Profits ripening at the New American Grocery

Head to Dollar General and Whole Foods to bag growth in the food business.

By Traders Reserve May 31, 2013 3:52PM

Grocery shopping (© Randy Faris/Corbis)

By Michael Shulman

The successful New American Grocery is now defined, more than ever, by catering to personal choice, preferences and pocketbooks. The personal pocketbook of the consumer is still suffering from the Great Recession, so many head to Dollar General (DG). The consumer's taste buds are looking for quality food -- and prepared meals -- found at Whole Foods Market (WFM).

These two outfits -- and Costco (COST) -- lead the U.S. in growth, and if you want to invest in food, you invest in growth. Nothing else really matters.

My twin sons, when they were young and tolerable, loved going to the local dollar store to buy something junkie and shiny, long before iPhones and tuition bills became the norm. That store was a dirty, dingy Dollar General. It is still there -- maybe a bit cleaner -- and is now packed with groceries. And where my sons go to college, in small towns in rural America, the Dollar Generals are shiny and clean and filled with groceries and fresh produce -- pretty much the norm across the country.

The Great Recession eliminated the ability of many to load up a shopping cart at Wal-Mart (WMT) once a month -- they now go to dollar stores once a week or once a day. DG is growing at a furious pace, using cheap strip mall leases to move or open brand new stores. And, as their volume in groceries and other items in increases, their unit costs are falling, enabling them to expand using internally generated cash flow.

Whole Foods is known to the unknowledgeable (and my friend Martha) as Whole Paycheck. The ignorant are, as usual, to be found on Wall Street. While frugal New England Yankee Martha shops at Whole Foods because of quality, the men and women of Wall Street eat out and judge the chain by the one store they walk by now and again in lower Manhattan.

The real Whole Foods story is best seen in a store near my home. Analysts said that store could not do well, not enough income in the area. They never bothered to go to the store and watch the shoppers. The store quickly became the biggest lunch and dinner takeout place in the area -- despite the customers having a smaller amount of disposable income to spend.

Good food is good food, and Whole Foods has more than 100 items in the salad bar and 50 different prepared offerings to choose from.

Dollar General has grown 23% over the past two years, Wal-Mart just 11% and Target (TGT) 9%. DG stands out among the dollar stores such as Dollar Tree (DLTR) due to this growth. Whole Foods has grown more than 30% in the past two years and last quarter knocked it out of the food court: revenues were up 14%, earnings were up 19%. Its margins are four or more times the industry average. And the company just announced it will reduce prices and will, by 2018, require suppliers to label their GMO-based (genetically fiddled) products. More growth ahead.

Go eat some shares.

More from Traders Reserve

Jun 1, 2013 9:24AM

Who the hell needs 100 items on a Salad bar?.....That sounds stupid..

And 50 prepared or packaged items.....Crap food at its best.

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.