Whole Foods: How Many Health Nuts In Boise?

I keep a list of growth stocks that I might be interested in buying if they ever tank enough to sell at less than 20 times earnings. Whole Foods Market (WFMI), currently selling at 32 times earnings, is on the list.

This stock has enjoyed phenomenal growth, but it has been in a downtrend for the last year. I have been watching for signs that WFMI is bottoming out, but recent developments lead me to believe that the company is headed for more trouble in the months ahead.

WFMI is currently operating 191 stores and it has plans to open 80 more this year. Whole Foods’ stores in large cities have certainly done well, but as the company grows they are of course forced to open their new stores in smaller cities, such as Birmingham, AL, pop 231K; Boise, ID, pop. 193K; Sugarland, TX, pop 76K; and Portland, ME, pop. 64K.

I think you need a much larger city to be able draw enough of the kind of customers who shop regularly at WFMI. You need people who have bought into the Whole Foods philosophy: people who feel better about themselves when they pay premium prices for goods that are readily available at better prices elsewhere. There may be 100K people like this in New York or Los Angeles, but how many are there in Boise?

WFMI also appears to be opening these new stores with a complete lack of insight into the sensitivities, loyalties, and regional traditions of smaller U.S. communities.

A Feb. 7 AP article, "Maine Whole Foods to Sell Live Lobsters", illustrates the problem. Whole Foods is opening a 46K square foot store in Portland next week. Although they do not sell lobsters in their other stores, “in the name of crustacean compassion”, they are planning to sell them in Portland. But instead of buying lobsters off the Portland wharf several blocks away from the store, they are planning to use a New Hampshire distributor who meets their “demands for how the lobsters should be treated”.

This has already caused incalculable PR damage in Portland. “I think it’s unfair to suggest that the 7,000 (Maine) lobstermen and hundreds of lobster dealers and retailers don’t know how to handle a Maine lobster,” said Kristen Millar, executive director of the Maine Lobster Promotion Council. Tom Martin, a Portland lobsterman, noted that “When they say they buy local and support local fishermen and farmers, and then they tell us we’re doing everything wrong, obviously it doesn’t sit very well with us.” If you are going to sell lobsters in Maine, you need to know that Maine citizens will not buy lobsters imported from New Hampshire, even if the crustaceans were originally caught in Maine waters.

Furthermore, to prevent customers from boiling their lobsters live in the traditional manner, Whole Foods plans to electrocute them in the store with a device called a “CrustaStun”. Tom Martin, the lobsterman, was quoted as saying: “A lobster electric chair? I wonder how that will sound for their public relations, that they’re going to give the lobster the electric chair.” And to finish off this public relations catastrophe, which must have alienated almost all of Whole Foods’ potential customers in Maine, P.E.T.A. weighed in on the issue: “Our expectation is that all Maine stores that sell live lobsters will have to implement animal welfare protocols in order compete with Whole Foods... ” Nothing could be further from the truth.

It could be that Whole Foods is about to learn an expensive lesson. I am not a short seller, but this is tempting.

Comments

[RyanKalamaya]

One of Whole Foods' most profitable stores is in Boulder, Colorado, which boasts a population of 100,000. Boise is nearly twice the size. Moreover, Whole Foods started in Austin, Texas, hardly a "large city" on par with NYC or L.A.

[huangjin]

Haven't been to Boise but is it culturally and economically similar to Boulder and Austin? Maybe Whole Foods has a bobo population guide to determine new store openings.

[bk]

There is already a fantastic organic/health food co-op in Boise. It seems to me that this place would retain most of the "health nut" crowd, but a Whole Foods store could be successful if it draws customers who weren't already into that kind of food. I sincerely doubt Whole Foods could offer better quality/value/selectio... than the place I'm thinking of.

[the_Bird]

The Whole Foods in Hadley, MA is incredibly popular, alway jammed to the gills. Total population of the entire COUNTY is about 150k. Hadley itself has maybe 5,000 people, it's nestled in between a couple of "cities" with 30k - 35k each. But, the demographics of the community are perfect for the market - it's full of Bobos. So, the size of the cities WFMI is moving into is almost irrelevant, if the demographics are right.

[User 106187]

The store in Hadley MA, was originally a store called Bread & Circus. Whole Foods basically walked into the store and hung their sign to an already popular location

[User 106187]

The store in Hadley MA, was originally a store called Bread & Circus. Whole Foods basically walked into the store and hung their sign to an already popular location

[rodwoodward]

A Whole Foods in Sugarland TX should be easily successful. Although Sugarland proper is not that heavily populated, it's in the Houston metro area and that part of Houston has a lot of money (think oil-industry middle managers and higher).

Sugarland reminds me a lot of where I lived in San Antonio (close to a Whole Foods)...a very rich, Republican, soccer-mom enclave where I'm guessing the Whole Foods will be an anchor in a shopping center with other destination places like 1) Borders or Barnes and Noble, 2) a Super Target, and 3) a Starbucks. Small city--yes--but a big metro area that continues to grow with a lot of money that's not going anywhere.

[anniemck]

We are thrilled to have Whole Foods in Boise! We relocated here from Los Angeles/Pasadena 4 years ago. Much if not most families and retired couples here have relocated from cities in CA.

This city is high growth (26k home starts last year). Idaho has national and international investors creating infrastructure now. It's been a land grab opportunity from first time home buyers to Andre Agassi.
The nearest Whole Foods is a 5 hour drive to Bend Oregon. So the local Co-op is truly their ONLY competition.

[User 109011]

Having recently visited Boise for a week, I think the people I met...especially in the downtown area are people who will shop at Whole Foods for many things. There is no Trader Joes yet but I think it would also be successful in Boise. Lots of those "informed and aware" Californians that you spoke about are finding it refreshing to get out of LA with all of it's stressors and go to Boise where people are more friendly...providing a life with lot less stress.

[ATA]

I can't wait for Whole Foods to come to Boise. I moved here less than two months ago from Portland, OR and I miss Whole Foods. IMO, the co-op is no competition at all. It's about twice as expensive as WF, the store is sloppy and disorganized, the staff smells of BO and/or pot, and, on top of all that, it's a co-op. You have to pay a membership fee to get the posted prices. I can't be the only person in Boise annoyed by this (and I know I'm not). The competition between the two will be based on the customers' vision and philosophy, not quality, service, or value.

[BoiseHealth Nut]

C'mon dude, Boise is all about healthy outdoorsy people. Mountain bikers, hikers, skiiers, kayakers, equestrians, bicycle commuters... Whole Foods will do VERY well here, especially in it's proposed location.

There is room for both WF and the Boise Co-op here. In fact, my hope is to see the Co-op return to it's humble roots, leaving the $8 boutique chardonnay-laced tomato sauces to WF.

Trader Joe's would indeed do well here. How I long for it!

[Tucker]

Somewhat off topic, but I would like to comment on this remark: "You need people who have bought into the Whole Foods philosophy: people who feel better about themselves when they pay premium prices for goods that are readily available at better prices elsewhere. "

Unfair as it is, I won't comment on the value judgement made about people who shop at Whole Foods and how that makes them feel, but I would like to comment that Whole Foods is no longer the "Whole Paycheck" it once was. In fact, while shopping for an ingredient and produce rich recipe for Winter Vegetable Pie with homemade mushroom stock, I compared Whole Foods prices with that of my local grocery store, Harris Teeter.

Whole Foods came out way on top, both price-wise (cheaper) and with respect to organic foods. In many cases, I was able to buy an organic product at Whole Foods for equal or less money than a non-organic product at the conventional store.