Grocery price check: Costco is 58 percent cheaper than Whole Foods, JPMorgan finds

October 19, 2017 in Latest News

Though Amazon has promised steep discounts at Whole Foods stores, now that it owns the organic supermarket chain, Costco still reigns supreme in the ongoing grocery price wars, according to JPMorgan.

“[Costco] offers an unquestioned value prop with the best pricing, curated assortment, strong private label offering, and treasure hunt atmosphere,” JPMorgan analyst Christopher Horvers wrote in a note to clients.

After completing price checks at Costco, Whole Foods, Wal-MartTarget and Aldi, Horvers and his team found Costco’s stickers, on a per-unit basis, to be a “whopping” 58 percent cheaper than those at Whole Foods.

Costco and Whole Foods share the least of their merchandise assortments in common, JPMorgan discovered, while Costco and Wal-Mart see the most overlap in their grocery stock keeping units, or SKUs.

To be sure, being a low-price leader comes with pros and cons. Investing in discounting can squeeze a retailer’s profit, and that’s what some investors worry about, as it relates to Costco.

Shares of Costco took a hit one week ago when the company posted narrower gross margins and a fourth-quarter decline in membership renewal rates. Shoppers were seen buying more fuel, which is less profitable, at Costco during the latest period.

In June, when e-commerce giant Amazon first announced its plans to acquire Whole Foods, companies like KrogerSprouts Farmers MarketSupervaluAlbertsons and even Costco watched their stocks tumble.

Goldman Sachs was one of the first investment banks to react, immediately downgrading Costco shares on the news and adding to any arguments against Amazon’s retail rivals. One trading day later, Deutsche Bank followed suit with its own Costco downgrade.

The same group of grocery stocks dropped again, a few weeks later, when Amazon revealed it would be slashing prices across Whole Foods stores once the deal between the two was complete. Investors’ fears over Costco were seen ballooning.

Nonetheless, JPMorgan’s latest price checks point out that Whole Foods’ value proposition greatly contrasts that of Costco, still.

“It is clear that [Whole Foods’] pricing would need to narrow substantially to be a threat to COST, while the Whole Foods business model would need to shift away from its ‘foodie, organic, and natural’ value prop,” Horvers wrote.

When looking at baskets of perishable groceries, dry goods and household items — each from Costco, Whole Foods, Wal-Mart, Target and Aldi — Costco was consistently the least-expensive option, JPMorgan found.

Wal-Mart’s private-label products turned out to be the cheapest of the group when compared with national brands. But Costco’s Kirkland Signature nameplate is a stronger player than its peers when it comes to quality, Horvers added.

Costco faces an uphill battle from here in trying to win back lost confidence on the Street.

On a conference call with analysts and investors last week, Chief Financial Officer Richard Galanti said, “As it relates to the publicity and the news and the noise around Amazon and Whole Foods, all we can do is perform.”

One factor that would help is if value-minded consumers understood the price comparisons that JPMorgan uncovered.

Costco, with its massive stores, is trying to keep up with the shift online. The warehouse retailer recently launched two new delivery options for its members, one called Costco Grocery. The service offers shoppers about 500 nonperishable goods for two-day delivery, with orders over $75 dropped off at no charge.

A second service, offered in metropolitan markets and powered by Instacart, lets shoppers choose from 1,700 items, including fresh groceries, for same-day delivery.

Costco is the the third-largest grocery retailer in the U.S., after Wal-Mart, which is No. 1, and Kroger.

Costco shares are down about 1.8 percent this year.

Source: CNBC

The Day That Changed Retail

June 19, 2017 in Latest News

 

It’s the moment Amazon.com investors have been waiting for and everyone else has been dreading. For years, Amazon watchers have wondered when founder and CEO Jeff Bezos would pull the trigger on a broader plan to remake the retail landscape. Friday seems to be the day.

 This morning, Amazon announced it had agreed to buy Whole Foods Market for $13.7 billion.

