Every year for Thanksgiving, I find myself going to multiple stores to get the items I need. I head first to Whole Foods (NAS: WFM) , where I buy my free-range turkey, quinoa, organic produce, and the like; and then head to Safeway (NYS: SWY) or Kroger (NYS: KR) to buy canned goods, paper products, and the traditional fare favored by my non-foodie friends. For years, it's seemed a fact of life: You just couldn't get everything in one place.
But with companies like Target and Safeway carrying more organic items, and healthy lifestyle brands like SmartBalance (NAS: SMBL) available at both places as well as a score of others, it appears those days are disappearing. When they're gone, will Whole Foods still be left standing?
If imitation is the highest form of flattery, Whole Foods spends a lot of time blushing. More and more traditional grocery stores are offering in-house organic lines or sub-lines, including Stop N Shop's Nature's Promise, Safeway's O Organics, Target's Archer Farms and Kroger's Naturally Preferred and Private Selection Organic. Whole Foods also offers its own in-house organic line, 365 Organics, in addition to a wide variety of brand-name organics.
Traditional grocers are also attempting to mimics the Whole Foods shopping experience. Safeway has been remodeling its existing stores into "lifestyle" stores, with wood-like flooring, relaxing earth-toned decor and subdued lighting with spotlights on featured products. Several locations include expanded deli, floral, and bakery departments, with sushi bars, Starbucks (NAS: SBUX) kiosks, and seating. Some offer free Wi-Fi.
Target remodeled 341 stores in 2010 and is continuing that trend in 2011, with revamped and expanded grocery and produce sections in many stores. But is it enough to steal Whole Foods' niche market share?
Sure, it's tough to compare a wholesale store with a traditional grocery with a niche market. But let's try anyway, shall we?
Number of Stores
+1.5% (excludes fuel)
1750 (includes 240 w/grocery)
*Includes six U.K. stores. **U.S. and Canada.(All numbers for most recent quarter, comparisons to same quarter last year.)
In size alone, Whole Foods can't compete, and its P/E is multiple times higher than the competitors here. But Whole Foods customers have always been willing to pay a little more.
Whole Foods was one of the first non-independently owned markets to promote its sustainability and corporate responsibility initiatives. Now, it's become nearly commonplace. SUPERVALU (NYS: SVU) , the retail and distribution giant based out of Minnesota, owns 2,500 retail locations including Acme, Albertons, Farm Fresh, and Hornbachers. Under the "About Us" section of the company's website are prominent links to its policies on its animal welfare policy, corporate social responsibility report, sustainability initiatives, and carbon footprint, available to any customer for whom such things are a factor.
But is such awareness on the part of customers and retailers enough to put Whole Foods out of business?
I asked Libba Letton, a national media representative for Whole Foods, if the company was worried about its competitors encroaching on its turf. Letton's answer? Not especially. "I think folks have been trying to copy us for a while, and we're aware of it. We spend a lot of focus and energy on it. We spend a lot of time on what's fresh and new, finding what our customers want and giving it to them."
But it's a tactic Safeway and Target are also taking. Take SmartBalance (the company that makes buttery spreads, mayonnaise, peanut butter and other items without hydrogenated or partially hydrogenated oils or trans fat). A few years ago, SmartBalance products were difficult to find at traditional grocers. Today, I ran a search on the company's product locator, and turned up more than 100 locations within 25 miles of my home, at stores including (NYS: WAG) , Giant, Safeway, Harris Teeter, and Target. I suspect there are more, but the list seemed to cap at 100.
The availability of organic and health-conscious goods will continue to expand, which is a great thing for customers and pricing. But I don't believe Whole Foods isn't in any immediate danger. The changes to Safeway, SUPERVALU, and Kroger will allow them to be more competitive with each other for customers who see their stores as interchangeable. And while organic and healthy eating is becoming more mainstream, it's not the mainstream. Whole Foods will keep its current share, even if it means additional shopping trips for its customers. Foolish colleague Alyce Lomax says,"Don't Panic About Whole Foods."I have to agree. I've given it a thumbs up in CAPS.
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Do you shop at Whole Foods, your local supermarket, Target, or all? Let me know below. I may use your comments for an upcoming article.
At the time thisarticle was published Despite all those kitchen fires, Molly McCluskey is a hell of a cook, but she doesn't own stock in any of the companies mentioned.The Motley Fool owns shares of Starbucks, Whole Foods Market, and SUPERVALU.Motley Fool newsletter serviceshave recommended buying shares of Starbucks and Whole Foods Market.Motley Fool newsletter serviceshave recommended buying calls in SUPERVALU. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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