Profits ripening at the New American Grocery
Head to Dollar General and Whole Foods to bag growth in the food business.
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.
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