Whole Foods Market, Inc. (WFM), Fairway Group Holdings Corp (FWM): Organic Food Market Heats Up

Another new issue

Fairway Group Holdings Corp (NASDAQ:FWM), a New York-based specialty grocer had its maiden trading session in April. The stock has more than doubled since debuting at $13.00 per share. It has a market cap of $1.1 billion, compared to $5.2 billion and $20.7 billion for Sprouts Farmers Market and Whole Foods, respectively.

Fairway Group Holdings Corp (NASDAQ:FWM)’s plans are less ambitious than its rivals; it hopes to open some 300 stores around the U.S. and has just about a dozen locations today. It’s well known in the New York City metropolitan area, which is a region that spans New York, New Jersey, and Connecticut. As part of its expansion, Fairway Group Holdings Corp (NASDAQ:FWM) will open as many as four new locations each year. While its New York-metro focus might seem limited, Fairway projects the area represents a $30 billion food-retail market, which is the greatest opportunity in the U.S. So it’s New York focus seems to be on target.

The problem with Fairway Group Holdings Corp (NASDAQ:FWM) is that it isn’t profitable. In its last fiscal year, it reported a net loss of nearly $63 million and expects losses to continue through 2014. But the company is in growth mode and the cost of opening new stores is hurting, not helping the bottom line. It generated $661 million in net sales last year and Whole Foods is growing its presence in its biggest market.

Bottom line

I think value grocers like Fairway Group Holdings Corp (NASDAQ:FWM) and Sprouts Farmers Market are giving Whole Foods Market, Inc. (NASDAQ:WFM) a run for its money. Because of this, Whole Foods seems to be willing to concede some margin and that could hurt. For now, I’d go with the smaller grocers as they seem to be changing the rules.

The article Organic Food Market Heats Up originally appeared on Fool.com and is written by Gerelyn Terzo.

Gerelyn Terzo has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Gerelyn is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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