The idea has been percolating in recent months, but it still caught Wall Street by surprise. Shares of the big grocery chains tumbled on the news. Kroger was down 13% and Sprouts fell 11%. Even more diversified names are feeling the pain, with Target down 9%, Costco down 6%, and Wal-Mart falling 5%. Amazon shares, already on a tear in the last 18 months, were up 3% on the news.

(Wal-Mart made its own purchase Friday, buying online apparel maker Bonobos for $310 million.)

Whole Foods investors were thrilled that Amazon had arrived to save the struggling chain. Its stock soared 27% on the offer, even though the deal, priced at $42 per share, values Whole Foods at 35% less than its 2013 peak.

After reshuffling — some might say ravaging — the bricks-and-mortar landscape from the sidelines, Amazon is now jumping in with both feet. The company was typically demure in its short press release on the deal. “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue,” Bezos said in a press release. But it would be naive to think Amazon simply wants to nourish organic food customers. Grocery stores are a tough business without much profit to be made.

For Amazon, the deal is likely part of a broader strategy to bring Amazon physically closer to customers. Having a network of bricks-and-mortar stores could shorten delivery windows for all manner of products, whether heirloom tomatoes, batteries, or books.

Amazon has been working on ways to improve its network for years. It’s started AmazonFresh, a grocery delivery service in 2008. And it’s been leasing planes to create its own shipping service. Whole Foods has become the latest piece of the puzzle.

Source: Barrons Next

How Amazon, Walmart And Whole Foods Are Losing To Mom-And-Pop Grocers

May 1, 2017 in Latest News

Once upon a time, mom-and-pop grocers could succeed with the basics: standard product offerings, a good location and decent customer service. But as leading grocery chains and e-retailers like Whole Foods, Walmart and Amazon continue to innovate, they are rendering many independent grocery stores obsolete. To survive, these local players within small markets are stepping up their game to compete.

“For truly independent grocers, there’s so much great competition from existing grocers,” Weitzman executive managing director Bob Young said. “Small format grocers used to be able to offer better levels of service.”

Weitzman leases more than 44M SF and manages more than 22M SF of retail space throughout Texas with a focus on grocery-anchored centers. Across that space, Young has seen many chains offer new services aimed at customer convenience and many small operators struggle to keep up.

Grocery shoppers have never had such an abundance of options from which to fill their pantries and refrigerators. Busy consumers can order groceries online from e-commerce retailers like Amazon Fresh and Thrive Market, or opt for delivery from local grocers using Instacart or Shipt. Then there are the big-box chains like Walmart that have a pool of shipping and distribution resources, usually resulting in cheaper products.

This shift in customer preference toward online convenience is a costly expense that forces independent grocers to charge higher prices than the big chains, decreaing their appeal and ability to compete.

Competing With A Niche Concept 

It is for this reason that local staples like Ann Arbor, Michigan-based Zingerman’s are carving out a space for themselves in the market.

“Strengths lead to weaknesses,” Zingerman’s Community of Businesses co-founding partner Ari Weinzweig said. “Every grocery store now has high-quality olive oils and goat cheese, and when that’s more widely available, [we’re forced to] compete with everyone.”

When Zingerman’s first opened its doors as a corner grocery in 1982, many of its specialty foods were novel. Since then, Zingerman’s has turned into a community of businesses that includes a creamery, a bakery, a deli, a coffee company and several other concept locations throughout Ann Arbor.

“If a grocer goes in a neighborhood where large grocers already are, they have to have a merchandising niche that’s specific to their area, and then they must have the wherewithal to operate the store well,” Weitzman’s Young said.

For example, Young has seen concepts linked to a cultural group, such as an Asian market with fresh fish and imported goods, succeed in a trade area matching its demographics.

The Definition Of Great Shopping

Sevananda Natural Foods Market general manager Ahzjah Simons said that though her Atlanta store competes with chains like Whole Foods and Sprouts, they also have somewhat of a symbiotic relationship.

