Shares of Fresh Market have rallied more than 50 percent since the specialty grocery chain held its initial public offering last week, reflecting heightened investor interest in a food retailing niche that’s outperformed larger, traditional supermarkets. The company is capitalizing on the growing popularity of organic and natural food that’s created a windfall for the likes of Whole Foods Market.
Fresh Market sold 13.2 million shares in a Nov. 4 IPO, raising $290 million for the company’s founding family. In afternoon trading today, Fresh Market fell 62 cents to $33.28 on the Nasdaq Global Select Market, up from the $22 IPO price.
Based in Greensboro, N.C., Fresh Market has more than doubled its U.S. store count over the past five years and aims to create a “neighborhood grocer” atmosphere with “carefully selected, high-quality” perishables such as meat and fresh produce, according to government filings. Fresh Market “plays really well into general health and wellness trends and… it has a lot of room to grow,” says Michelle Chang, an analyst with Morningstar, a Chicago-based research firm. “There’s a lot of interest given its growth trajectory and the niche market it plays to.”
Last month, Fresh Market opened its 100th U.S. location. Most of the stores are in the Southeast, Midwest and Mid-Atlantic regions, and Fresh Market officials plan continued expansion nationwide. The stores include on-site butchers offering a “unique, Old World” experience, according to Fresh Market officials.
Smaller, specialty grocers, which typically cater to higher-income consumers, have fared better than most major grocery chains during the weak economy. Big supermarkets such as Kroger Co. and Safeway also have come under pressure amid stiff competition from discounters such as Wal-Mart Stores.
For the three months ended Sept. 26, Fresh Market posted net income of $10.8 million, up 29 percent from the same period in 2009, according to recent filings with the U.S. Securities and Exchange Commission. Sales rose 14 percent to $228.7 million.
Fresh Market’s professional meat cutters “are available during all hours of operation to answer customers’ questions, offer cooking tips and provide custom cuts of meat,” company officials note.
Offerings include steaks that are “expertly trimmed and aged for 14 to 21 days to provide restaurant-quality taste and tenderness, fresh turkeys year-round and ground beef that is ground daily in-store from steak trimmings and whole roasts,” according to Fresh Market representatives.
While Fresh Market is poised for more growth, food retailing remains intensely competitive, and the United States can only support so many specialty grocers, Change says. That means Fresh Market is running the risk of overexpansion while unemployment remains high.
“There’s a certain segment of the population that will pay up for high-quality meat and high-quality produce,” Chang says. “But the consumer is still strapped for cash. Budgets are still fairly tight. The focus on price is still the main theme we’re seeing” in food retailing. If you look at the industry as a whole, it’s not a very appealing market” from an investment standpoint.
The 13.2 million shares sold in Fresh Market’s IPO represent about 28 percent of the company’s 48 million shares outstanding. The Berry family, which started the company in Greensboro in 1981, holds the rest and retains voting control of the company, according to SEC filings.