It's lunchtime at the Whole Foods supermarket in Plano, Texas, as artist Raquel Brownfield, 57, pulls into the parking lot in her red BMW roadster. She is about to enter foodie heaven: a grocery store brimming with everything from fresh organic produce and dried beans to slabs of hormone-free beef and boysenberry pies. "I usually go in thinking I'm going to spend under $30," says Brownfield, who visits the store a couple of times a week, "but I spend between $60 and $70."
Few grocery chains are as clever as Whole Foods Markets at enticing shoppers to gorge on fancy fare. With $2.3 billion in revenue and a 20% profit surge last year, Whole Foods trounced its rivals in the conventional-supermarket business; most of them muddled through with 1% to 2% sales growth. Whole Foods, though, doesn't sell just groceries. It offers something more ethereal: a feeling of healthy chic that pervades its stores and products and rubs off on customers. Even if you're buying fat-marbled T-bones and Camembert cheese, you're surrounded by colorful fruits and vegetables and preservative-free whole-grain breads, all lovingly displayed and lighted in a store designed to make you feel good. Says CEO John Mackey: "We've tied together the concepts of food as pleasure and food as healthy."
The business model has given investors a hearty appetite for Whole Foods stock. The share price of the chain of 135 "supernatural" stores, based in Austin, Texas, has risen 125% over the past two years and more than 750% since the chain went public in 1992. Analysts marvel that Whole Foods' mature stores (those open more than five years) average 6% annual revenue growth, vs. 1.5% for the typical chain. Annual sales per square foot--a key measure of a retailer's health--are about $650 at Whole Foods, compared with about $450 at many conventional supermarkets. Says analyst Andrew Wolf of BB&T Capital Markets: "They've become a power retailer like a Home Depot."
Whole Foods, along with its chief rival, Wild Oats Markets, based in Boulder, Colo., is riding a surge of interest in so-called natural and organic foods. While such foods account for just 3% of Americans' grocery bills, they attract higher-income buyers and yield fatter profits for grocers and producers. And a parade of food scares--mad-cow disease, hormones and antibiotics in meat and milk, pesticides in produce, genetically altered "Frankenfoods"--is propelling more shoppers to go organic. Result: sales of natural and organic foods are growing at an 18% annual clip and are projected to surpass $17 billion this year.
The industry no longer figures its prime market is Birkenstock-wearing proles hankering for tofu and lentils. It's courting health-conscious consumers of every stripe who want to eat more grains, fruits and vegetables (but not exclusively) and cut back on fat and sweets (but not too much). Marketers are playing up the gourmet aspects of their products--and charging premium prices. "A lot of companies don't want to sell an organic product with a tree-hugger image anymore," says Michelle Barry, an analyst with the Hartman Group, a Seattle-based market-research firm. "They're marketing these products for their taste appeal and the social status connected with them."