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.

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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.