HEINBOCKEL: It may accept a lesser return, but does it allow the return-on-investment to go down materially while growth is accelerating? It shouldn't do that.
MUSHKIN: It may depend on the values and lifestyles of the residents in each area. A Fresh Market in Omaha may prove better than a Whole Foods there because the natural and organic lifestyle may not be as important. I was recently down in Naples, Fla., comparing the Fresh Market to the Whole Foods. It's not a really great Whole Foods, but it did seem that the general population has not fully embraced the Whole Foods “lifestyle” — at least not yet.
WILTAMUTH: Whole Foods may be the only brand among all the companies we follow that really is a brand, and it is really a draw for people. People go there, and they like to be affiliated with it. I don't think people have that feeling about a Safeway or Albertsons.
SN: What's the outlook for Winn-Dixie?
MUSHKIN: Winn-Dixie's problems are still significant, given its sales per square foot and regional market share. But having cycled through the oil spill last year and with a new guy running the stores — Larry Appel — who is making good progress, it still seems like its market-share growth has settled down in a lot of areas.
ADLER: The Florida economy is one of the few that is really starting to improve, especially because of tourism.
MUSHKIN: We looked at all the employment markets in Florida, and we were surprised. We thought Winn-Dixie was getting more of a push from the economy and from improvements along the Gulf Coast, but it isn't as much as we would have thought. So we'll see if it can last. But Winn-Dixie still has some big problems that it will take awhile to resolve.
ADLER: It has to take a very tarnished brand name and polish it, and it's going to be a long, slow slog. But management there is very excited about some of the transformational remodels the company is doing. So far it has at least three to point to that are doing well, though two are actually new stores rather than remodels.
Winn-Dixie is a company with no debt that's sitting on cash, so it's got borrowing capacity. But the transformational remodels it is doing now are expensive. That means every time it does one, it is placing a much bigger bet than it would have otherwise. Management believes these stores are going to be very important sales drivers. I've wondered whether there is a halo effect — whether successful remodels at six out of 12 stores in a market will help its image more broadly — but that's still to be proven. You have to give it credit, though, for absolutely remarkable management of cash flow.
Now that it has remodeled half its store base, the question is, how easy is it to take an already remodeled store and give it the panache you've got in the transformational stores? I don't have any answers to that question, and I don't think Winn-Dixie does either.
CERANKOSKY: The intriguing think about Winn-Dixie, I think, is you've got a very good management team. But the company needs both price investment and capital investment, so it really puts a premium on the economy getting better in Florida.
ADLER: Besides significant price investments, what do you think it needs to do?