Whole Foods' Newest Competitor In Organic: The Kroger Co.

Whole Foods could soon find itself squeezed between two massive and aggressive competitors with capabilities it lacks --Wal-Mart and Kroger.

Apr 29, 2014 at 5:30PM

Whole Foods Market (NASDAQ:WFM) has more than just Wal-Mart Stores (NYSE:WMT) to worry about as the organic food wars heat up. It has another massive and well-organized competitor with similar capabilities to Wal-Mart out there: Kroger (NYSE:KR).

Kroger and Wal-Mart pose a very similar threat to Whole Foods because, at the end of the day, Whole Foods is just a grocery store. Kroger and Wal-Mart offer customers a lot more than just groceries. Kroger has subsidiaries; such as its Kroger Marketplaces (http://blog.chron.com/primeproperty/2014/02/houston-area-to-get-first-kroger-marketplace-selling-clothes-and-shoes/) in Texas,  that sell everything from furniture to fine jewelry. They give customers a wide variety of reasons to stop by. All that most Whole Foods locations offer is groceries.

Kroger operates 1,240 supermarket fuel centers -- supermarkets with gas stations. The idea there is to offer one-stop shopping so customers will stop in to fill the tank and the shopping cart at the same time. Kroger also operates 2,109 pharmacies in its supermarkets.

One-stop shopping threatens Whole Foods
The one-stop shopping strategy is designed to lure in middle class customers, mostly women who are pressed for time. It has certainly worked for Kroger, which saw its trailing yearly revenue grow from $94 billion in October 2012 to approximately $99.3 billion last October.

Wal-Mart has certainly taken notice of Kroger's one-stop shopping success. The discount giant has announced plans to open up to 300 Walmart Express locations, small-box stores that offer groceries, gasoline, pharmacies, and a discount store. Wal-Mart U.S. operations chief William S. Simon has even bragged about the one-stop shopping at the Express locations.   The purpose of Walmart Express is to compete with drug stores and dollar stores directly (http://www.fool.com/investing/general/2014/03/19/wal-mart-express-real-target-drugstores.aspx)  in the way that Kroger already can.

Wal-Mart's increased organic foods offerings are yet another attempt to appeal to middle class customers with more one-stop shopping. Why make a special trip to Whole Foods when the same organic items are at Wal-Mart along with the Tide, gasoline, and prescriptions? The chain's traditional low-income customers are not going to be interested in organic kale; middle class mothers are.

Kroger has also gotten aggressive about organic foods. TV viewers have probably seen ads for its Simple Truth line of healthy offerings that are supposedly free from 101 artificial ingredients, according to Kroger's own website.

Kroger has also targeted Whole Foods with its Fresh Fare Market concept. Fresh Fare is basically a Kroger designed to look more like a Whole Foods, with more food cooked in the store and more organic offerings. Yet Kroger isn't relying on organic produce alone; a King Sooper's (the Denver-area Kroger brand) Fresh Fare in Denver's Kent Place development offers a pharmacy.

Foolish Takeaway:Online Ordering and Delivery might be the Real Threat to Whole Foods
One-stop shopping is not the only weapon that Kroger and Wal-Mart can deploy against Whole Foods; there's also delivery. Both Kroger and Wal-Mart are aggressively rolling out online retail and delivery options.

Kroger offers Home Shop, which utilizes existing supermarkets as fulfillment centers for its online customers. Kroger is even offering delivery of beer and wine in Colorado. Wal-Mart is offering a similar service called Walmart to Go in cities like Denver and Washington, DC.

Delivery is potentially a bigger threat to Whole Foods than one-stop shopping because it is even more convenient. Instead of making a special trip to Whole Foods, all the customer has to do is pick up the tablet, make an order, and have Wal-Mart or Kroger drop the food, including the organic beets, off at his or her house.

Such an online delivery option appeals most to the kind of well-educated, tech savvy people who are most likely to shop at Whole Foods. Whole Foods' middle class customers are already used to buying a lot of stuff through Amazon Prime. Ordering produce, laundry detergent, and even ready-made meals from the store deli is the next logical progression.

To stay competitive, Whole Foods may have to start offering more amenities, such as delivery and pharmacies. Whole Foods seems to recognize this; it is already offering a personal shopping and delivery service at some of its stores. Customers have to pay a $5 fee for the service.

The big question here is: Does Whole Foods have the resources to offer these amenities? The organic grocer has been growing fast, but it reported trailing yearly revenue of just $13.3 billion on Dec. 31. One has to wonder how Whole Foods can compete with Kroger's and Wal-Mart's aggressive expansions into organic groceries.

Walmart and Kroger's aggressive foray organic groceries could put serious pressure on Whole Foods' profit margins but those margins can take a lot of pressure. Whole Foods' reported a gross profit margin of 35.8% in 2013 while Kroger reported a gross profit margin of 20.6%. Although that pressure will not be a pleasant experience with Whole Foods' massive expansion drive under way.

Whole Foods finds itself in a difficult position for a growing company. It faces a host of aggressive and highly creative competitors with far greater resources that it has. One has to wonder if Whole Foods can really be anything but a boutique grocer.

3 stocks poised to be multi-baggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Daniel Jennings has a position in Kroger. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers