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The Fresh Market Inc (TFM), Whole Foods Market, Inc. (WFM): Is It Time to Invest in Specialty Grocers?

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Earnings reports from last month revealed some interesting trends in the retail sector. Superstores such as Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) fell flat as seasonal changes disrupted sales. Grocers like Safeway Inc. (NYSE:SWY), SUPERVALU INC. (NYSE:SVU) and The Kroger Co. (NYSE:KR) showed mixed earnings and revenue growth from the previous year. Meanwhile, dollar stores like Dollar Tree, Inc. (NASDAQ:DLTR) evolved into disruptive competitors, and topped sales growth at both superstores and grocers.

Amid all these contrasting trends, the Conference Board recently reported that its consumer confidence index in May jumped to a five-year high of 76.2, exceeding economists’ expectations of 71. This means that Americans are still eager to shop despite budget constraints in Washington. This factor, combined with declining unemployment, indicates that it might be time to visit an industry that performs well when shoppers are optimistic – specialty grocers.

The Fresh Market Inc (NASDAQ:TFM)

Shopping should be special

Specialty grocers, such as The Fresh Market (NASDAQ:TFM) and Whole Foods Market, Inc. (NASDAQ:WFM), have risen in popularity across the United States over the past few years as affluent Americans have demanded higher quality food than everyday products found at Kroger or Safeway. Simply compare the growth of these retailers in their most recent quarters.

Same-store Sales Growth (y-o-y) Qty. Revenue Growth
Qty. Earnings Growth
The Fresh Market 3.0% 13% 15%
Whole Foods Market 6.9% 13% 20%
Safeway 1.5% (excluding fuel) 0% 63%
Kroger 3.0%(excluding fuel) 13% 22%

Source: Quarterly Reports, Yahoo Finance

What distinguishes The Fresh Market Inc (NASDAQ:TFM) from its competitors is its store design, which is modeled after old-fashioned European markets. It sells both perishable and nonperishable items, along with specialty foods and gifts. The company went public in November 2010, and the stock has since risen 127% from its initial IPO price of $22. The Fresh Market Inc (NASDAQ:TFM) is not well-known throughout the United States yet, since it only operates 131 stores in 25 states.

Whole Foods Market, which emphasizes “natural and organic products,” is a more widely recognized grocer, with 349 stores in the United States, Canada and the United Kingdom. The company has been trading publicly for much longer than The Fresh Market Inc (NASDAQ:TFM), making its public debut in January 1992. Although Whole Foods rose to fame on its platform of natural and organic foods, the company has been harshly criticized in recent years for selling unlabeled GMO foods. It has also been criticized for the aggressive promotion of its own brands, which leaves little shelf space for smaller local brands.

By comparison, both Kroger and Safeway sell unlabeled GMO products and aggressively market their own in-house brands, but they have been criticized far less than Whole Foods, since Whole Foods Market, Inc. (NASDAQ:WFM) was once considered the antithesis of a “traditional” grocer.

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