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Whole Foods: Grocery games

By Sheyna Steiner ·
Friday, March 22, 2013
Posted: 1 pm ET

It's a dog-eat-dog world in the grocery business. While that may be true for most industries, the business of selling food is increasingly huge, and retailers don't have room for errors. Consider the changes wrought in just the past two decades. Local markets have been priced out of the competition by big box stores, and the supermarket business has come to be largely dominated by just a few names.

The advent of Whole Foods changed the local and organic game. The company went public in 1998 but was founded in 1980.

The success of Whole Foods encouraged other retailers to get in on the organic action. In 2006, Wal-Mart announced that it would veer into the local and organic game, and the race for the wallets of health-conscious consumers was on. Wal-Mart tops the list of the world's largest retailers, according to the Global Powers of Retailing 2013 from the consulting group Deloitte.

Whole Foods is no slouch; it's in the top 100 global retailers -- at number 99 for the fiscal year 2011. In order to keep standing out though, Whole Foods has to keep innovating. Two weeks ago, the retailer announced that it was committed to full transparency on genetically modified organisms, or GMOs, sold in products through their stores. By 2018, all products in American and Canadian Whole Foods stores will be labeled as to the content of GMOs.

The announcement two weeks ago had little impact on the stock price, says Brian Yarborough, consumer and industrial analyst at Edward Jones.

"But going forward, it helps to build the perception that it is all about organics, and they are not going to sacrifice that quality and what they are all about," he says.

It's smart that Whole Foods is continuing to stand out in the field of organic retailers as supermarkets and hypermarkets ahead of it on the food chain try to capitalize on its niche. (A hypermarket is a retailer that combines a supermarket and a department store.)

"If you're Whole Foods, you need to stay ahead of where the consumer is. If all they did was sell natural and organic food and didn't keep expanding on that -- it's not that different from some organic stuff you can buy at Wal-Mart," says Ashley Woodruff, CFA, investment analyst in T. Rowe Price's U.S. Equity Division covering restaurants and food.

"Obviously the minimum threshold for what they sell at Whole Foods keeps increasing. It doesn't affect the stock price in the short term, but I think it's critical to the success of Whole Foods that they continue to move in that path. Otherwise you get to the point where they aren't differentiated and ahead of the field. They should be the leader in this and should almost set the tone for the whole industry that will have to follow them eventually," she says.

What do you think -- does the announcement on GMOs make Whole Foods a more appealing investment?

Follow me on Twitter: @SheynaSteiner.

Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.

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