Sunday, 28 April 2013

A health boost for your portfolio

As a consumer you have probably noticed the trend to watching what you eat and calorie counting. Whole Foods (WFM) America's healthiest grocery store is benefiting from this embrace of a healthier lifestyle. At the end of 2012 WFM operated 335 stores with a long term target of 1,000 just in the US. WFM has also  started to open stores in the UK and Canada. Apart from the financial crisis WFM has averaged same store sales of 8% per year.



Source: Whole Foods Annual Report

In 2012 organic sales were 5% of the overall market with growth at 8% (blue line) in 2010 versus 1% for total food sales (black line see chart below). Buying organic is more expensive and as can be seen in the chart below sales were affected during the recent financial crisis. Given high healthcare costs in the US eating healthy food is seen as being preventative, pay a little extra now so don't pay more later. With low market share we believe growth in natural/organic should continue for a few years to come.


Source: Morgan Stanley and the Organic Trade association


Everyone knows each others salary?
WFM is unique in the way it is run. To be fair all staff details including salary are available to everyone. WFM has an open book policy with staff, staff can find out what their co-workers and even management earn. WFM also caps management income to 19x the average wage including bonuses of all team members. This compares to 350-500 times at large publicly traded companies. The co-founder and co-CEO John Mackey has taken it a step further with a wage of $1 with no bonus and stock options.

Giving back
At WFM 40% of employees own some equity in the company and voluntary turnover is less than 10% unheard of in the retail industry. According to the annual report in 2012 more than 14,500 employees exercised 6.7 million options on average $13,600 each. Customers like to shop because they see familiar faces (less than 10% turnover), for its healthy food and they feel better about themselves. Last year WFM cash and product donations to charity exceeded their goal of 5% of after tax profits.

Get what you pay for
All in all WFM is one of a scarce breed of companies that encourages a healthier lifestyle while also giving back to the community. WFM has always traded at a premium to the market given its growth but just like healthy eating what seems expensive in the short term ends up being cheaper and better for you in the longer run.

Jason

Decisive is long WFM stock

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.