As more Americans get more health conscious, the trend toward buying organic, locally-sourced food is increasing. Even as the U.S. economy struggled, the trend toward specialty grocers increased. Americans still want to be healthy and have found that quality food is worth the money. This trend is benefiting grocers Whole Foods Market, Inc. (NASDAQ:WFM), The Fresh Market Inc (NASDAQ:TFM), and Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC).
The organic grocer every Fool knows
Whole Foods Market is the largest of the natural and organic foods supermarkets. The company owns 349 stores in the United States, Canada, and the United Kingdom. Whole Foods pretty much invented the organic supermarket and is the first company everyone thinks of when it comes to natural foods.
Whole Foods Market, Inc. (NASDAQ:WFM) just did something that companies are rarely doing these days. Whole Foods split their stock 2-for-1. I always like when a company splits its stock as that makes the company’s shares cheaper. This further shows how well-run Whole Foods is as an organization. The grocer has a pristine balance sheet with $1.08 billion in cash and only $27 million in debt. This also helps explain why the stock is up over 3,000% since it went public in 1992.
Whole Foods Market, Inc. (NASDAQ:WFM) continues to expand and increase market share. Currently, the company has 85 stores in the process of opening, relocating, or renovating. Last year the company opened 25 new stores and is on pace to beat that amount with 17 already opened this year.
The rising competitor
Besides privately-held Trader Joe’s, the closest publicly-traded competitor to Whole Foods Market, Inc. (NASDAQ:WFM) is The Fresh Market. Its 130 stores are less than half of Whole Foods, but it is in the same key markets as Whole Foods. By being in only 25 states, there’s plenty of room for expansion for The Fresh Market.
The Fresh Market Inc (NASDAQ:TFM) has been focused on expansion. Last year the company opened 16 new stores. Expansion is being ramped up this year with the planned addition of 22 new stores and five renovations. Based on past store openings, The Fresh Market has been able to recoup its investment in new stores in two to three years per location. The grocer also entered four new states – California, Kansas, Oklahoma and New Hampshire.
I like the fact that The Fresh Market Inc (NASDAQ:TFM) is a specialty retailer. Its stores are smaller than Whole Foods Market, Inc. (NASDAQ:WFM) and the grocer is more focused on perishable items than Whole Foods. With a smaller store emphasis, The Fresh Market doesn’t require the large demographics that Whole Foods does.
In the latest earnings report, the company reported profits increased 15% and sales jumped 13%. This was better than Wall Street was expecting. Management increased its expectations for the rest of the year. The company’s plan is working.
The new kid on the block
Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) has been run by the Isely family since it was founded in 1955. Each store not only sells natural and organic groceries, but also dietary supplements. The company has over 60 stores in 13 states and is looking to expand. Even though the grocer has been in business longer than Whole Foods Market, Inc. (NASDAQ:WFM) or The Fresh Market Inc (NASDAQ:TFM), Natural Grocers has not been as aggressive in expansion as the other two. Look for that to change as Natural Grocers has the smallest market cap of the three and the most room for growth. Plans are to open 13 new stores this year.
Natural Grocers reported that last year same-store sales grew 11.3%. That’s the highest among the organic grocers. Going forward, management is targeting same-store sales growth in the high single digits. The company is in great shape to grow with only $16 million in debt.
In the company’s latest earnings report, it beat earnings estimates by $0.01 while revenues jumped 25.4%. For this quarter, same-store sales grew 10.4%. Even though that is less than last year, it is still better than management’s goal in the high single digits.
How they all stack up
Whole Foods | Fresh Market | Natural Grocers | Kroger | Safeway | |
Market Cap | $19.23 billion | $2.39 billion | $635.07 million | $17.54 billion | $5.46 billion |
Revenue | $12.52 billion | $1.33 billion | $378.96 million | $96.75 billion | $44.20 billion |
Rev Growth | 0.13 | 0.15 | 0.25 | 0.13 | -0.00 |
EBITDA | $1.17 billion | $148.42 million | $25.92 million | $4.43 billion | $2.21 billion |
Gross Margin | 0.36 | 0.34 | 0.29 | 0.21 | 0.28 |
Net Income | $517.57 million | $64.13 million | $8.61 million | $1.48 billion | $596.10 million |
P/E | 37.42 | 37.25 | 74.61 | 12.16 | 8.62 |
Employees | 53,100 | 6,250 | 1,370 | 347,000 | 171,000 |
For investors I also wanted to add the big name grocers The Kroger Co. (NYSE:KR) and Safeway Inc. (NYSE:SWY) to see how they all compare. Both Kroger and Safeway have started to allot more store space to organics and natural products. Both have the size and scale to increase their share of the growing health food trend. For value investors, it makes sense to look at Kroger and Safeway. Kroger boasts a gross margin of 0.21 and Safeway’s is 0.28. Both are attractive compared to the other grocers in terms of P/E. Kroger sports a P/E of 12.16 and Safeway comes in at a cheap 8.62.
The Kroger Co. (NYSE:KR) operates over 2,400 supermarkets under the names Kroger, City Market, Jay C, Food 4 Less, Fred Meyer, Fry’s, King Soopers, QFC, Ralph’s, and Smith’s. The company also manufactures and processes food for its supermarkets. Safeway Inc. (NYSE:SWY) is a smaller competitor to Kroger with just over 1,600 supermarkets.
Foolish assessment
One thing that I love about the grocers is that people have to eat. All five grocers are unique in their own way and all offer potential. For value investors, there’s the traditional grocers Kroger and Safeway that are expanding their offerings with natural and organic items. For growth investors, you have the fast-growing specialty grocers. Among Whole Foods Market, Inc. (NASDAQ:WFM), The Fresh Market, and Natural Grocers by Vitamin Cottage, Natural Grocers by Vitamin Cottage offers the most growth potential. Both The Fresh Market Inc (NASDAQ:TFM) and Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) have a long way to go, though, before they catch up to industry leader Whole Foods. Whole Foods is still expanding and wants to retain its crown as the top organic and natural grocer. A Fool wouldn’t be foolish (small “f”) to own any one of these grocers at the checkout.
Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends The Fresh Market and Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Don’t Check Out of These Grocers originally appeared on Fool.com and is written by Mark Yagalla.
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