netrashetty
Netra Shetty
Whole Foods Market (NASDAQ: WFMI) is a foods supermarket chain based in Austin, Texas which emphasizes "natural" and organic products. As of September 2009, the company operates 302 stores: 291 stores in 38 U.S. states and the District of Columbia; six stores in Canada; and five stores in the United Kingdom.[4]
The company is consistently ranked among the most socially responsible businesses[5] and placed third on the U.S. Environmental Protection Agency's list of Top 25 Green Power Partners.[6]
Whole Foods Market Inc. (NASDAQ: WFMI) is the world’s leading retailer of natural and organic foods, with $9.0 billion in FY2010 sales. Sales of natural products nationwide grew by 5% to $76 billion in FY2010.[1] WFMI has ridden the health & wellness trend, thanks to consumers' perception that organic foods are healthier than their non-organic counterparts. As a result, Whole Foods can charge a substantial premium for the products it carries.
Whole Foods is the industry leader in this segment and enjoys strong brand awareness. The large size of the company gives it the ability to realize economies of scale in its supply chain, which in turn has enabled it to post strong growth in profitability as well as revenues.
To date, the organic movement has been confined to wealthier and more educated demographics. WFMI has been the segment’s pioneer and has made good use of the lead time by opening stores in affluent neighborhoods. However, as these areas reach saturation, Whole Foods is beginning to expand to less wealthy neighborhoods. This is bringing it face to face with retail behemoth Wal-Mart, which is expanding its organic food section in light of organic food's growth and healthy margins. Wal-Mart has a history of undercutting its competitors on price, and as Wal-Mart and other traditional grocery stores such as Safeway (SWY) enter the organic foods market, it may be difficult for Whole Foods to maintain its attractive margins and premium prices.
Company Overview
Contents
1 Company Overview
1.1 Business Financials
1.2 FY2010 Q1 Earnings Summary
1.3 FY2010 Q2 Earnings Summary
1.4 FY2010 Q3 Earnings Summary
1.5 FY2010 Q4 Earnings Summary
1.6 FY2011 Q1 Earnings Summary
2 Key Trends and Drivers
2.1 Comparable Store Sales Remain Whole Foods' Best Gauge for Growth
2.2 Whole Foods Store Expansion Must Cater to Specific Regions that Prefer Premium Foods
2.3 Heavy Regulation in the Organic Foods Market pose Industry Risk to Whole Foods
3 Comparison to Competitors
4 References
Whole Foods, and its subsidiaries, is the largest chain of natural and organic foods supermarkets in the United States.[2] At the end of fiscal 2010, WMFI operated 299 stores: 288 stores in 38 U.S. states and the District of Columbia; 6 stores in Canada; and 5 stores in the United Kingdom. US sales represented 97% of revenues in fiscal 2010. Whole Foods operates one main business segment: supermarkets that emphasize natural and organic foods.[2]
Whole Foods’ product portfolio includes produce, seafood, grocery, meat and poultry, dietary and nutritional supplements, vitamins, specialty (beer, wine and cheese) body care products, floral and household products and pet products. The company also undertakes catering of prepared foods.
The products are marketed under private labels, such as 365 Everyday Value, Whole Kids Organic, 365 Organic Everyday Value, the Whole Brands family, and Authentic Food Artisan (AFA). Store-made and regionally-made fresh items are sold under the Whole Foods Market label. Allegro Coffee Company, a subsidiary of Whole Foods Market, offers specialty and organic coffees and teas.
The products under the 365 label are positioned as value for money products as this brand provides all the benefits of organic food at lower prices. Expansion of this program to other departments, such as organic fresh vegetables, is expected to pay off in the future.
