'm going to go to in Miami, FL who manufactures in his home non-toxic, natural shampoo who can sell it to me. Give me the address of the farm that sells organic cotton t-shirts or wait, that's right, it's more environmentally sustainable if we all run around naked and don't shower. Come on people we live in a different time where you have to come up with creative solutions. I'm not saying they've done all they can do but if you don't constructively encourage them to make changes then are you suggesting that it's better to raze all the WFs and purchase Pert Plus toxic shit instead or simply pour vinegar on our heads? They have made strides to improve over the years and continue to do so with pressure from the public. Sure, buy your food from the local farmer or grow your own. I'd suggest that over WF but there are days when you are tired and yes you can actually go over to a WF a purchase a natural frozen dinner. I will not go without my natural shampoos and lotions and guess what, I can't get it anywhere else but there. I'm not interested in sitting in my kitchen mixing together everything in my fridge for an hour so I can apply moisturizer to my skin for 5 minutes.