“Now that some of the major stores carry some specialty items we’ve been carrying for years, it’s more competitive,” she said. “But we sometimes tell customers to look at the chains for things we don’t have, and Whole Foods does the same for us.”

Sevananda and Zingerman’s focus on things that set them apart.

“If your definition of great [grocery shopping] means free delivery, then there’s Amazon for you,” Weinzweig said. “If your definition of great [grocery shopping] is having a conversation with a store owner, tasting the product and learning where it came from, that’s us.”

A renewed interest in healthy eating has simultaneously revitalized interest in many small natural grocers, spurring the creation of more healthy options from national grocers.

A Sense Of Community

Both Sevananda and Zingerman’s have worked hard to attain something most big grocers lack: a sense of community. Sevananda’s distributes a magazine for co-op owners and hosts public programming and workshops for the community, while Zingerman’s hosts events such as food tours and baking classes through sister businesses for local residents.

Despite troubling retail trends, Sevananda is on the upswing. The consumer-owned store has been around for more than 40 years and has about 3,800 member owners. In addition to other perks, a board can vote to pay owners returns.

“Over the last five or six years, we weren’t profitable and did not pay our owners,” Simons said. “We’ll be back in a position do to that soon. Sales have returned to where they were and are starting to surpass that.”

Source: BISNOW

Mall Owners Courting Grocers

March 13, 2017 in Uncategorized

Mall owners are working to attract supermarkets to fill empty space as retailers around the country shutter stores.

Experts said grocers have become coveted tenants as mall landlords work to transform their properties into one-stop destinations that draw consumers back several times a week, the Wall Street Journal reports. Wegmans Food Markets Inc. recently leased 194,000 square feet at Natick Mall in Massachusetts, replacing J.C. Penney, and Whole Foods and Kroger agreed to move into malls in Indiana and Ohio, respectively.

In addition to grocery stores, International Council of Shopping Centers (ICSC) CEO Tom McGee said malls are bringing in restaurants, gyms and movie theaters to attract more Millennials by combining convenience with experiences.

 

Source:  Bisnow

Whole Foods Pulls Back On Expansion, Announces Store Closures

February 13, 2017 in Latest News

Last week, Whole Foods Market announced plans to close nine stores and table an expansion it announced last year. The retailer posted its sixth-straight quarter of same-store sales declines.

The natural food grocer had planned to expand to 1,200 locations in the U.S., more than doubling its nearly 470 locations throughout the U.S., UK and Canada. But now Whole Foods will wait to see how the roll-out of around 100 locations goes before revisiting expansion talks.

Lately, competition has been fierce for the high-end grocer, Fortune reports. On a call with investors, Whole Foods CEO John Mackey said, “the more conventional, mainstream supermarkets have upped their game … the world is very different today than it was five years ago.”

Whole Foods will close two stores each in Colorado and California along with locations in Chicago, New Mexico, Utah, Arizona and Georgia. Mackey said the stores set to close are older, smaller locations that Whole Foods had acquired. Many were near a larger, more modern Whole Foods or occupied spaces with leases that were due to expire. Two leases were terminated. Whole Foods said it would take a $30M charge in the second quarter related to the store closings.

In an effort to stabilize profits, the chain is turning to consumer data and promotions. A new partnership with UK-based Dunnhumby, a consumer data subsidiary of Tesco, aims to help Whole Foods improve merchandising and offers to loyal customers. Cost-cutting efforts are also underway and the grocer is working to slash operating costs by $300M through layoffs and centralizing operations.

Last year the chain pushed to draw customers back by aggressively lowering prices and experimenting with value-driven Whole Foods 365 concepts, specifically targeting areas with large hipster populations. So far the company has opened 13 stores this year with roughly 80 new stores in the pipeline.

 

Source:  Bisnow

The Natural Foods Stores Effect On Real Estate: Fact Or Fiction?

May 16, 2016 in Latest News

Trader Joe'sWe’ve made it.

