• by Thom Forbes  @tforbes, May 8, 2014

Investors appreciated Whole Foods Market founder and CEO John Mackey’s candor late Tuesday about the increase in competition in the organic foods market so much that they “ate it alive,” as one headline put it, driving the company’s share price down by 19% yesterday.

“For a long time, Whole Foods Market was this small niche,” Mackey told analysts on a conference call transcribed by Seeking Alpha. “It’s just gotten to be a very big niche and in some ways it’s gone mainstream. There’s a lot more competition, a lot more entrants into the marketplace as well as conventional supermarkets copying and imitating a lot of what we’re doing.”

The bottom line, reports Shannon Bond in Financial Times, is “flat net income missed Wall Street’s expectations and the company cut its full-year profit forecast, the third quarter in a row that it has lowered its outlook. It also reduced its forecast for comparable sales growth to 5 to 5.5%, which Mark Wiltamuth, Jefferies analyst, said was “an admission that competition will keep [comparable sales] from returning to the 7 to 8% historical norms.”

“Investors are realizing that Whole Foods Market is a victim of its own success,” is Annie Gasparro’s lede in the Wall Street Journal. Its “accomplishment” in a natural-and-organic marketplace that is now in the $50 billion range for annual sales has drawn notice from “mainstream retailers like Kroger and Safeway” as well as “upstarts like Sprouts Farmers Market and Fresh Market. Not to mention that “Wal-Mart Stores last month said it struck a deal with Wild Oats to launch 100 mostly organic products that will be priced 25% cheaper than national brands.”

“Kroger’s Simple Truth brand is growing at an ‘astonishing pace,’ COO Michael Ellis said on a conference call in March,” writes Bloomberg News’ Leslie Patton. “Meanwhile, Target Corp.’s organic and better-for-you products are ‘picking up steam,’ Kathryn Tesija, an executive vice president, said on a conference call in February.”

So, as investors wise up to the “hard lesson” that “the chain isn’t the only place to buy organic kale anymore,” as Patton writes, and “quinoa goes mainstream,” as CNNMoney’s Ben Rooney puts it, “Whole Foods is scrambling to catch up with lower-cost competitors.” 

“The chain has already lowered prices, which in part is affecting comparable store sales …,” Bloomberg Businessweek’s Vanessa Wong reports. “Most of the reductions have come in packaged goods, such as Whole Foods’ 365 Everyday Value products, and the chain is now focusing on lowering prices for fresh produce.” 

It is also continuing to open new stores. “By 2018, it expects to have 575 stores, compared with the current 379,” Wong writes.

Despite the plunge in value yesterday, not every observer is a skeptic. Argus analyst Chris Graja has upgraded Whole Foods Market to Buy from Hold, as Barron’s Ben Levisohn reports, pointing out “the core shoppers are quality conscious. WFM has demonstrated its expertise in sourcing, presenting, and profitably selling high quality” foods. 

Graja also likens Whole Foods to retailers such as Costco, Home Depot, Lowe’s, Williams-Sonoma and CVS “that should remain relevant to customers because of excellent merchandising and a product offering that cannot be easily offered on the internet.:

Then there’s CNBC’s Jim Cramer, bringing a dose of reasoned sanity to the whole question of Whole Foods’ place in the world.

“What do you do with this Whole Foods here? It’s easy. I know what to do. You go shop there,” Cramer exclaimed on “Mad Money” yesterday. “It’s the best food store on earth, bar none. Tremendous value. Terrific locations. Amazing fun stores. And the best, most delectable meals to go. I love to go to my Whole Foods. So do my kids.... The store down the block from me in Brooklyn is a marvel. A destination place that’s pure entertainment with surprisingly low prices.…”

“Is this really Cramer?” you might be asking. You know where this is going to wind up, right? It may be a “best of breed operator” that deserves the premium it has enjoyed. And it’s a “better operator” than any of its wannabe competitors. But it has to invest in “a ton of new technology” and compete on price. 

In the long term, the stock will prevail, Cramer asserts. In the short term, shop there. But as for the stock right now? Unless you’re talking about Whole Foods’ 365 Everyday Value Organic Vegetable or Chicken Broth, fuhgettaboutit.