Consumers hold the greatest power -- the wallet. Wall Street echoed this sentiment as it sent Chipotle Mexican Grill's (NYSE:CMG) stock soaring when the company announced that its food will be devoid of genetically modified organisms, or GMO, by the end of 2014. However, a price increase to counter rising input costs can be expected. This is compelling evidence that GMO-free food is good for everyone – the customers, the company, and the investors.
This is not the first time that this has happened. Wall Street had also fallen in love with Annie's (UNKNOWN:BNNY.DL) last year over a "junk-free" bowl of mac and cheese. The grand daddy of organic and natural food items -- Whole Foods Market (NASDAQ:WFM) -- needs no introduction either. It is the first and only U.S. public food retailer to commit to labeling GMOs.
So how are the prospects of these consumer-friendly companies? Let's take a look.
Chipotle had a stellar run during 2013. The company stayed on course to execute its long-term growth strategy by focusing on few core principles in an industry which is crowded, and there's no dearth of competition for consumers looking for good burrito. One of the core principles has been Chipotle's focus on "food with integrity. " This has resonated well with consumers for a variety of reasons like supporting local farmers, ensuring healthy ingredients etc.
Another core principle for long-term growth has been a very measured growth on its way to more than 1,500 locations currently. All along, Chipotle maintained a strong foothold in the fast-casual dining space, which is projected to grow at 10% per year from 2012 through 2017. "Fast casual has become a $31 billion segment since Chipotle began reinventing fast food 20 years ago," said Darren Tristano, executive vice president of Technomic.
In addition, Chipotle has also been innovating its menu and it is no surprise that sales are being driven by new menu items. For instance, Chipotle introduced a new item called "sofritas," which, at present, is being served at only 25% of its restaurants and is slated to be rolled out to 40% of its restaurants by the end of the year. New menu items are paying off as they already account for 4% of sales at restaurants where they are being served at present.
Chipotle is on track to open more than 180 new restaurants during fiscal 2013, and has plans for open between 180 and 195 new restaurants in 2014. This would keep the growth momentum going forward and help it improve upon its third-quarter revenue of $826.9 million .
Whole Foods: Slowing or growing?
When it comes to growth in the store count, Whole Foods Market is definitely much more ambitious and the demand for its assortment of organic and natural foods is so robust, that they're bolstering their expansion plans. In the past, Whole Foods has said it expected to grow to 1,000 stores in the United States in the future, up from around 300 in the summer of 2013. This stands revised now to 1,200, which is a 20% increase and it goes to show that the trend of healthy eating is gaining momentum. This announcement came after the opening of a 56,000 square feet market named Whole Foods Third and 3rd in the Gowanus section of Brooklyn in New York.
However, its growth has been called into question; same-store sales decelerated to 5.9%, the slowest pace of the year. Skeptics opined that the growth of healthy eating has peaked. With more and more players like Wal-Mart, Kroger, and others jumping on the organic and natural food bandwagon, there is bound to be realignment and as a result, short-term declines before the surge can be expected.
In addition, according to FarmExchange, the organic and natural food market in the U.S. in 2012 was just 3.5% of total U.S. food sales . So, this presents a good opportunity for growth and Whole Foods revising its target of store counts shouldn't come in as a surprise.
The newest player
Annie's second-quarter sales increased 24% versus the same period last year as a result of 22% growth in consumption of Annie's products at the retail level . The company witnessed incremental sales strength in mac & cheese, as well as a continuation of a strong growth trend in snacks. There was also a double-digit consumption growth in the natural channel, which indicates that Annie's has maintained loyalty of core consumers while expanding the Annie's brand.
The opportunity in the natural and organic food sector makes Annie's confident of sustaining rapid growth well into the future, and it reiterated the 18% to 20% adjusted net sales growth guidance. Annie's is focusing on growth through key 33 items. With average grocery store still carrying fewer than 13 of those key 33 items, there's plenty of runway for growth with this initiative.
Consumers are looking for healthy food and these three companies have been providing the same. Chipotle made a good move by announcing that it will move away from GMO food by the end of the year, and this could attract more customers. Whole Foods has been the torch-bearer of organic food, but the company's growth has slowed down. Still, the long-term opportunity is still there as the company expects strong growth in store count. Lastly, Annie's looks like the most aggressive play as its earnings are expected to grow at a good pace.
So, investors looking to benefit from healthy-eating habits should definitely take a look at these three stocks.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Fool contributor Vinay Singh has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and Whole Foods Market. The Motley Fool owns shares of Chipotle Mexican Grill and 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.