Whole Foods Market (tkr: WFM) is the leading retailer of natural and organic foods in the US and the first national “Certified Organic” grocer. At the end of its fiscal year 2014, it operated 401 stores across the country. Its brand image as a purveyor of high quality, natural and organic products has allowed it to sell at premium prices and maintain a margin that is twice that of “conventional” grocery stores. Analysts estimate that current annual spending on natural products is only 15% of the $600 billion US consumers spend on food eaten at home, leaving a lot of room to grow. We think that WFM’s growth plan to triple its number of stores will drive top-line revenues, its private label products and prepared foods will drive margins and its first-ever national marketing campaign “Values Matter” with the tagline “America’s Healthy Grocery Store” will attract new customers and help modify the company’s “whole paycheck” reputation. The company had revenues of over $14 billion in 2014, with average weekly sales per store of about $722,000. WFM is also known for being a strong community member, working with local groups to raise money for local causes.

WFM pioneered the sale of fresh-cooked items in its stores and this portion of the business has doubled in the last seven years, to $2.7 Billion. More than 100 stores now have “restaurant venues,” where customers can sit down to eat the food they have just purchased. The fresh-cooked items have a much higher margin, which is one way WFM has been able to drive its margins. The company is also growing it in-house brand, “365 Everyday Value,” which allows it to compete on price for standard items with other grocery store chains.

For all practical purposes, WFM created the market for natural and organic foods following its 1980 founding in Austin, Texas. The company is led by co-CEOs Walter Robb and company founder, John Mackey. The rest of the senior management team has come up through the ranks, creating a consistent culture and a strongly mission-driven company. WFM employs 86,000 people and has been ranked for 17 consecutive years as one of the “100 Best Companies to Work For” in America by Fortune. We think that WFM’s strategy for re-igniting growth will be successful and that it will also benefit from the lower price of oil as consumers will
have more money to spend and thus be more likely to give WFM a try.

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