Such is the sentiment that washes over many a mind after learning that a Whole Foods or Trader Joe’s has decided to set up shop in the neighborhood. It is a commonly held belief that a neighborhood has “arrived” once it has been graced by the presence of one or both of these high-end natural food retailers. The same has been said for the arrival of a Starbucks. The thinking is that the coming of these vendors is an endorsement of a neighborhood’s status as legitimate, desirable, up-and-coming or sufficiently bourgeois. An extension of this line of thought is that there will be increased demand to live in the neighborhood, resulting in higher-than-average home price increases.

‘The Whole Foods Effect’

Several studies have been done to determine whether the so-called “Whole Foods Effect” or “Starbucks Effect” is real, and whether proximity does actually result in better appreciation for your most important asset. Perhaps the most recent, revealed in a new book titled Zillow Talk: Rewriting The Rules of Real Estate, shines some light on this phenomenon. According to Zillow, one to two years after a Whole Foods opens, the median home near the Whole Foods appreciates 9 percent more than the median home in the same city; one to two years after a Trader Joe’s opens, the median home near the Trader Joe’s appreciates 10 percent more than the median home in the same city. Zillow also tells us that the average home appreciated 71 percent between 1997 and 2014, while homes near a Whole Foods or Trader Joe’s appreciated 140 percent and 148 percent, respectively.

“The Whole Foods Effect” should be of particular interest to Miami-Dade and Broward County residents; we have had a significant influx of natural food retailers in the past year or so. Specifically, three Whole Foods and two Trader Joe’s locations have been opened in Miami-Dade and Broward counties since January 2015. If “The Whole Foods Effect” is real, then the areas near these locations should be primed for better-than-average real estate returns. In fact, they should have already started seeing better-than-average returns. And so we are presented with a great opportunity to test the “Effect.”

But testing the “Effect” is easier said than done. What exactly does “near” mean? If you live in Davie, perhaps you could say that “nearby” is a mile in any direction. If you live in downtown Miami, that mile is a lot denser and can be much more difficult to navigate … and your definition may be different. For the purposes of this article, we will be using transaction data based upon ZIP codes from Trendgraphix Inc., a provider of accurate local real estate market data. Of course, this isn’t a perfect system. There will be homes in a ZIP code that probably are not “near” the natural food retailer of the same ZIP code; there may be other homes that are “near” the retailer, but that are in a different ZIP code. That said, “near” is certainly vague and we will make do with the tools at our disposal.

The Numbers

Whole Foods opened a location in North Miami (ZIP code 33181) in 2013 and a new location in downtown Miami (ZIP code 33131) in 2015. According to Trendgraphix, the average sold price of homes in Miami-Dade rose 3.1 percent year-over-year for the period February 2015 to January 2016.

In the past year, average sold prices skyrocketed year-over-year in 33181 (North Miami) by 29.2 percent to $376,000. These numbers were likely skewed by abnormally large sales in July, which averaged $639,000; however, it was still a great year to be near Whole Foods North Miami. Somewhat surprisingly, despite adding a Whole Foods, 33131 (downtown Miami) failed to even keep pace with the Miami-Dade market, only seeing a year-over-year price increase of 2.4 percent. This is perhaps more of a reflection of the condo market slowdown that started last year.

In 2015, Broward saw a Whole Foods open in Pompano Beach, a Traders Joe’s open in Fort Lauderdale, and one of each open in Davie. According to Trendgraphix, the average sold price of homes in Broward rose 5.8 percent year-over-year for the period February 2015 to January 2016. Surprisingly, all three areas’ ZIP codes underperformed the larger Broward market.

Effect or Myth?

With the exception of North Miami’s 33181 and its more seasoned Whole Foods (built in 2013), all other local ZIP codes with new natural foods retailers underperformed their larger countywide markets. So, is “The Whole Foods Effect” a myth?