2009 WFMI Breakdown of Segments by Revenues
Business Financials
Whole Foods Market generated $9.0 billion in sales in fiscal 2010 (ended September 26, 2010), an increase of approximately 12% over the previous year. Same-store sales also were up 6.5%, as the economy continued to pick up and spending in groceries on more "luxury" items such as organic products that Whole Foods markets went up. In fiscal 2009, Whole Foods opened 15 new stores, for a total of 299 stores.[3]
FY2010 Q1 Earnings Summary
In the first quarter of fiscal 2010 (ended January 17, 2010), Whole Foods generated $2.6 billion in sales, a 7.0% increase over the same period last year. Comparable store sales were up 3.5% and identical store sales were up 2.5%, reversing a trend of negative growth for all four quarters of fiscal 2009. However, on a two-year basis identical store sales were down 2.4% while comparable store sales were down 0.5%. In Q1 2010 Whole Foods opened 6 new stores and closed one Wild Oats, bringing its store count to 289. [4]
FY2010 Q2 Earnings Summary
Second quarter earnings of fiscal 2010 (ended May 12, 2010) generated total sales of $2.11 billion compared to $1.86 billion in same reporting quarter of FY2009, with earnings per share coming out to $0.39 compared to $0.19 EPS 2nd in quarter FY2009.[5] Whole Foods attributes its increase in sales due to a faster emergence from the recession compared to its peers.
As Whole Foods generally caters toward premium foods of perceived higher quality, Whole Foods products have greater price elasticity due to its nature. For example, while Whole Foods stores suffer during the recession as consumer flock to discount locations, the company stated that it had benefited from shoppers who chose to "selectively trade up" as consumer confidence increases.[6] In addition to this increase of sales which has led to a 8.7% increase in same-store sales, previous cost-control measures, inventory management, and store-level performance has allowed Whole Foods to sustain during the recession.[7] This is shown through its stable gross margins of between 34% to 35% in the past four quarters.[8]
FY2010 Q3 Earnings Summary
Whole Foods posted $65.7 million of earnings for the third reporting quarter of FY2010 ($0.38 EPS), which is up 88% from $42.8 million of earnings reported in the Q3 FY2009 ($0.25 EPS).[9] Comparable store-sales also rose 8.8% YoY, while identical store sales rose 8.4%.[10]
Sales for WFMI increased 15% to $2.2 billion, as WFMI attributes these changes to gaining market share.[11] However, despite the recent dip reported in consumer confidence, WFMI has increased its leases, as it currently has eight leases in negotiation and expect an accelerated pace of lease signings starting in 2012.[12] During the period, Whole Foods opened 6 new stores, while two were acquired and two were divested, brining the total to 298 stores opened as end of Q3 FY2010.[13]
FY2010 Q4 Earnings Summary
Whole Foods posted earnings of $57.5 million or $0.33 EPS for the fourth reporting quarter of FY2010 compared to $36.4 million or $0.20 EPS same quarter last year.[14] This beat analysts expectations of $0.28 EPS as sales also jumped 15% to $2.1 billion.[15]
Whole Foods reported a 8.7% increase in same-store sales, as the company slashed expenses and revamped its pricing to focus on value as well as moving toward gourmet foods, which has allowed Whole Foods to cut more prices than other rivals.[16] WFMI currently has 301 stores and has ramped promotions through its "Whole Deal" discount program by boosting online coupons. As a result, WFMI has projected full year earnings of $1.66 to $1.71 EPS as it also plans to open 52 more stores through 2014.[17]
FY2011 Q1 Earnings Summary
Whole Foods posted earnings of $88.7 million or $0.51 EPS, this beat analyst consensus estimates of $0.45 EPS, marking a 61% increase in net earnings compared to same quarter last year.[18] Further, Whole Foods had revenues of $3.00 billion, beating analyst consensus estimates of $2.98 billion. As a result, WFMI also raised earnings forecast to a range of $1.76 to $1.80 per share, up from a previous range of $1.66 to $1.71. Shares of WFMI also jumped 7.3% in after-market trading, bringing it to a 52 week high.[19] The company attributes positive results to same-store sales, which was up 9.1% for the quarter, marking the 5th consecutive increase in same-store sales. As the company is less exposed to commodities inflation due to its organic and natural mix of products, rising food prices will have less of an effect on WFMI compared to other supermarkets.[20]
Key Trends and Drivers
Comparable Store Sales Remain Whole Foods' Best Gauge for Growth
Comparable store sales, new store productivity and growth in square footage are the main drivers of revenue in the food and retail industry.
