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Healthy Eating Is On the Holiday Menu

3 December 2014 in Trading Ideas

Americans have put wheat on the whipping post.

According to market research firm Mintel International, the market for foods free of gluten (a main building block of wheat) has grown 63% in the from 2012 to 2014, and this year is expected to total $8.8 billion in sales.1

Mintel said all gluten-free food segments increased in the past year, though snacks increased the most, rising 163% from 2012 to 2014. Meanwhile, the meats/meat alternatives segment rose 14% during that time.

Perhaps most importantly, gluten-free eating seems to be appealing to both those who must do it – and those convinced they need it.

“Overall, the gluten-free food market continues to thrive off those who must maintain a gluten-free diet for medical reasons, as well as those who perceive gluten-free foods to be healthier or more natural,” said Amanda Topper, a food analyst at Mintel. “The category will continue to grow in the near term, especially as FDA regulations make it easier for consumers to purchase gluten-free products and trust the manufacturers who make them. Despite strong growth over the last few years, there is still innovation opportunity, especially in food segments that typically contain gluten.”

The questionable health benefits of a gluten-free diet, however, haven’t slowed down the segment’s popularity: 22% of Americans now say they follow a gluten-free regimen, compared to 15% in 2013.

The move toward healthier eating has also been echoed in the financial performance – and stock prices – of some of the larger purveyors of natural or organic foods.

The Healthy and Tasty motif has risen 6.4% in the past month. During that same time, the S&P 500 has increased 2%.

Over the past six months, the motif has gained 17.2%; the S&P 500 is up 7.8%.

A key motif component, Whole Foods (18.8% of the motif’s weight) is just one case in point. The company’s stock has jumped more than 25% in the past month after the company said in early November that revenue rose 9.4% in its latest quarter, while the company’s profit topped Wall Street’s consensus analyst estimate.2

In addition, same-store sales rose 3.1%.

Whole Foods guided for 9% revenue growth in fiscal 2015, which was below consensus expectations, and gross margins in the latest quarter were squeezed by lower prices.

However, those margins were ahead of expectations. And Whole Foods is now pricing its products more aggressively to shed its expensive image. According to a recent Barron’s article, that tactic seems to be working as store traffic increased. Results also benefited from a new customer loyalty program and technological improvements, such as grocery delivery via Instacart and the introduction of Apple’s Apple Pay.3

Whole Foods competitors also have seen their respective stocks rise recently – both in sympathy with Whole Foods’ results as well as on the merit of their own growth projections. For example, shares in Sprouts Farmers Market, which has an 8.8% weighting in the Healthy and Tasty motif, have risen more than 10% in the past month after the company posted revenue growth of 20% in its latest quarter.

As consumers turn their focus on new ways to stay thin, many investors in organic and health food stocks have been enjoying fat returns.

1Keith Nunes, “Mintel: Gluten free will hit $8.8 billion in sales in 2014,” meatpoultry.com, Nov. 18, 2014, http://www.meatpoultry.com/articles/news_home/Trends/2014/11/Mintel_Gluten_free_will_hit_8.aspx?ID=%7b46D8210C-97C8-40E7-87B9-B986A2EF1FBC%7d&cck=1, (accessed Dec. 1, 2014).

2Alissa Williams, “Whole Foods Q4 Spawns Sympathy Gains for Rivals,” investors.com, Nov. 6, 2014, http://news.investors.com/110614-725293-organic-grocers-rally-on-whole-foods-earnings.htm?ven=yahoocp&src=aurlled&ven=yahoo, (accessed Dec. 1, 2014).

3Teresa Rivas, “Whole Foods Turnaround Is Only Just Beginning,” barrons.com, Nov. 6, 2014.