I think the answer is the latter, and while Whole Foods has stumbled of late and Kroger has been red-hot, I am beginning to wonder whether we aren't nearing the end of the lack of performance from the best natural and organic retailer in the country.
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First, a word about Kroger. It is a magnificent performer, once again. This week it was talking about accelerating comparable-store sales -- an astounding 4.8% when I was looking for slightly more than 4% -- and an exciting integration of both Vitacost, an online vitamin company, and Harris Teeter, a recently purchased supermarket chain. The former gave the company terrific e-commerce tools, and the latter is just the kind of classic expansion that allows for Krogerization of the North Carolina operation. Kroger's still selling at a price-to-earnings ratio less than the market's. That's despite Kroger's excellent execution, amazingly strong private label operation and a healthy embrace of natural and organic foods.
Whole Foods, on the other hand, has experienced a slowdown from high-single-digit comparable-store sales all the way down to 3% numbers. I have been fretting about it for what seems like forever because despite its aggressive growth, it hasn't been able to make as much money as it used to or attract as many consumers as it once did. That's because of the accelerated expansion of many competitors in its space, including Trader Joe's, The Fresh Market (TFM) and Sprouts Farmers Market (SFM) , all of which have been killing each other to take share. Plus, of course, the rest of the food-selling industry -- whether it be Kroger or Costco (COST) or Target (TGT) or Walmart (WMT) -- is all over natural and organic as each player recognizes this is the only double-digit grower in their food aisles.
Meanwhile, Kroger made it clear on its conference call that people increasingly like stores that have everything in them, not just organic and natural foods, and cited that as a reason for its excellent numbers.
So why even consider Whole Foods? First, it is a stock that has been hammered. It's down an amazing 33% for the year, and even though it has been a great long-term performer, that's some real compression.
Of course, it could be Coach (COH) , another company that catered to high-end consumers that was eviscerated by Kate Spade (KATE) and Michael Kors (KORS) . Maybe the P/E is still too high given the low-single-digit growth. Do you want to pay 25 times next year's earnings for Whole Foods when you can buy Kroger for 15 times earnings, even though it is now growing a full percent faster than Whole Foods and has become the most consistent performer as some would say Whole Foods has become far less consistent?
But what if we are looking at it too statically? What if new initiatives move the needle?
First, Whole Foods is an early adopter of Apple's (AAPL) Apple Pay payment system. So is Kroger, but you have to believe that the more upscale Whole Foods will have more iPhone customers per store than Kroger will have, which will certainly make a difference in take rates.
Second, Whole Foods is rolling out its affinity plan, and it will be done in conjunction with the iPhone, which could be very exciting for a company that has fallen way behind, by its own admission, in that department. Co-CEO Walter Robb confirmed that to me in an interview on "Squawk on the Street" this very morning.