Comparable store (comp sales) or same store sales reflect the ability of the existing stores (stores greater than one year old) to generate revenue. If the comparable sales growth rises, it implies that there has been a higher turnover of goods for every square foot of existing store space owned by the company. New store productivity is measured as the ability of new stores to generate revenue (per square foot) as compared to existing stores. New stores include stores, which are newly acquired or newly opened in a year. New store performance cannot be compared with existing store sales as the former usually take more time to generate sufficient sales to catch up with existing stores’ performance. An increase in square footage growth implies that each unit would be able to store more goods and thus generate more revenue. Comparable store sales growth rate can decline over the years as stores mature. Revenue per square foot can decrease if there is high rate of new store additions. Mergers and acquisitions in particular can lower revenue per square foot if the acquired entity has lower operating metric values.
Further, due to the conservative advertising policy of Whole Foods Market, new stores take a longer time to break even compared to those of the company’s competitors. The company relies on word-of-mouth publicity, in contrast to the print, television, and online media favored by its competitors.
The table below tracks the historical performance of Whole Foods Market.
Historical Performance of Whole Foods Market
Metric 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year End Store Count 145 145 135 126 163 175 186 276 275 284 299
Comp Stores Sales Growth 8.6 9.2 10.0 8.6 15.0 12.8 11.0 7.0 4.9 (-3.1) 7.1
Average Store Size ('000 Square Feet) 22 25 30 36 32 33 34 34 36 37 38
Whole Foods Store Expansion Must Cater to Specific Regions that Prefer Premium Foods
Whole Foods Market stores have chosen the most desirable locations for their premium priced products by choosing regions (especially the coastal areas) where the demographic profile of the customers, in terms of income, house value and population density is much higher than the U.S national average. However, once these markets get saturated, the company will have to relax demographic standards and expand into lower income areas. This could lead to a slow down in revenue growth of the company in the future, especially as it enters into direct competition with retailers, such as Wal-Mart.
Further, Whole Foods Market is exposed to the risk of consumer demand for natural and organic foods. There is an ongoing debate on health benefits from consuming organic foods as compared to conventional foods. If it is proven that organic foods do not provide the benefits as expected, the stocks of organic food retailers are likely to be impacted. In addition to this, decisions taken by Whole Foods Market in the past (such as to sell live lobsters) have drawn flak from animal welfare organizations and could damage the company’s image.
The expected slowdown in the U.S. consumer spending can also affect specialty retail chains, such as Whole Foods Market, as consumers may turn to lower-cost non-organic produce.
Heavy Regulation in the Organic Foods Market pose Industry Risk to Whole Foods
Organic foods market is subject to several laws and regulations relating to health, sanitation and food labeling. Federal regulatory agencies such as the Food and Drug Administration (FDA), the Federal Trade Commission (FTC), the Consumer Product Safety Commission (CPSC), the United States Department of Agriculture (USDA) and the Environmental Protection Agency (EPA) have set stringent standards for the manufacture, packaging, and advertising of organic products. Failure to meet these standards could result in the confiscation of marketing and sales licenses. The compliance costs arising from these regulations would reduce the margins of Whole Foods Market. Further, as Whole Foods market their food as premium and better in quality than other competitors, a significant blow in food control can severely dent Whole Foods' image.
Comparison to Competitors
Whole Foods Market, until recently, faced competition primarily from direct competitors in the organic foods segment, such as Trader Joe’s and recently acquired Wild Oats Markets (OATS). However, a growing industry and attractive margins have brought new players into the organics food market.
