In the competitive spirit of college basketball's annual championship tournament, The Motley Fool brings you Stock Madness 2007! Our writers are making head-to-head arguments for their chosen stocks (but not necessarily investment recommendations -- this is, after all, a game), and you'll pick the winners with your article recommendations and Motley Fool CAPS ratings. Who will win the right to cut down the net? Let's tip things off and find out!
In this year's Stock Madness tournament, I'm backing Whole Foods Market
It's not as though these two companies don't have striking similarities. Both are well known as richly valued, and both have suffered more negativity than usual within the past year or so. Of course, before that, both were well known for high growth to match high multiples -- growth that often defied conventional wisdom. Would people pay a couple of bucks for a latte? How could natural foods be anything but a fad or a specialized niche? Both proved doubters wrong.
While Whole Foods and Starbucks definitely appeal to a particular demographic, and both want to be a "third place" destination that you enjoy going to between work and home, I'd say Whole Foods more closely encompasses an entire lifestyle and principle. It attracts affluent, socially aware customers. Increased attention to the topic of "food ethics" has resulted in increasing awareness of -- and interest in -- organic and natural alternatives to the processed and factory-farmed foods in traditional supermarkets. And of course, many consumers are turned off by the idea of genetically modified foods (which are already on supermarket shelves) or meat and dairy from cloned animals (which have not arrived yet but seem destined to). They'll never find those things at Whole Foods. This company puts principled thought into what's on its shelves.
Meanwhile, Whole Foods' high-quality food offerings also have universal appeal, in that they present a unique, gourmet experience.
Starbucks has great growth potential for the years ahead, but Whole Foods has ample room for expansion. With just 194 stores in the U.S. and the U.K., there's room for many more Whole Foods stores in many more markets.
Howard Schultz is no slouch, but Whole Foods CEO and founder John Mackey practices what he preaches. I've heard him referred to as a philosopher, and that rings true. Not only does he know the organic industry inside and out, but he's also an advocate for a more conscious capitalism, a holistic approach to doing business that benefits all stakeholders. (That formula seems to have worked like a charm for Whole Foods.) He has debated with Michael Pollan, the author of The Omnivore's Dilemma, about the future of organics (and the dangers of the movement's industrialization, as well as Whole Foods' position), as well as with the late economics giant Milton Friedman on corporate responsibility. Whether you agree with him or not, you can tell Mackey is authentic and thoughtful as he steers this company and is willing to take on tough questions from all sides of a debate. Mackey also has a blog on the Whole Foods website and personally responds to many comments there.
Back in January, I nominated Whole Foods for Best Retail Stock for 2007, and the Foolish community of readers agreed. That was even before it announced its plans to purchase rival Wild Oats
Starbucks is good stuff, but Whole Foods has the vision to push for some timely paradigm changes, as well as provide for a growing demand, all of which bode well for the long term. Whole Foods should command the court in this matchup.
Now the ball's in your court -- do you think Whole Foods Market deserves to move on to the next round? If so, simply follow this link and rank Whole Foods "outperform" in Motley Fool CAPS. If not, vote it "underperform." Later this week, we'll tally your votes to determine which stocks will advance one step closer to the title.
Click Starbucks for the opposing article in this contest.
Click here to read all of the entries in the tournament.
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Whole Foods Market and Starbucks are Motley Fool Stock Advisor picks. Wal-Mart has been recommended by Motley Fool Inside Value.
Alyce Lomax owns shares of both Starbucks and Whole Foods Market. The Fool has a tasty disclosure policy.
