My belief is that Whole Foods' investments in new stores is really going to start paying off a year or two in the future. While there's some debate about whether they are opening stores in locations where demand won't exist (such as Portland, ME or Boise, ID), I disagree. Of the cities in the future stores list that I'm familiar with, all would be excellent locations for a Whole Foods (or two or three). Here in San Francisco, they have two locations with three more on the way...and they could easily build another five to meet the demand.
Will traditional grocers take away their business? Sure, Safeway and the like are selling more organic food, and they'll intrude a little bit into Whole Foods' market (this is already showing up in their financial results), but the traditional grocers still have no choice but to stock aisle after aisle with the types of food their customer bases demand: cheap, preservative-filled convenience food. They can't abandon this type of food in favor of organic; they'll lose as many customers as they gain. The only way traditional grocers can truly compete against Whole Foods would be to launch new, natural store brands. Think "Safeway Natural" stores, entirely different from regular Safeways. This is still a few years away, I think, and, even then, they won't get it right the first time. And, by acquiring Wild Oats, Whole Foods took away the only springboard the big grocers could have had. Now, if they want to try to compete for real, they'll have to start from scratch.
Trader Joe's and Tesco occasionally get mentioned as obstacles to Whole Foods' growth. Trader Joe's, however, isn't the bargain-price Whole Foods it's often made out to be. It's a different kind of store appealing to a different kind of consumer. The overlap between these two simply isn't as great as some analysts believe. Tesco, on the other hand, will be interesting to watch. I've been to a couple of their stores in England, and they are fantastic.
In summary, I believe that most of the concerns dragging down Whole Foods' stock price--especially slowing growth and increasing competition--aren't merited. Give it a year, and when the company's agressive expansion starts hitting the bottom line and competitive fears subside a bit, the stock will recover.
I see at least 52 in a year (August 2008) and 70 or higher in two years (August 2009).
$44.59 (08/25/07)