With traditional grocers (Safeway, Kroger, and SuperValu (SVU)) as well as global and national retailers (Wal-Mart, Sam’s Club, BJ's Wholesale Club (BJ), and Costco) beginning to offer organic foods in their retail baskets, competition for Whole Foods Market is intensifying. In May 2006, Wal-Mart announced its plans to launch products in the organic segment. Wal-Mart now has an organic range, that includes fresh produce, dairy and dry food items as well as clothing. The entry of Wal-Mart can erode the market share of Whole Foods Market.
However, with the acquisition of Wild Oats, which was a direct competitor, Whole Foods Market has attempted to consolidate its position in the market. This acquisition is viewed as a strategic initiative to provide the company long term returns through synergies, reduction in costs and increase in comparable store sales. The comparable store sales growth at Wild Oats is expected to improve within 12 to 18 months, driven by Whole Foods Market retailing experience as well as its ability to make capital investments (Whole Foods Market operates at twice the store productivity in Wild Oats).
The table provided below compares the operational metrics, margins, and capital expenditure (as a % of sales) of Whole Foods Market vis-a-vis its competitors.
Comparison of Operational Metrics, Margins and Capital Expenditure
Company (Fiscal Year) Comp Sales Growth Square Footage Growth Revenue per Square Footage (Millions USD) New Store Additions Closures Average Store Size (Square Feet) Gross Margin (%) Operating Margin (%) Net Profit Margin (%) Capital Expenditure/Sales (%)
Whole Foods Market (WFMI) (FY2010)[21] 7.1% 6.0% 882.0 16 3 38,000 34.8% 5.9% 2.7% 2.9%
Safeway (SWY) (FY2009)[22] (4.90%) (0.40%) 509.99 8 23 46,000 28.62% (1.54%) (2.69%) 2.08%
Kroger Company (KR) (FY2009)[23] 0.90% 0.01% 518.47 14 27 60,000 22.60% 1.42% 0.07% 2.99%
SuperValu (SVU) (FY2009) [24] (5.1%) (6.2%) 624.57 40 112 29,000 22.50% 2.96% 0.97% 1.70%
As evident from the table, Whole Foods Market is the market leader with higher comp sales growth, gross margin, operating margin as well as net profit margin as compared to its competitors.
The company is consistently ranked among the most socially responsible businesses[5] and placed third on the U.S. Environmental Protection Agency's list of Top 25 Green Power Partners.[6]
Whole Foods Market Inc. (NASDAQ: WFMI) is the world’s leading retailer of natural and organic foods, with $9.0 billion in FY2010 sales. Sales of natural products nationwide grew by 5% to $76 billion in FY2010.[1] WFMI has ridden the health & wellness trend, thanks to consumers' perception that organic foods are healthier than their non-organic counterparts. As a result, Whole Foods can charge a substantial premium for the products it carries.
Whole Foods is the industry leader in this segment and enjoys strong brand awareness. The large size of the company gives it the ability to realize economies of scale in its supply chain, which in turn has enabled it to post strong growth in profitability as well as revenues.
To date, the organic movement has been confined to wealthier and more educated demographics. WFMI has been the segment’s pioneer and has made good use of the lead time by opening stores in affluent neighborhoods. However, as these areas reach saturation, Whole Foods is beginning to expand to less wealthy neighborhoods. This is bringing it face to face with retail behemoth Wal-Mart, which is expanding its organic food section in light of organic food's growth and healthy margins. Wal-Mart has a history of undercutting its competitors on price, and as Wal-Mart and other traditional grocery stores such as Safeway (SWY) enter the organic foods market, it may be difficult for Whole Foods to maintain its attractive margins and premium prices.
