To counter the challenge, Whole Foods Market, Inc. (NASDAQ:WFM) evaluates its position every month by comparing its price index with the overall market as well as with key competitors. It uses this data to help it identify areas where it needs to be more price-competitive.
It was able to improve its pricing position in the perishable products category in the recent second quarter. During this period, Whole Food’s revenue grew by 13% to $3.03 billion and same store sales by 6.9%.
We find that the company is doing a lot of big sales these days. It is also offering deals on select merchandise and providing everyday low prices on more goods. While it is still no match for Costco Wholesale Corporation (NASDAQ:COST) or ever The Kroger Co. (NYSE:KR) in terms of prices, Whole Foods is definitely becoming more competitive.
Expansion plans
The company wants to have more scale, increase its market share, and grow faster. To achieve this, it has embarked on an aggressive growth path and is looking to increase the count of its stores to 1,000 from the current 349.
Whole Foods is exploring all kinds of new markets including smaller cities like Maple Grove, Minnesota or Closter, New Jersey. It has even opened in Detroit, which was considered an unlikely location on account of its near 10% unemployment rate.
In the second quarter, Whole Foods opened six new stores. It is adding another four in the third quarter and will add 12 more in the fourth. The size of the new stores is suited to the neighborhoods which they serve and range from 16,000 to 50,000 square feet.
The new stores are providing excellent returns. In the last eight quarters, the number of stores open for approximately six months has been around 25. The company had an after-tax return on invested capital of 19% in the second year of a new store opening.
Last word
Whole Foods is a nice play in the fast-growing organic foods segment. The stock is up 13.88% year-to-date and has more upsides to it stemming from its solid operating performance, growing demand, improving competitive position, and expansion plans.
Eshna De has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale (NASDAQ:COST) and Whole Foods Market. The Motley Fool owns shares of Costco Wholesale and Whole Foods Market. Eshna is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article This Grocer Is a Healthy Investment Proposition originally appeared on Fool.com is written by Eshna De.
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