Can Whole Foods Keep Up In a Trader Joe’s World?

TJ’s stores are twice as productive as Whole Foods. And many products are cheaper.

By

Avi Salzman

March 24, 2017 2:03 p.m. ET

 

 

Whole Foods' stores are facing increasing competition from Trader Joe's. PHOTO: JACK OTTER

Whole Foods changed the grocery business forever by offering the finest selection of natural and organic foods outside the Garden of Eden itself.And then people stopped wanting to pay up for the good stuff. In the past two years, Whole Foods’ growth stalled, and its stock price has tumbled 45%.

 

There are several reasons for this: The company’s expansion strategy was probably shortsighted, and competitors like Kroger stepped up their games, offering a much wider selection of produce.

But the most substantial competitor for Whole Foods is Trader Joe’s, the low-profile privately owned chain with goofy addictive products like “Speculoos Cookie Butter.” Trader Joe’s has found a successful niche peddling both affordable health-conscious food and unhealthy indulgent snacks. And it’s got plenty of locations within a short drive of many Whole Foods. In fact, 42% of Whole Foods stores are located within a five-minute drive of Trader Joe’s, up from 39% four years ago, according to UBS analyst Michael Lasser. That’s more than Kroger at 34% and Sprouts Farmers Market at 12%.

Whole Foods has been expanding quickly since 2008, growing its store count by 6.7% a year, but Trader Joe’s has nearly kept pace, expanding by 4.9% a year.

True, Whole Foods has a much wider selection of produce and organic goods than most Trader Joe’s stores. But that might not be a strong enough selling point for the semi-committed, marginally healthy consumer (like yours truly) to make the trip, especially if they’re concerned about having to spend more.

Trader Joe’s has found the right niche at the moment, and actually sells more per square foot of store space despite having lower prices than Whole Foods on many products. Much more, according to Lasser: “Natural and organic hard discounter Trader Joe’s has roughly twice the sales productivity of Whole Foods.”

Lasser recommended that shareholders sell Whole Foods this week, issuing a price target of $25, below its recent price of $29.

Whole Foods has defined and perfected the organics trends. But the rest of the world has caught up. And now it looks like we’re living in a Trader Joe’s world.

Big Picture: Whole Foods is losing ground as healthy food becomes a more competitive industry. Trader Joe’s is appealing to more consumers these days.