In this report, United National Foods (NASDAQ:UNFI), Whole Foods Market (NYSE:WFM), Safeway (NYSE:SWY) and Kroger Company (NYSE:KR).
Whole Foods Market (NYSE:WFM) has been the leading organic food supermarket. Its stock price has continued to soar to new heights, almost tripling in the last two years. At the same time, traditional supermarket stocks such as Safeway (NYSE:SWY), that operates Randall’s and Safeway chains, and Kroger Company (NYSE:KR), have been going nowhere.
And, just when you have been ready to question whether the recession, high unemployment, a shrinking middle class or the mere fact that traditional supermarket chains are carrying more organic products, would slow Whole Foods’ growth, the company has been able to post yet another set of impressive sales figures.
In fact, it is fascinating how traditional supermarkets have been unable to expand their organic food selection. It appears they are experiencing a huge challenge: If the selection is too limited, health conscious consumers continue shopping at Whole Foods. But, if you increase the selection too much, your shelf space is still limited, and you end up becoming a hybrid that isn’t as good as Whole Foods, but is no longer appealing to the store’s core customers who are there to buy non-organic and/or processed foods.
How should you play the rapidly growing organic food market? Whole Foods is certainly one option. However, at a Price/Earnings ratio of 36, the stock seems a bit expensive. Another strategy is to invest in the suppliers of organic foods. One of the leading companies in this arena is United Natural Foods, Inc. (NASDAQ:UNFI).
UNFI distributes approximately 60,000 products and operates twelve natural product retail stores in the U.S. The company’s customers include both conventional supermarkets and natural product retailers, so as the demand for natural and organic products goes up, United Natural Foods is poised to benefit.
United Natural Foods’ stock is up only slightly this year, but its long-term performance has been solid. UNFI’s current P/E ratio is 24.8.
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