Company Overview
Contents
1 Company Overview
1.1 Business Financials
1.2 FY2010 Q1 Earnings Summary
1.3 FY2010 Q2 Earnings Summary
1.4 FY2010 Q3 Earnings Summary
1.5 FY2010 Q4 Earnings Summary
1.6 FY2011 Q1 Earnings Summary
2 Key Trends and Drivers
2.1 Comparable Store Sales Remain Whole Foods' Best Gauge for Growth
2.2 Whole Foods Store Expansion Must Cater to Specific Regions that Prefer Premium Foods
2.3 Heavy Regulation in the Organic Foods Market pose Industry Risk to Whole Foods
3 Comparison to Competitors
4 References
Whole Foods, and its subsidiaries, is the largest chain of natural and organic foods supermarkets in the United States.[2] At the end of fiscal 2010, WMFI operated 299 stores: 288 stores in 38 U.S. states and the District of Columbia; 6 stores in Canada; and 5 stores in the United Kingdom. US sales represented 97% of revenues in fiscal 2010. Whole Foods operates one main business segment: supermarkets that emphasize natural and organic foods.[2]
Whole Foods’ product portfolio includes produce, seafood, grocery, meat and poultry, dietary and nutritional supplements, vitamins, specialty (beer, wine and cheese) body care products, floral and household products and pet products. The company also undertakes catering of prepared foods.
The products are marketed under private labels, such as 365 Everyday Value, Whole Kids Organic, 365 Organic Everyday Value, the Whole Brands family, and Authentic Food Artisan (AFA). Store-made and regionally-made fresh items are sold under the Whole Foods Market label. Allegro Coffee Company, a subsidiary of Whole Foods Market, offers specialty and organic coffees and teas.
The products under the 365 label are positioned as value for money products as this brand provides all the benefits of organic food at lower prices. Expansion of this program to other departments, such as organic fresh vegetables, is expected to pay off in the future.
2009 WFMI Breakdown of Segments by Revenues
Business Financials
Whole Foods Market generated $9.0 billion in sales in fiscal 2010 (ended September 26, 2010), an increase of approximately 12% over the previous year. Same-store sales also were up 6.5%, as the economy continued to pick up and spending in groceries on more "luxury" items such as organic products that Whole Foods markets went up. In fiscal 2009, Whole Foods opened 15 new stores, for a total of 299 stores.[3]
FY2010 Q1 Earnings Summary
In the first quarter of fiscal 2010 (ended January 17, 2010), Whole Foods generated $2.6 billion in sales, a 7.0% increase over the same period last year. Comparable store sales were up 3.5% and identical store sales were up 2.5%, reversing a trend of negative growth for all four quarters of fiscal 2009. However, on a two-year basis identical store sales were down 2.4% while comparable store sales were down 0.5%. In Q1 2010 Whole Foods opened 6 new stores and closed one Wild Oats, bringing its store count to 289. [4]
FY2010 Q2 Earnings Summary
Second quarter earnings of fiscal 2010 (ended May 12, 2010) generated total sales of $2.11 billion compared to $1.86 billion in same reporting quarter of FY2009, with earnings per share coming out to $0.39 compared to $0.19 EPS 2nd in quarter FY2009.[5] Whole Foods attributes its increase in sales due to a faster emergence from the recession compared to its peers.
