The world is no longer going Organic; it has arrived. Sales of organic food and non-food products in the United States total more than $50 billion growing at double-digit rates.

Organics are supposed to be good for the health of consumers and just as good for purveyors of organic goods: but just how good and at what price?

The Organic Food Myth

America is flocking to organics like pilgrims to Mecca in the belief of living a healthy lifestyle. If this were true, why are 70% of Americans either grossly overweight or obese? How healthy is early onset diabetes? I guess it takes a lot of Kale to maintain a 350-pound body.

The second myth is that organic foods are somehow grown in pristine fields untouched by pesticides. The earth is covered with pesticides. Organic foods are grown where fewer pesticides are found in the soil.

The third myth is the more you pay the more purity you get. There are a limited number of organic growers that supply to the supermarket and restaurant industry. What you get is what you get from these folks. They don’t have a higher price for Whole Foods than for Kroger’s. If anything, the shear volume of purchasing would tend to favor Kroger’s. As we will soon see, these guys offer the lowest prices.

So lets have a look at what you get for what you pay for in the organic food fight by looking at the three major players.

Whole Foods  

From your first moment in a Whole Foods Market, there is almost a spiritual transformation that takes place. Immediately, you are engulfed in a higher level of quality that screams loudly starting with the products, how they are presented and the professional demeanor of the clerks.

Everything clicks and that is a big reason why Whole Foods Market is the leading retailer of natural and organic foods. They claim to be America’s Healthiest Grocery Store ™ and for good reason. Whole Foods was the first national “Certified Organic” grocer. What started in 1979 as a single store located in Austin, Texas has grown to over 467 stores in 42 states. Co-CEO John Mackey has a target of over 1200 stores in the years ahead.

Sprouts Farmers Market

Organic Food For The Masses

If you are seeking a transformative experience in Organic grocery shopping, there is no better place than Whole Foods Market. However, if $2 for an Organic apple leaves you with indigestion, you need to look no further than Sprouts Farmers Market. That Organic apple is still going to cost $1.25, but that is simply the cost of healthy living. Pour ta santé!

Shopping at a Sprouts Farmers Market presents a bit of a challenge. A majority of the stores are concentrated in California and four other western states. The first store was opened in Phoenix in 2002 and since has grown to more than 245 stores in 15 states.

While both Whole Foods and Sprouts specialize in Organics and healthy lifestyles, and great service, that is about where the comparison ends. The average Sprouts is 30,000 square feet, far smaller than Whole Foods (50.000+) or for that matter, the average Kroger store. Sprouts focus is more limited, concentrating on fresh foods, produce, meat and seafood, grocery and vitamins and body care. The emphasis is on products where inventory turnover is high.

Now here is a surprise, Sprouts is the most profitable of the three leading grocery chains. The limited product selection and higher inventory turns enables Sprouts to change lower prices and still achieve outstanding profit margins. Just look at the table below.

Sprouts may have half the locations of Whole Foods, but there presence is being felt. Last year, Whole Foods began testing smaller stores under the 365-brand logo. If the test succeeds, you can expect to see more of these popping up in the years ahead.

Kroger’s

The organic food fight gets a little more complex when we look at the nations largest grocery chain. That, of course is because Kroger is not a purely organics operation. Over time Kroger has been developing and broadening it organic offerings and without charging outrageous price premiums. This is where customers will get the best organic bang for their Kale colored buck.

The Moral To The Story

Long ago, department store retailers found they could sell the same Levi Dockers Kaki pants for 20% more at Bloomingdales than at Macy’s. Some people simply preferred the ambiance of Bloomies. The organic food fight is much the same. Personally, I hate Kale.

 

Leading Grocery Chains
Whole Foods Sprouts Kroger’s
Sales 100% 100% 100%
Cost of Sales 66% 71% 79%
Gross Margin 34% 29% 21%
SG&A 29% 22% 17%
Operating Margin 5% 7% 4%

 

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