Is Whole Foods a Bargain?

May 14th, 2008 · 1 Comment · Recession, Stock Market

Whole Foods Market (NASDAQ:WFMI ) fell 13% today on news of lackluster earnings and it seems that the ‘dust hasn’t settled’ yet.

The problem I see is the reaction to the macroeconomics circumstances were in right now: Americans are worried about inflation therefore spending less money on premium food.

Investors and consumers alike still think were in hard economic times, even if were in a recession…they can’t see long term.

Whole Foods vs. Starbucks

Whole Food has said to have the ‘Starbucks syndrome’ where ‘same-store sales slowly erode as it tapped out its core market of upwardly mobile customers.’ I disagree. To compare Starbucks with Whole Foods is comparing apples to oranges.

Whole Food Market not only caters to a different audience, but their store growth is steady. With the acquisition of Wild Oats still hurting their bottom line, they seem to still make a profit. The majority of their customers still go to Whole Food Market even in poor economic times and they will continue to go whatever markets will do. Their customers are growing as the top-end food business is being taken back with the rise in food costs.

Starbucks revenue equation is a slowly growing customer base matched with newly opened stores, the problem Starbucks has had is the growth in customers has not get inline with the growth of stores. Think of a customer base of 100 people going to 10 stores when one more store opens and the customer base only grows by 5 people the average decreases from 10 customers per store to 9.5 per store. Analysts see the decrease in same store sales and discount growth of customer base altogether. Starbucks has already slowed US store growth in order to have the customer base ‘catch up’. This isn’t a growth in customer base issue, as much as a growth in stores.