The case for the “Effect” is strong. According to Zillow, the nationwide numbers actually do pan out and validate the “Effect” (despite the numbers reported for our local market). It’s also a strong theory because it simply makes sense. People love these stores. People inundate the motherships with requests to open new stores in their neighborhoods. People pay more for the privilege of shopping at these stores and many feel better about themselves simply walking their aisles.

The unexpected numbers seen locally in the past year around the Miami-Dade and Broward natural foods stores probably have less to do with the validity of the “Effect” and more to do with the randomness of small sample sizes and the gradual effects of a general transition from seller’s market to buyer’s market.

There is still is a certain cachet associated with shopping at Whole Foods and Trader Joe’s. It is a cachet that people pay for at the register and it is not a cachet that should do anything but help the value of your home.

 

Source:  Miami Herald

Homes Near Trader Joe’s, Whole Foods Worth Twice As Much

February 1, 2016 in Latest News

Trader Joe'sHomes close to Trader Joe’s or Whole Foods locations gain value more rapidly than houses farther from the trendy retailers, an analysis by Zillow finds.

At the end of 2014, homes within a mile of either store were worth more than twice as much as the median home in the rest of the country, according to a new analysis in the paperback edition of Zillow Talk: Rewriting the Rules of Real Estate published Tuesday.

RealtyTrac last year analyzed price appreciation near Trader Joe’s and Whole Foods stores in Palm Beach County and declared Trader Joe’s the clear winner.

“Like Starbucks, the stores have become an amenity in their own right – a signal to the home-buying public that the neighborhood they’re located in is desirable, perhaps up-and-coming, and definitely improving,” says Zillow Group Chief Economist Stan Humphries. “Like a self-fulfilling prophecy, the stores may actually drive home prices. Even if they open in neighborhoods where home prices have lagged those in the wider city, they start to outperform the city overall once the stores arrive.”

No amount of data analysis can answer this question: Are Whole Foods and Trader Joe’s the cause of rapid appreciation, or are they simply locating in affluent neighborhoods that would see price increases anyway? Zillow punts, saying stores and home prices are “definitely related.”

“The grocery store phenomenon is about more than groceries,” Rascoff says. “It says something about the way people want to live – in the type of neighborhood favored by the generations buying homes now.”

 

Source:  Palm Beach Post

Study: Trader Joe’s Boosts Home Values

August 24, 2015 in Latest News

Trader Joe'sAccording to a new study, homes near a Trader’s Joe’s increase in value as much as 40 percent.

By comparison, homes near a Whole Foods have seen 34 percent appreciation since they were purchased. According to the study’s authors, RealtyTrac, a provider of comprehensive housing data, 34 percent appreciation is average for all zip codes nationwide.

Homes near a Trader Joe’s also had a slightly higher value on average: $592,339, five percent more than the $561,840 average value for homes near a Whole Foods. The average value of homes was $262,068 across all zip codes nationwide.

In its analysis, RealtyTrac looked at home values and property taxes for 1.7 million homes, condos and co-ops in 188 zip codes with at least one Whole Foods store (and no Trader Joe’s stores) and 2.3 million homes, condos and co-ops in 242 zip codes with at least one Trader Joe’s store (and no Whole Foods stores). The average of current home values were compared to the average of home values at the time the home was last purchased.

The study appears to underscore the appeal of Trader Joe’s, with several communities orchestrating campaigns over the years to bring a store to their town. It also demonstrates the leverage many coveted retailers such as Trader Joe’s have in securing favorable real estate deals, whether by gaining prized locations or tax breaks and other economic incentives. Premium locations are said to have a “magnet-like tendency” to draw other premium stores.

RealtyTrac spokesperson Ginny Walker said homes near Trader Joe’s and Whole Foods should both see appreciation because both study income levels, demographics and other data to identify up-and-coming markets before they enter. Ms. Walker told the Reno Gazette-Journal, “These two chains are disciplined in their decisions even if it means moving slower into markets than some of the lower end chains.”