As Whole Foods generally caters toward premium foods of perceived higher quality, Whole Foods products have greater price elasticity due to its nature. For example, while Whole Foods stores suffer during the recession as consumer flock to discount locations, the company stated that it had benefited from shoppers who chose to "selectively trade up" as consumer confidence increases.[6] In addition to this increase of sales which has led to a 8.7% increase in same-store sales, previous cost-control measures, inventory management, and store-level performance has allowed Whole Foods to sustain during the recession.[7] This is shown through its stable gross margins of between 34% to 35% in the past four quarters.[8]
FY2010 Q3 Earnings Summary
Whole Foods posted $65.7 million of earnings for the third reporting quarter of FY2010 ($0.38 EPS), which is up 88% from $42.8 million of earnings reported in the Q3 FY2009 ($0.25 EPS).[9] Comparable store-sales also rose 8.8% YoY, while identical store sales rose 8.4%.[10]
Sales for WFMI increased 15% to $2.2 billion, as WFMI attributes these changes to gaining market share.[11] However, despite the recent dip reported in consumer confidence, WFMI has increased its leases, as it currently has eight leases in negotiation and expect an accelerated pace of lease signings starting in 2012.[12] During the period, Whole Foods opened 6 new stores, while two were acquired and two were divested, brining the total to 298 stores opened as end of Q3 FY2010.[13]
FY2010 Q4 Earnings Summary
Whole Foods posted earnings of $57.5 million or $0.33 EPS for the fourth reporting quarter of FY2010 compared to $36.4 million or $0.20 EPS same quarter last year.[14] This beat analysts expectations of $0.28 EPS as sales also jumped 15% to $2.1 billion.[15]
Whole Foods reported a 8.7% increase in same-store sales, as the company slashed expenses and revamped its pricing to focus on value as well as moving toward gourmet foods, which has allowed Whole Foods to cut more prices than other rivals.[16] WFMI currently has 301 stores and has ramped promotions through its "Whole Deal" discount program by boosting online coupons. As a result, WFMI has projected full year earnings of $1.66 to $1.71 EPS as it also plans to open 52 more stores through 2014.[17]
FY2011 Q1 Earnings Summary
Whole Foods posted earnings of $88.7 million or $0.51 EPS, this beat analyst consensus estimates of $0.45 EPS, marking a 61% increase in net earnings compared to same quarter last year.[18] Further, Whole Foods had revenues of $3.00 billion, beating analyst consensus estimates of $2.98 billion. As a result, WFMI also raised earnings forecast to a range of $1.76 to $1.80 per share, up from a previous range of $1.66 to $1.71. Shares of WFMI also jumped 7.3% in after-market trading, bringing it to a 52 week high.[19] The company attributes positive results to same-store sales, which was up 9.1% for the quarter, marking the 5th consecutive increase in same-store sales. As the company is less exposed to commodities inflation due to its organic and natural mix of products, rising food prices will have less of an effect on WFMI compared to other supermarkets.[20]
Key Trends and Drivers
Comparable Store Sales Remain Whole Foods' Best Gauge for Growth
Comparable store sales, new store productivity and growth in square footage are the main drivers of revenue in the food and retail industry.
Comparable store (comp sales) or same store sales reflect the ability of the existing stores (stores greater than one year old) to generate revenue. If the comparable sales growth rises, it implies that there has been a higher turnover of goods for every square foot of existing store space owned by the company. New store productivity is measured as the ability of new stores to generate revenue (per square foot) as compared to existing stores. New stores include stores, which are newly acquired or newly opened in a year. New store performance cannot be compared with existing store sales as the former usually take more time to generate sufficient sales to catch up with existing stores’ performance. An increase in square footage growth implies that each unit would be able to store more goods and thus generate more revenue. Comparable store sales growth rate can decline over the years as stores mature. Revenue per square foot can decrease if there is high rate of new store additions. Mergers and acquisitions in particular can lower revenue per square foot if the acquired entity has lower operating metric values.
Further, due to the conservative advertising policy of Whole Foods Market, new stores take a longer time to break even compared to those of the company’s competitors. The company relies on word-of-mouth publicity, in contrast to the print, television, and online media favored by its competitors.
The table below tracks the historical performance of Whole Foods Market.
Historical Performance of Whole Foods Market
Metric 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year End Store Count 145 145 135 126 163 175 186 276 275 284 299
Comp Stores Sales Growth 8.6 9.2 10.0 8.6 15.0 12.8 11.0 7.0 4.9 (-3.1) 7.1
Average Store Size ('000 Square Feet) 22 25 30 36 32 33 34 34 36 37 38
Whole Foods Store Expansion Must Cater to Specific Regions that Prefer Premium Foods
Whole Foods Market stores have chosen the most desirable locations for their premium priced products by choosing regions (especially the coastal areas) where the demographic profile of the customers, in terms of income, house value and population density is much higher than the U.S national average. However, once these markets get saturated, the company will have to relax demographic standards and expand into lower income areas. This could lead to a slow down in revenue growth of the company in the future, especially as it enters into direct competition with retailers, such as Wal-Mart.
