Fresh Market vs. Facebook

5/25/2012

Watching the fizzle of Facebook’s initial public offer this past week reminded me of another IPO by a company starting with the letter F: Fresh Market, a North Carolina-based grocer, now with about 115 stores.

On the day it went public two years ago, Fresh Market pegged its share price at $22. In the next few hours the price went zoom, ending the day up 59 per cent to $35. It was a remarkable performance–the second largest first-day gain of an IPO that year.

Now compare that to Facebook. The social media darling went public at $38 a share last Friday and has done nothing but drop since. Yesterday you could buy a piece of Mark Zuckerberg’s empire of friends for $32 bucks.

Who knows where Facebook’s stock will go eventually. Fresh Market, on the other hand, has done pretty well since its IPO. The stock now trades at $47 and Fresh Market is quickly becoming one of the grocery chains in North America to keep an eye on and admire, along with Publix, and Longo’s.

Last year, Fresh Market passed the 1$ billion mark in annual sales and it is opening more than a dozen stores each year.

While many grocery chains struggle to raise their net margins above the stingy goals against average of LA Kings netminder Jonathan Quick in this year’s playoffs (1.54 in case you’re wondering), Fresh Market’s margins are more in line with wobbly goalies, like Pittsburgh’s Marc Andre Fleury (GAA 4.63).

Fresh Market last year posted net margins of 4.6 per cent, and managed to raise its game to 5.7 per cent during the holiday quarter, from November through January.

And while Fresh Market is seeing growth from new stores it’s also picking up market share at existing stores. In its most recent quarter, same-store sales were up (get this!) seven per cent. Meanwhile, total sales were up 16.3 per cent.

Fresh Market, of course, isn’t alone. Other than discount and ethnic stores, supermarkets focused on fresh have been experiencing the biggest successes lately. Others stellar fresh chains include Longo’s in Toronto and Farm Boy in Eastern Ontario.

Meanwhile, more chains are putting an emphasis on fresh. Metro in Ontario, for instance, has been revamping its produce departments, while in the UK, Morrisons figures that a fresh focus is the only way to make headway against larger and more well-armed rivals, like Tesco and Asda.

So fresh is in and we will likely see more grocers focus on this area of their store. It makes sense, of course. If you don’t want to compete on price against discounters, compete on quality.

Sure it can be a lot more work. But as Fresh Market has proven, the profits can be a lot better, too.

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