The Case for and Against Whole Foods

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Stocks come with a good amount of uncertainty. If they didn’t, then we would all have matching portfolios that are happily invested in all of the same stocks. But of course, the potential returns would be close to nil in that case, so differing opinions is a key factor of our financial system.

If you ask two Fools about the same company, chances are you’ll get different opinions. Some will say it’s the best; others will disagree. Each opinion has its merits, so taking the time to see both sides of a story will help you become a better investor.

With that in mind, we’ve gathered myriad investing insights from our CAPS community where over 110,000-plus CAPS members have contributed picks and commentary for over 5,500 companies. Today we’ll look at some of the bull and bear cases for healthy food grocery chain, Whole Foods (Nasdaq: WFMI  ) .

Whole Foods

 

CAPS rating out of 5 stars

***

Market cap:

$3.09 Billion

30-day return:

(8.4%)

Source: Motley Fool CAPS, as of 7/29/08.

Bull case for Whole Foods
bclapp21

Has anyone noticed that the locations of [Whole Foods] stores are almost always close to more affluent areas? Here in Seattle there are 3 and they all border the most affluent neighborhoods and in turn stay busy despite the market conditions. I've found the same to be true in Boston, Chicago and San Fran. ... it'lll take time after the Wild Oats acquisition but their brand power and product will raise them back up.

ClandUpods

Chains like Whole Foods and Fresh & Easy (Tesco) are going to gain huge market share over the next ten years. Whole Foods is also well run and was sited in a popular book 'The Future of Management' as an example of how companies should be managed. I give it the green thumb for the five year range. This slump is a buying opportunity.

CAPS members bullish on WFMI are also bullish on

CAPS members bearish on WFMI are also bearish on

Starbucks (Nasdaq: SBUX  )

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Netflix (Nasdaq: NFLX  )

Citigroup (NYSE: C  )

General Electric (NYSE: GE  )

General Motors (NYSE: GM  )

Bear Case for WFMI
BstratSeattle

high oil prices means higher prices for food. Whole Foods pricing is already at the "pain" threshold for most customers. Additional competition from other large grocery stores (Safeway, etc.) in organic produce spells slowing sales for [Whole Foods].

mitleg

This company operates great stores. Nonetheless, I see their business model failing. Trader Joe's and other such discount natural foods retailers will continue to take a big bite out of their profit margins. It may be time for them to rethink their business model. Great store, bad stock.

What’s your take on Whole Foods? Do you side with the bulls or the bears on this one? Zip over to CAPS to voice your opinion -- won't cost you a penny -- or add your thoughts in the comments box below.

Katrina Chan owns shares of Starbucks but of no other company mentioned in this article.

Starbucks is a Motley Fool Inside Value selection. Google is a Motley Fool Rule Breakers pick. Whole Foods Market, Starbucks, and Netflix are Motley Fool Stock Advisor picks. The Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. The Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 31, 2008, at 1:51 AM, 1durfool wrote:

    It's no wonder that people who get WFMI are bullish on SBUX as well.

    SBUX is not a coffee house.

    SBUX is a purveyor of caffeinated milkshakes ( high-priced caffeinated milkshakes) and other drinks.

    SBUX can charge these prices because the offer a ubiquitous, safe, blandly attractive venue to meet people.

    The tastes of the coffee purists who think their beans are "burnt" matter almost nothing to SBUX because they are not the market they are trying to reach.

    [BTW:There is absolutely no competition with MCD. And the price of MCD's coffee is irrelevant.]

    SBUX has such market penetration and brand recognition that it would take a massive effort (and much luck) to achieve half its market penetration and brand recognition.

    WFMI is in a very similar situation.

    People mistake WFMI for a grocery store.

    WFMI is NOT a grocery store.

    It is an upscale food and beauty products mall and entertainment/socializing venue.

    The price of organic produce at Safeway is irrelevant to WFMI because people do not go to WFMI for the organic produce. Organic produce is the excuse people tell others to explain why they go to WFMI.

    People actually go to WFMI to be seduced by the experience of abundance in a pleasant environment.

    WFMI is an upscale urban oasis masquerading as grocery store.

    Like SBUX it has a brand recognition and market penetration that is practically unassailable.

    Trader Joes (I like Trader Joes) is a different experience. Nice as it is, it is not a place to hang out. TJ would have to change their market strategy to make it so.

    And if WFMI will only ever get 2% of the grocery/beauty products shopping market, they still have enough market headroom to expand to double the number of stores they have now.

  • Report this Comment On July 31, 2008, at 9:45 AM, scottbri wrote:

    many people wrongly believe that Whole Foods is very expensive. their high quality store brands are quite reasonable and many other products are comparably priced to so-so supermarkets. meat and fish tends to cost more, but the quality is top shelf; same for produce. WFMI also sells herbs, spices, flours etc. in bulk, and that's a big money-saver.

  • Report this Comment On August 11, 2008, at 6:32 PM, ClandUpods wrote:

    Whole foods has sustainable strategic advantages over their immobile rivals. Safeway, Kroger and Wal-Mart compete with Whole Foods indirectly and all three base their business on third generation managerial theory(quantitative analysis only) where as Whole Foods management balances third and fourth generation managerial theory (qualitative & quantitative analysis). This allows Whole Foods to create a supirior customer service experience and increase their probablitiy for bottom up innovation. Trader Joe's however is a direct competitor and is a well run company that I also think will do well over the next decade. Fresh & Easy a European chain owned by Tesco is another direct competitor that is targeting the more affluent one or two person households and will also do well I believe. However, with Trader Joes being private and Fresh & Easy requiring additional effort to invest in I think Whole Foods is the best niche market organic, small family food retailer value play.

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