What Coca-Cola's Past Can Teach Us About Whole Foods' Future

A look at how The Coca-Cola Company and Whole Foods Market could be investing parallels, for investors patient enough to let time do the hard work.

May 19, 2014 at 4:00PM

If you've bought Whole Foods Market (NASDAQ:WFM) stock anytime in the past two years, you're probably not very happy about what's happened. In a nutshell, one of the great growth stocks of the past 15 years has been an absolute dud, unless you decided to sell out last October:

Wfm Price

WFM data by YCharts.

While the rest of the market was on a tear, Whole Foods' stock has fallen, as much as 41% if you bought at the peak. Instead of telling you why you should hold your shares -- I have no intention to sell mine -- I want to share an investing parallel from almost 40 years ago. A little context about the importance of patience and time will serve us all well in the interim.

Let's talk about The Coca-Cola Company (NYSE:KO), and 1975. 

Selling the world a Coke, but Mr. Market wasn't buying it
Back in the '70s, Coca-Cola was already all over the world, but it was still relatively early in its expansion. Most of the world was much poorer than today, and consumer goods like Coca-Cola weren't either affordable or readily available to the masses. This is the Coke of the 1970s:


However, the stock market wasn't buying it:

Ko Price

KO data by YCharts.

We're talking about almost five years of being handily outperformed by by the market. This is by far a worse beating than Whole Foods investors like me have taken, and for a much longer period of time. 

The Whole Foods/Coca-Cola parallel
On the surface, these don't seem to be very similar businesses at all -- I get that. But when you peel back the layers, there are a handful of characteristics that today's Whole Foods shares with 1975 Coca-Cola. 

  • Very high-quality businesses
  • A stock that is perceived as "expensive" based on price-to-earnings valuation.
  • Serious competitive challenge on the rise.

Warren Buffett didn't invest in Coca-Cola -- one of his signature investments -- until a century after its creation by John Pemberton. Source: public domain.

The market sentiment for Whole Foods right now is that the company's growth days and fat margins are long gone. Wal-Mart is making a big push into organics; Sprouts and other upstarts are all trying to take a slice from what has been a relatively unchallenged market for Whole Foods over the past 20 years. All of a sudden, it seems that the worst is happening. 

In 1975, PepsiCo launched its "Pepsi Challenge" marketing campaign, and actually started taking market share from Coca-Cola. At one point in 1978, Pepsi's stock had actually gone up almost 50% while Coke shares were basically flat. However, Coca-Cola the business would continue to sell its trademark product, produce profits, and expand sales both domestically and internationally over the half-decade that its stock was a loser.

Here's what Coca-Cola stock has done since 1980:


KO data by YCharts.

In short, we're talking about one of the best stocks to own over the past 35 years. An investment of $1,000 turned into $56,200, before dividends. With dividends, we are talking about turning a grand into more than $101,000. It gets even better: That $1,000 investment in 1980 would be paying about $1,600 in annual dividends today. 

Think about that for a second: paying back 160% of your original investment to you, every single year!

Whole Foods Tmf

Whole Foods' advantage goes far beyond just fresh organics. 

The long view is really hard to take
The thing is, we're hard-wired to think that what's happening right now will keep happening. The result? It's hard to imagine that Whole Foods -- much like Coca-Cola back in 1975 -- is still a best-of-breed company, with raving fans of the brand and what it stands for. Businesses face competition all the time. Think about today: There's arguably more competition in most industires today than there has ever been. Yet corporate profits are higher than ever. 

The point? Competition isn't always (or even usually) a death knell; especially for the excellent business with real advantages, like the power of its brand, the quality of its product, and the loyalty of its customers. And just like Coca-Cola for the past 120 years, Whole Foods Market has an enduring brand that engenders loyalty from its customers. 

Foolish final thoughts 
Am I telling you that Whole Foods will be the once-in-a-generation stock that Coca-Cola was 35 years ago? Maybe not in so many words. But what I most certainly am saying is that -- even with increased competition -- Whole Foods is an undeniably well-run business with some very real -- and very durable -- advantages that its price-driven competitors won't be able to erode as easily as it seems. 

If you've bought Whole Foods stock in the past couple of years, relax. It's been only a couple of years, and you still own the same portion of the same great business. Don't mistake Mr. Market's reaction for an indication that the business is failing. Plenty of investors did that with Coca-Cola, and you see what they missed. 

Warren Buffett just bought nearly 9 million shares of this company
Buffett once said, "Someone's sitting in the shade today because someone else planted a tree a long time ago. His ability to focus far into the future -- as he did with Coke 30 years ago -- led him to buy 8.8 million shares of this company that's right in the middle of an industry that exploding. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click here to discover more about this industry-leading stock, and join Buffett in his quest for the next great stock. 


John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors.

Jason Hall owns shares of and has options on Whole Foods Market, and also manages an account with shares of Coca-Cola. The Motley Fool recommends Coca-Cola, PepsiCo, and Whole Foods Market; owns shares of PepsiCo and Whole Foods Market; and has options on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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