Further, Whole Foods Market is exposed to the risk of consumer demand for natural and organic foods. There is an ongoing debate on health benefits from consuming organic foods as compared to conventional foods. If it is proven that organic foods do not provide the benefits as expected, the stocks of organic food retailers are likely to be impacted. In addition to this, decisions taken by Whole Foods Market in the past (such as to sell live lobsters) have drawn flak from animal welfare organizations and could damage the company’s image.
The expected slowdown in the U.S. consumer spending can also affect specialty retail chains, such as Whole Foods Market, as consumers may turn to lower-cost non-organic produce.
Heavy Regulation in the Organic Foods Market pose Industry Risk to Whole Foods
Organic foods market is subject to several laws and regulations relating to health, sanitation and food labeling. Federal regulatory agencies such as the Food and Drug Administration (FDA), the Federal Trade Commission (FTC), the Consumer Product Safety Commission (CPSC), the United States Department of Agriculture (USDA) and the Environmental Protection Agency (EPA) have set stringent standards for the manufacture, packaging, and advertising of organic products. Failure to meet these standards could result in the confiscation of marketing and sales licenses. The compliance costs arising from these regulations would reduce the margins of Whole Foods Market. Further, as Whole Foods market their food as premium and better in quality than other competitors, a significant blow in food control can severely dent Whole Foods' image.
Comparison to Competitors
Whole Foods Market, until recently, faced competition primarily from direct competitors in the organic foods segment, such as Trader Joe’s and recently acquired Wild Oats Markets (OATS). However, a growing industry and attractive margins have brought new players into the organics food market.
With traditional grocers (Safeway, Kroger, and SuperValu (SVU)) as well as global and national retailers (Wal-Mart, Sam’s Club, BJ's Wholesale Club (BJ), and Costco) beginning to offer organic foods in their retail baskets, competition for Whole Foods Market is intensifying. In May 2006, Wal-Mart announced its plans to launch products in the organic segment. Wal-Mart now has an organic range, that includes fresh produce, dairy and dry food items as well as clothing. The entry of Wal-Mart can erode the market share of Whole Foods Market.
However, with the acquisition of Wild Oats, which was a direct competitor, Whole Foods Market has attempted to consolidate its position in the market. This acquisition is viewed as a strategic initiative to provide the company long term returns through synergies, reduction in costs and increase in comparable store sales. The comparable store sales growth at Wild Oats is expected to improve within 12 to 18 months, driven by Whole Foods Market retailing experience as well as its ability to make capital investments (Whole Foods Market operates at twice the store productivity in Wild Oats).
The table provided below compares the operational metrics, margins, and capital expenditure (as a % of sales) of Whole Foods Market vis-a-vis its competitors.
Comparison of Operational Metrics, Margins and Capital Expenditure
Company (Fiscal Year) Comp Sales Growth Square Footage Growth Revenue per Square Footage (Millions USD) New Store Additions Closures Average Store Size (Square Feet) Gross Margin (%) Operating Margin (%) Net Profit Margin (%) Capital Expenditure/Sales (%)
Whole Foods Market (WFMI) (FY2010)[21] 7.1% 6.0% 882.0 16 3 38,000 34.8% 5.9% 2.7% 2.9%
Safeway (SWY) (FY2009)[22] (4.90%) (0.40%) 509.99 8 23 46,000 28.62% (1.54%) (2.69%) 2.08%
Kroger Company (KR) (FY2009)[23] 0.90% 0.01% 518.47 14 27 60,000 22.60% 1.42% 0.07% 2.99%
SuperValu (SVU) (FY2009) [24] (5.1%) (6.2%) 624.57 40 112 29,000 22.50% 2.96% 0.97% 1.70%
As evident from the table, Whole Foods Market is the market leader with higher comp sales growth, gross margin, operating margin as well as net profit margin as compared to its competitors.