Writing for the Christian Science Monitor, Schuyler Velasco believes the higher appreciation by Trader Joe’s reflects that their stores are more heavily concentrated on the coasts while Whole Foods has more in the middle of the country.

Steve Kirn, executive director of the Miller Retail Center at the University of Florida, believes Trader Joe’s, with a smaller footprint, is able to reach more “hot” urban areas that are attracting young people and set to see appreciation.

 

Prof. Kirn told the Tampa Bay Times, “People are not willing to go into the distant suburbs and, generally, Whole Foods builds more in suburban areas than in downtown kinds of areas.”

A study earlier this year from real estate research group Zillow similarly found that homes within a quarter mile of a Starbucks store appreciated much faster than those further away.

 

Source:  retailwire

The Grocery Chain That Soared 65% In 2014

January 5, 2015 in Latest News

grocery-storeIn the grocery industry, investors have gotten used to Whole Foods Market dominating the pack, with its emphasis on higher-margin organic and natural foods that cater to a premium customer base.

Yet when you look at some of the best-performing stocks in 2014, Whole Foods is nowhere to be seen.

But traditional grocery giant Kroger has lit up the charts with a 65% gain last year. Effectively, Kroger has taken the best bits of Whole Foods’ strategy and integrated them into its own business model, and so far, the results have been extremely successful.

As in most industries, the name of the game in the grocery business is growth, and lately, Kroger has been one of the most successful grocery companies in producing the growth that investors want to see. Kroger managed to produce 11% higher revenue in its fiscal third quarter last month, with same-store sales growth of 5.6% coming in well ahead of Whole Foods and its slower 3.1% rise in comps.

More importantly, Kroger is getting even more of its revenue to the bottom line in the form of profits. Third-quarter earnings per share jumped 21% from year-ago levels, showing the rise in margins the company has managed to achieve. Kroger also pushed its expectations for full fiscal-year earnings higher, with hopes that a better winter-weather picture than last year could help drive gains above its previous targets.

Kroger has achieved this success using a wide variety of different strategies.

First, it has challenged Whole Foods on its own turf, promoting greater sales of organic and natural foods in an attempt to capture the higher margins that those products command compared to traditional grocery offerings. With natural foods boasting double-digit percentage growth, Kroger still has plenty of room to expand and become even more of a powerhouse in the space, even as it already has reached the No. 2 spot behind Whole Foods in terms of sales of organic food.

Kroger hasn’t just counted on organics, though. Kroger’s private-label store brands have taken off, making up more than a quarter of the grocer’s overall revenue and having seen growth accelerate recently. With many shoppers looking for ways to save money, private-label sales are essential, yet paradoxically, they often mean more profits in Kroger’s pocket because the grocery chain doesn’t have to share margin-enhancing profits with a brand-name food producer.
In addition, Kroger has looked at vertically integrating its business even further, with the company owning its own food production facilities to make milk, juice, and other beverages for which freshness carries a greater price premium.

Of course, one big challenge Kroger will have now that it has become a major threat to Whole Foods is whether it can sustain the competitive advantages it has earned. In response to its recent slump, Whole Foods has made several efforts to bolster its brand, with a new marketing campaign touting its status as America’s Healthiest Grocery Store and seeking to cement its place in American households. If Whole Foods can demonstrate to Kroger shoppers that they’ll find better products by switching, then Kroger could see its recent comparable-store sales gains start to slow.

Another concern that many investors have is that Kroger has turned to the credit markets in a big way to help finance its acquisition-led growth spurt. With $11.5 billion in debt outstanding, Kroger has identified the need to get the liability side of its balance sheet under control, but it could nevertheless take a year or more to get Kroger’s debt levels down to where management feels comfortable in the long run.

Kroger has made the most of the opportunities it has to grow its business, making good use both of acquisitions and of boosting its own business from within. Investors shouldn’t expect to see 65% returns year in and year out, but going forward, Kroger has several promising strategies that could generate more positive gains for long-term shareholders for years to come.

Source:  Motley Fool