Whole Foods' main competitors are Sprouts Farmers Markets (SFM) and Trader Joe's. However, Whole Foods' long-time strategy of convincing people to pay more for organic, natural foods has been so successful that such foods are increasingly showing up on shelves in many American grocery stores, including major supermarket behemoths such as Kroger (KR). Though Whole Foods has been successful in charging premiums for its organic groceries for quite some time, it was recently acquired by Amazon.com Inc. (AMZN), which plans to cut costs, making it more competitive with chains such as Target (TGT) and Kroger.
The History of Whole Foods
Whole Foods was founded by John Mackey, Renee Lawson Hardy, Craig Weller and Mark Skiles, and the original Whole Foods Market opened in Texas in 1980. At the time, there were only a handful of natural foods stores in the United States, but the founders believed the products being sold in these small, specialty stores were ready to go mainstream. They borrowed money from friends and family, hired a staff of 19 and set up shop in a large Austin storefront, a gamble that paid off in a major way. While continuing to open new stores, Whole Foods fueled its rapid growth by acquiring other natural foods retailers throughout the 1990s. In 2002, the company expanded into Canada. Two years after that, Whole Foods found footing in the United Kingdom by acquiring seven Fresh & Wild stores.
Sprouts Farmers Market
Whole Foods' most direct rival is Sprouts Farmers Market, a company founded by members of the Boney family. They opened the first Sprouts store in 2002 in Chandler, Arizona. Like Whole Foods, Sprouts went through a rapid-growth period due to acquisitions and new store development. On the Nasdaq since 2013, Sprouts operates more than 165 stores in eight states. It focuses on selling fresh, organic produce and natural products, but Sprouts also prides itself on offering these products at reasonable prices.
Whole Foods' other main rival company is Trader Joe's, a privately held business that began as a chain of convenience stores in 1958. Nine years later, the chain's founder changed the name from Pronto Markets to Trader Joe’s. The California-based business also started packaging foods under the store's name. This move helped Trader Joe's develop a reputation for offering inexpensive yet innovative products, key to its value-based pricing strategy. Many, though certainly not all, of their products are natural and organic.
(For related reading, see: Evaluating Grocery Store Stocks.)
When Amazon announced the acquisition of Whole Foods in June 2017, grocery stocks tumbled — even some not considered as direct competitors, such as Walmart Stores Inc. (WMT). Sprouts plunged 14% before closing down 6%, and Kroger was down 9%. Ahold Delhaize (ADRNY) — parent company of Food Lion and Giant supermarkets — and Target were also down 8% and 5%, respectively. Meanwhile, Amazon gained 2%, nearly earning back in terms of market capitalization what it paid in the acquisition, and Whole Foods (WFM) gained 29%.
The American market for organic and sustainable foods has been predicted to experience double-digit growth over the next years. However, some don't believe this growth is due to actual product demand. For example, Alan McHughen, a botanist at the University of California-Riverside, argues that the whole industry is "99% marketing and public perception."
Whether organic foods are genuinely better for people — and if so, how much better — is up for debate; the stance often depends on the information source. However, the fact that this is a growing trend in consumer spending is undeniable. Even behemoth supermarket chains are jumping on the bandwagon. For example, the Simple Truth and Simple Truth Organic brands boast no artificial preservatives or artificial sweeteners and present products in simple packaging with easy-to-understand ingredient lists. Consumers can find these items shelved beside highly processed, preservative-loaded alternatives in any store under the Kroger family umbrella, a sign that supermarkets are aware of the need to cater to the wide range of shoppers coming through their doors.