Interesting article from the Wall Street Journal.  If you're in wholesaling to or running grocery sales, read on...


 The supermarket business is tough enough without public-relations disasters like that suffered recently by Britain's Tesco PLC. TSCO.LN -0.99% Meat labeled as beef was found to contain horse meat, prompting customer outrage.

Had the same thing happened at Whole Foods Market Inc., WFM -9.88% one imagines it might have labeled it free-range "viande hachée de cheval" and charged a premium. The company remains the golden boy of food retail with growth, profitability and customer perceptions that stand out.


Whole Food's knack for seeming to do no wrong should continue with Wednesday's release of results for the fiscal first-quarter ended in December. Identical-store sales likely rose 7.5%, up from the torrid 7.1% pace disclosed for the quarter's first five weeks, according to analysts at Barclays BARC.LN -2.15% . Earnings per share are seen at 78 cents, versus 65 cents a year earlier.

Contrasting Whole Foods with run-of-the-mill supermarkets is like comparing organic apples to oranges. Its operating margin over the past five years of 4.75% was three percentage points above the average of traditional peersKroger Co., KR -0.76% Supervalu Inc. SVU -1.03% and Safeway Inc. SWY +0.84%Its sales per square foot are 80% higher.

But it is Whole Food's growth potential that stands out. In a sector that barely expands in line with the economy these days, Whole Foods thinks it can boost sales by 13% to 14% and earnings per share by 16% to 17% this year. New stores in places far from major cities continue to do as well as original urban ones. Co-CEOJohn Mackey believes the company may grow to 1,000 U.S. stores, three times today's number.

There is little doubt Whole Foods can grab a larger share of the "yuppie dollar," but there are limits. Much like its organic fare, its stock commands a hard-to-justify price. It trades at 33 times 2013 projected earnings, or three times the industry average. That assumes years of above-average growth.

Meanwhile, traditional chains, including Wal-Mart Stores Inc., WMT -0.74% are muscling into the organic space and competing vigorously on price. And a majority of the grocery-buying public still values price above most things.

Whole Foods has fiercely loyal customers and even employees. But shareholders aren't rewarded for drinking the corporate Kool-Aid—or even artisanal sparkling honey lemonade.