Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM Monday, August 1, 2005: It's
been amazing run. For now I'm staying in. Though its P/E is high, so is its
Last week Whole Foods (WFMI) reported sales and earnings for the 12-week
quarter ended July 3, 2005. For the third quarter, sales rose 23% to
$1.1 billion. This increase was driven by 13% weighted average year-over-year
square footage growth and comparable store sales growth of 15.2%. Neat
growth! Wall Street hankers for growth. How much more growth? I believe plenty.
Here's this weekend's piece from the Economist, titled "A Wal-Mart for
the granola crowd."
NO ONE admits
to being more surprised by the runaway success of Whole Foods Market than
its boss. In all my profound wisdom I decreed a maximum of 100 stores,
and thought that would saturate the United States, recalls John Mackey
of the time when his company went public in 1992. That in itself was quite
a milestone for a grocery retailer that he began in 1978 in a garage in Austin,
Texas, when he was living in a vegetarian co-op. At first, hippies and college
students were his main customers. But now, with over 170 stores feeding America's
organic-food-addicted middle class, Whole Foods Market has become firmly established
as the world's largest natural-foods chain.
John Mackey,. Whole Foods founder and present CEO.
Nor is there any sign of the firm's rapid growth coming to an end. Its sales
rose by 23% to $3.9 billion in the latest financial year. Mr. Mackey is now
expanding the firm abroad, initially with a move to London. As for the success
of this, a chastened Mr. Mackey says, we actually don't have the least
bit of doubt.
To understand the allure of Whole Foods Market, look no further than the new
landmark store that it opened in Austin, Texas earlier this year. Occupying
almost 80,000 square feet (7,300 square meters), it is one of the firm's largest,
and features a vast array of treats, from organic enchiladas to an in-house
meat smoker. There are sampling stations, cooking demonstrations and café
tables galore. Employees, called team members, are as enthusiastic
as the shoppers, and gladly explain company policy on, say, sustainable fishing
(no Chilean sea bass, for instance, as it is seriously overfished). The firm
is starting to label its own-brand foods to indicate any genetically modified
Yet fancy food
is just one part of the recipe. Whole Foods Market is also deeply committed
to its green mission. We see the environment as a stakeholder
in the business, says Mr. Mackey who, no surprise, lives his brand.
Trim and fit, he prowls the office in shorts and a handyman-style canvas shirt,
and is very much the outdoors type. This summer he is hiking along part of
the Pacific Crest Trail, which runs from Mexico to Canada.
The firm's environmentalism
is decentralized: each store is encouraged to experiment, and implement what
best suits its own circumstances. So, for example, the California stores use
solar power, taking advantage of subsidies provided by the state government.
In other locations, some use wind energy. Newer stores, such as one in Sarasota,
Florida, are pioneering new types of green building, for instance,
using recycled materials. Successes and failures are shared via the Internet.
Yet Mr. Lackey's
organic idealism and greenery should not be confused with a lack of hard-nosed
business acumen. He can quote Adam Smith with the best of them. He is often
criticized for wiping out the small, local natural-food businesses that, not
so long ago, were what the industry was all about. He is also opposed to trade
unions. Whole Foods Market workers in Madison, Wisconsin, caused a stir three
years ago when they voted to join a union, but the company persuaded them
to back down. Currently his stores remain non-union. Mr. Mackey says he dislikes
the adversarial nature of tabor unionsthe zero-sum
mentality whereby if shareholders are winning, tabor is losing.
The market, he says, is the best check against exploitation, because
people can vote with their feet. Indeed, says Roy Bingham of Health
Business Partners, an investment bank, Whole Foods Market benefits from the
undying keenness to work for it of the sandals brigade of young
idealists. The firm is regularly cited by Fortune as one of the top 100 places
to work in America.
If there is
something familiar about a giant, anti-union retailer crowding out small local
businesses, Mr. Mackey rejects any comparison with Wal-Martwell aware
of the battering that the world's biggest retailer has taken because of its
relentless growth. It's like comparing a Hyundai car to a Lexus,
he says. Wal-Mart's focus is on getting the cheapest stuff in; we're
focused on getting the best stuff. That said, Wal-Mart is starting to
offer organic and natural foods as it pursues wealthier customers. This may
spell trouble some day for Whole Foods Market. For all its growth, the company
is still dwarfed by Wal-Mart, which had revenues last year of $285 billion.
for the organic-food industry, but in common with Wal-Mart, Whole Foods Market
has grown partly by acquisition, buying chains such as Fresh Fields, Bread
& Circus and, in London, Fresh & Wild. More acquisitions may follow
abroad. Although there is now little left to buy in America, Mr. Mackey still
sees opportunity to grow there. Whole Foods Market currently has a presence
in only 39 of the country's top 50 metropolitan markets. None of those
markets has reached saturation, plus the whole market is continuing to rapidly
expand, he says. As for Europe, Mr. Mackey wants to open a big Whole
Foods Market store in London, but has yet to find the right site. If London
does well, then he would move aggressively into continental Europe.
