Whole Foods Markets Inc

Whole Foods Markets (WFMI:Nasdaq)

Who would have thought that Texas would be the birth place of an organic food empire! 

In 1980, a small Austin-based health food store called Whole Foods Markets opened its doors to the public.  It has now become one of the most profitable grocery chains in the U.S.A

Prior to the Global Financial Crisis, Whole Foods' profits exceeded the likes of Safeway, Kroger and Albertsons.  2008 was a hard year for all the food retailers, but for the organic farmers who saw the potential here, and utilized Whole Foods distribution and retail outlets, they are now raking in the profits.  We believe they will continue to do so for the forseeable future.

The paradigm of organic consumers is changing dramatically - right now! This burgeoning market could result in one of the most profitable health trends in history!

According to the USDA Economic Research Service, organic product sales in the U.S. have grown by 17% to 20% over the past few years.This is vastly superior growth to the total U.S. food sales, which grow at an average rate of only 2% to 3% a year!

By the end of 2010, the global organic food market is projected to surpass $70 billion. This is a very valuable niche within the diet and health industry and the organics movement still has plenty of scope for further growth.

It's estimated that 59% of the U.S. population currently uses organic products.  These users are categorized into 3 segments:

The Organic Integrated Group (37% of all organic users) consume organic products more than once a day.
   
The Organic Middle Group (28% of all organic users) consume organic products at least weekly.
   
The Organic Fringe Group (35% of all organic users) eat organic products occasionally.

These categories show that the organic movement is no longer the preserve of just hippies and health fanatics. More and more, organics are being purchased by the population at large.  The dominant demographic embracing the organic movement is of course, the hugely powerful Baby Boomers! 

More than 76 million strong, the aging Baby Boomers continue to search for products and services that will keep them healthy into old age. Many are looking seriously at their food intake and trying to cut out foods that contain harmful chemicals, pesticides, growth hormones, antibiotics and a number of other unnatural ingredients. The Baby Boomers want healthier, tastier and more sophisticated foods.  And they are willing to pay a premium price too! The organic shopper in the U.S spends about $682 more per year than the non-organic shoppers.In the U.S. alone, the sale of organic foods and beverages nation-wide has grown from $1 billion in 1990 to about $25 billion in 2008.

But thats just the tip of the iceburg, Worldwide, organic farming is practiced in approximately 140 countries, with more than 75 million acres now under organic management. Australia, China and Argentina lead with a combined 41.5 million acres of organic land. The rate of acreage acquisition for organic farming has been steadily increasing over the last 20 years.  The biggest leap has been in the last 6 years - at a 9.2% growth rate worldwide.  With ever increasing demand, expectations of further organic development are high. It is estimated that in the next couple of years in the U.S., Mexico, Australia and Germany, organic farmland growth rates will triple.

In addition to this terrific demand for organic products, there is also a real economic advantage right now for organic farmers -  increased yields and lower production costs. According to a review of a 22-year farming trial study conducted by researchers at Cornell University, organic farming produces the same yields of corn and soybeans as does conventional farming, but uses 30% less energy, less water and no pesticides. This represents a big economic advantage for the organic farmers and translates into bigger profit margins.

The backlash against genetically modified food is also hitting home. Many European countries have bans on genetically modified produce. For example, baby food in Munich is already almost exclusively organic, and Italy put forth legislation calling for all school lunches to be organic. Since organic products are grown and processed without the help of genetic modification, organic retailers and producers will be able to pick up the slack where previous conventional food producers will be excluded. All this means more and more business for the organic farmers. Currently, U.S. agricultural exports (mostly soybeans and animal feed) to Europe are worth about $6.2 billion a year. So, there is a lot of additional market share up for grabs for organic producers.
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And Europe isn't the only place skeptical of GMOs either, China, Brazil, Paraguay,Saudi Arabia, Australia,New Zealand, Egypt, Sri Lanka,Thailand, Japan and the Philippines( to name but a few)
have either already enacted bans on selected genetically modified foods or are currently undergoing research and legislation with the intent of restricting genetically modified foods:

Global warming is also playing into the hands of the organic farmers. When under stress caused by drought, heat, excessive rain or unseasonably-cold weather, organic yields are higher than those from conventional farms.  A sustainable agriculture system must, by definition, meet the needs of the present generation without jeopardizing the needs of future generations. Organic farmers are able to diversify their businesses by growing several crops at one time, often having both livestock and crops, and sometimes value-added enterprisesas well. This diversification reduces economic risk. 

You know a trend is definitely established when you see big business getting involved. Over the last 5 or 6 years, larger companies have taken notice of the huge growth potential in the organic segment and are jumping in, often by purchasing small organic companies whose products align or compliment their own. Some major multinationals are changing the face of organic products by marketing recognizable brands that consumers already know and trust. H.J. Heinz has introduced organic ketchup, Campbell Soup is marketing its own organic tomato juice.

But despite the encroaching multinationals,  Whole Foods Market, Inc is more than holding it's own and continuing to grow exponentially. It is the clear leader in retail, distribution and production. As of September 27, 2009, the company operated 284 stores comprising 273 stores in 38 U.S. states and the District of Columbia; 6 stores in Canada; and 5 stores in the UK.

Since 1978, Whole Foods has been able to grow at a record pace. It has acquired many smaller organic retailers, providing distribution networks for organic products. Although supermarket heavyweights like Safeway and Kroger do provide some organic foods, they simply can't compete with Whole Foods' inventory.

Any type of organic product, food or non-food, can be found at Whole Foods. Whole Foods boasts a loyal and consistent customer base. Whole Foods retail stores have a very distinct advantage over other food retail markets in that their customers spend far longer in their stores. Organic consumers base their consumption on their lifestyle.  Visit any Whole Foods market and you will find at least one or two aisles of retail space dedicated to these non-food organics - clothes, detergents (laundry and dish), paper products, shampoos, soaps, lotions, candles etc etc...

Whole Foods has developed strong relationships with manufacturers from around the world. Whole Foods has been able to leverage its position as the largest account for many manufacturers and growers - thereby allowing for deep discounts and more competitive pricing. Whole Foods Market is a true role model for the profitablility of the organic Industry.

In just five years, the stock price of Whole Foods Market, Inc has more than tripled, from about $8.60 to a peak of over $77.00 in late 2005. You may not see growth rates like that again in the next 5 years, but we believe that the stock still has an excellent future ahead. The stock lost quite a bit of value in 2008.  This was partly due to the costly acquisition of Wild Oats, and the global financial crisis. This gives us an opportunity to buy into Whole Foods Market at a price well below its peak. It pays a handy didvidend of 2.8% too.

Buy Whole Foods Markets (WFMI:Nasdaq) up to $34