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We criticized what we called the “investor class” the other day for its dimming enthusiasm for Whole Foods.

MNB user Phillip W Censky agreed:

I think we've finally found proof that the "Investor Class" has never shopped for groceries much less picked up a spatula or sautéed anything. Do they have a passion for anything other than the lowest common denominator? A well-managed grocery chain is more than the perfectly balanced financial statements. No wonder why the Wegman family wants nothing to do with the "Investor Class".

MNB user David J. Livingston wrote:

You are right KC, this is just analyst talk. It’s unfortunate that some retailers must be distracted by Wall Street. Lets hope Whole Foods does not change its successful game plan in order to please the trackside handicappers.

Another MNB user wrote:

What do analysts know? Aren't they the same guys who encouraged/applauded industry consolidation (Albertsons, Safeway) a while ago?

It is no secret, as a chain gets larger, it is more difficult to maintain overall absolute growth rates since the number of stores in the base keep getting larger and as these same base stores reach maturity in each of their markets.

It would be a real mistake to recklessly accelerate new stores openings or acquisitions to maintain an artificial growth rate at the expense of focusing on each store achieving its best potential performance in its own marketplace.

Who cares about overall growth rates? For sure the shoppers don't. All they care about is which store best satisfies their needs in their shopping area.

Whole Foods has been very successful in finding store locations and employees that have made their stores winners in the shopper’s eyes. This in turn has driven financial performance. Chasing a false success measurement (absolute growth) would be very foolish, and I believe financially counterproductive.

Maybe the analysts should spend their time worrying about how to break up Albertsons and Safeway instead.

However, one MNB user disagreed:

It’s not that the analysts believe Whole Foods has to maintain a 20% growth rate forever. In fact this is an economic impossibility that every analyst is acutely aware of. The problem here is that the current stock price reflects incredible expectations for future earnings growth. The analysts are questioning the firm’s ability to achieve the growth expectations implied by the stock price.

Understanding that firms cannot maintain double digit growth forever, they are now beginning to see the factors that will eventually stall Whole Foods’ growth. These factors, some analysts feel, will curb the firm’s growth before it is large enough to produce the cash flow necessary to support the current stock price. In other words, they simply feel the stock is overvalued.

Finally, we wondered yesterday why most food retailers don’t utilize the same kind of invitation-only, loyalty-marketing-driven events that are becoming popular in other venues. MNB user Philip Herr responded:

I believe supermarketers do not currently participate for two related reasons:
• Shopping in a supermarket is an egalitarian event. It brings all shoppers to a similar level
• And to this point, supermarket retailers don't like to create an "elite" within their customer base.
Which in my opinion is why loyalty programs are really very little more than shopping (discount) cards. Unless supermarket retailers are going to take the effort to segment shoppers and treat them differently (not just send different coupons), they are losing an opportunity to create loyalty and truly increase their revenues among their best customers.

We agree. Those are all reasons why it isn’t happening.

It doesn’t, however, explain why retailers are ignoring an enormous opportunity.
KC's View: