Whole Foods Sees an Opportunity in Pets

Grocery stores have been stocking up on organic and natural food to satisfy their human customers. This premium market might not be limited to humans, though. Whole Foods Market (NASDAQ: WFM  ) thinks that shoppers who want higher quality food for themselves will also be interested in higher quality food for their pets. In response, the health food store announced its Whole Paws product line. This announcement indicates growing demand for organic and natural pet food that could have implications for other pet food retailers as well.

A private label brand
Whole Foods knows that its prices could be too high for some shoppers. This could be even more of an issue for shoppers who are buying food for their pets. Shoppers love their pets, but expensive pet food could still be viewed as an optional expense. Therefore, the grocer has introduced a new private label brand called Whole Paws. Private label brands typically cost less than other products at the grocery store.

This isn't Whole Foods' first move into this market. The company previously sold pet food under its 365 Everyday Value label. 

This pet food launch shows that Whole Foods can still identify new opportunities to raise sales at its existing stores. Natural and organic products for pets don't just include food. A grocery store can also sell natural supplements, bath products, pest repellents, and waste disposal products for pets. The press release also mentions that the Whole Paws line includes baking soda based litter. A retailer that sells a wide variety of pet products could improve its sales in several categories.

A pet care giant
For specialized pet product retailer PetSmart, (NASDAQ: PETM  ) rising demand for natural and organic pet products could offer an alternative growth driver. PetSmart had over 1,300 stores in August, while Whole Foods had 340 stores in July. PetSmart may have fewer opportunities to grow by adding stores than Whole Foods does. Rising demand for premium pet food could mean higher margins for PetSmart, which could result in higher earnings for the store anyway.

On PetSmart's Motley Fool CAPS page, several members have already identified premium pet food as a growth driver for this retailer. TMF1000, a member who is ranked 145 out of 75,332 on CAPS, explained that this market's growth sped up after food contaminated with melamine killed many pets in 2007. 

PetSmart also made some moves recently that could increase its appeal to dividend investors. The pet food chain hiked its dividend by 18% and announced a $535 million share buyback plan.  PetSmart has a $7.6 billion market cap, so the buyback would take 7% of its shares off the market at this price. Whole Foods' move shows that shoppers are willing to spend money on their pets, which makes PetSmart's rising dividend look secure.

Vitamins and supplements
Natural Grocers by Vitamin Cottage (NYSE: NGVC  ) provides the rationale for rising premium pet food demand. This company is very selective about what it stocks in its grocery stores, and this includes the pet products it sells. An article on the Natural Grocers web site also makes the argument that a shopper who cares about food quality should also think about pet food quality, and furthermore explains that pets can also benefit from vitamins and supplements.

The "Vitamin Cottage" part of this health food store's name highlights its selection of vitamins and supplements, which could be just as relevant for pets as it is for human shoppers. After all, pets also need vitamins. Whole Foods' move shows that Natural Grocers could see more sales for high quality pet food and supplements, which could help the smaller chain live up to investors' high expectations.

Conclusion
Whole Foods' product launch highlights a growth opportunity for health food stores and pet product retailers. The grocer also looks like it's handled this launch well by introducing a private label product that could make healthier pet food more affordable. The grocer does have competition in this market, so pricing strategy is important. Whole Paws also looks like good news for Whole Foods shareholders, especially if the store can expand this product line into other categories. This product launch shows that Whole Foods pays attention to opportunities in retail.

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