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Wall Street Wants Whole Foods to Stick to the Quinoa Crowd

Whole Foods in the Williamsburg neighborhood of Brooklyn.
  • Grocer’s aggressive expansion plan may need to be shelved
  • Competition from lower-priced retail chains like Wal-Mart

The problem with Whole Foods Market Inc.’s expansion plan -- and, perhaps, its entire business model -- is epitomized by its store in a western suburb of Chicago.

The Elmhurst, Illinois, outlet looks like any other Whole Foods on the inside, with its artisan breads, exotic facial oil and quinoa. But it’s the surroundings that are the problem. It shares a parking lot with a Dress Barn, a Kmart and a Shoe Carnival (“Buy One Get One Half Off”) -- “not what we would consider high end,” as Wolfe Research analyst Scott Mushkin put it.

John Mackey Photographer: Andrew Harrer/Bloomberg

At a time when Whole Foods is losing shoppers to the likes of Kroger, Trader Joe’s and Wal-Mart -- as those chains crowd into the organic-food business Whole Foods helped create -- the concern that Mushkin and others on Wall Street have is that by trying to expand into hundreds of new neighborhoods, the company is targeting the wrong audience. Focus instead, they say, on the wealthy urbanites who can afford to pay $29.99 for a pound of filet mignon. “They should embrace that premium experience,” said Matt Argersinger, a portfolio manager at Motley Fool. “If they race in the opposite direction, I think it will trip them up.”

Stock’s Down

It’s already happened. Shares are down more than 50 percent since hitting a record high in 2013, around the time co-founder John Mackey declared his goal to more than triple the number of stores to 1,200. Sure, there are other problems depressing the stock -- same-store sales are sliding and profit margins are shrinking as the company offers discounts and digital coupons in a...