Morgan Stanley Predicts Strong Growth In Organic Food

A recent study by Morgan Stanley MS sheds some light on the prices consumers pay for groceries at several major store chains. The study compared the cost of 100 commonly-purchased food items at different stores, focusing on organic/natural food sellers The Kroger Co KR, Whole Foods Market, Inc. WFM, The Fresh Market Inc TFM and Sprouts Farmers Market Inc SFM.

Overall Prices

Compared to average conventional supermarket pricing, Kroger’s low prices were the best of the group. The study found that the common items cost 3 percent less at Kroger than at the average conventional supermarket. Items cost 19 percent more than average at Whole Foods, but customers of The Fresh Market paid the largest cost premium: 25 percent above average.

Kroger performed best of the four stores in each food category studied, with produce being the lone exception. Sprouts displayed the lowest produce prices, 21 percent below average.

“Organic Premium”

The study found that organic products command an average cost premium of 47 percent when compared to non-organic products within the same store. The organic premium was highest at Sprouts, where customers pay 57 percent more for organic products than non-organic products. The lowest organic premium was found at The Fresh Market (33 percent).

Quality And Convenience

The study also compared perceived quality and location convenience of the four stores to eleven other supermarkets.

Related Link: 3 Grocers Working To Make Organic Food Affordable

According to customers, Whole Foods has the highest perceived quality among Morgan Stanley’s four focus stores, trailing only Trader Joe’s Company overall. Kroger had the lowest perceived quality among Morgan Stanley’s picks. However, Kroger still handily beat the perceived quality of Wal-Mart Stores, Inc. WMT and SUPERVALU INC.’s SVU Save-A-Lot, which took the bottom two spots.

Location-wise, Kroger tied with Publix Super Markets Inc. PUSH for the most convenient locations, with BJ’s Wholesale Club and The Fresh Market taking the bottom two spots.

Forecast

Morgan Stanley expects the organic/natural food industry to continue to grow at a 9 percent annual rate. Morgan Stanly has an overweight rating on the stocks of Kroger, Whole Foods, Sprouts and United Natural Foods, Inc. UNFI.