Now in your
for new opportunities, Mr. Mackey is now trying to combine organic food with
the other craze gripping America's middle class: real estate. The idea is
to build Whole Food Market stores into apartment-building basements. In
urban areas like New York or London, land is so expensive that it really helps
to make our stores more affordable if we can get multi-use developments on
top of us, says Mr. Mackey. And housing is perfect because it
doesn't compete with us and in fact gives us customers who enjoy direct
access by elevator to the store.
So, is there
anything that could cause Whole Foods Market to choke? You know, I'm
not a worrier, says Mr. Mackey. Barring some freak event such as food
terrorism, Whole Foods Market seems set for more success. Mr. Mackey certainly
seems relaxed about the future. When trekking through the wilderness, he does
not even bother to carry a mobile phone.
Facts about the pharmaceutical business:
From a recent Economist. "Big Pharma" consists of a dozen or
so multinational firms with headquarters in Europe or America. Their sales account
for roughly half the world's $550 billion retail drug market. The pharmaceutical
industry is relatively fragmented, with the biggest company, Pfizer, holding
less than 10% of the global market.
These are the top-selling drugs. Amazing numbers:
Now you know why you see so many ads on TV: Drug companies have trebled
their spending on direct-to-consumer advertising since it was legalized in America
in 1997 and the investment seems to have paid off. A study by IMS Health, looking
at 49 brands advertised between 1998 and 2003, shows that the average return
on $1 spent on advertising a blockbuster drug was more than $3.50.
Now you know why doctors get pitched so intensely: Doctors known to be
heavy prescribers are bombarded by up to half a dozen salesmen from the same
company selling the same product because the drug companies know that more reps
mean more sales. The average rep detailing to primary-care doctors generates
$1.9 million in sales each year, according to an analysis by Lehman Brothers.
An additional 1,000 reps at a cost of $150,000 a head (a
year) can bring in an extra $1.9 billion.
The sad part is
that big pharma drugs are coming off patent. The next five years will see $70
billion go off patent. Big pharma has difficulties filling its pipeline with
new drugs. Hence, my interest in small biotechs -- which can (I believe) provide
big pharma with the drugs it needs to grow.
Happy Birthday, SkypeOut!
SkypeOut service for calling landlines and mobile phones (i.e. ones
not on Skype) all over the world is 1 year old. To celebrate the company lowered
our SkypeOut rates in over 20 countries and added six new countries -- China,
Greece, Taiwan, Hong Kong, Poland and Switzerland. Most SkypeOut rates are 2.3
cents a minute. You won't get that from your local phone company. Skype to Skype
calls are free. For more, click
world's basket case: Zimbabwe is governed by a nutcase dictator
called Robert Mugabe. Think of a program to destroy the country and he has done
it. Unemployment is is now over 70 percent. Inflation is 164 percent a year.
And exports fell again -- this by 20% year over year. It's sad. I went there
once as a tourist. It was a nice place. I wouldn't go back for all the money
logic makes sense
Moishe is driving in Jerusalem. He's late for a meeting, he's looking
for a parking place, and can't find one.
he turns towards heaven and says, "God, if you find me a parking place,
I promise that I'll eat only kosher, respect Shabbas and all the holidays, and
never blaspheme you."
a place opens up just in front of him. He turns his face up to heaven and says,
"Never mind, I just found one."
men should just shut up
On their wedding night, the young bride approached her new husband
and asked for $20.00 for their first lovemaking encounter. In his highly aroused
state her husband readily agreed. This scenario was repeated each time they
made love, for the next 30 years, with him thinking that it was a cute way for
her to afford new clothes and other incidentals that she needed.
around noon one day, she was surprised to find her husband in a very drunken
state. During the next few minutes, he explained that his employer was going
through a process of corporate downsizing, and he had been let go. It was unlikely
that at the age of 55, he'd be able to find another position that paid anywhere
near what he'd been earning, and therefore, they were financially ruined.
Calmly, his wife
handed him a bank book which showed thirty years of deposits and interest totaling
nearly $1 million. Then, she showed him certificates of deposits issued by the
bank which were worth over $2 million, and informed him that they were one of
the largest depositors in the bank. She explained that for the 30 years she
had charged him for sex, these holdings had multiplied and these were the results
of her savings and investments.
Faced with evidence
of cash and investments worth over $ 3 million, her husband was so astounded
he could barely speak, but finally he found his voice and blurted out "If
I'd had any idea what you were doing, I would have given you all my business
just don't know when to keep their mouths shut.....
+ Manhattan Pharmaceuticals: Click
+ NovaDel Biosciences appeals. Click
+ Hana Biosciences appeals. Click
+ All turned on by biotech. Click
+ Steve Jobs Commencement Address. The text is available:
Click here. The full audio is available. Click
+ The March of the Penguins, an exquisite movie. Click
+ When to sell your stocks. Click
This column is about my personal search for the perfect investment. I don't
give investment advice. For that you have to be registered with regulatory authorities,
which I am not. I am a reporter and an investor. I make my daily column -- Monday
through Friday -- freely available for three reasons: Writing is good for sorting
things out in my brain. Second, the column is research for a book I'm writing
called "In Search of the Perfect Investment." Third, I encourage
my readers to send me their ideas, concerns and experiences. That way we can
all learn together. My email address is .
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