Why a Million People Are Lining Up in Front of You at Whole Foods

If the line at your local Whole Foods Market (NAS: WFM) is a little longer than usual over the next few days, don't blame it on a surge in popularity of soymilk or organic cherries.

LivingSocial's national deal -- offering $20 worth of Whole Foods Market groceries for $10 -- was a hit Tuesday, selling out of its million vouchers several hours before the sale was slated to end.

We'll never know if the deal would have topped the 1.3 million Amazon.com (NAS: AMZN) vouchers that it sold at a similar price break back in January, but it would have been close if LivingSocial and Whole Foods hadn't capped the offer at a million coupons.

Premium groceries aren't a niche that consumers typically expect with half-priced offers. Folks who shop at Whole Foods Market or Fresh Market (NYS: TFM) know they will be paying up for choice edibles.

This deal seemed more about upping LivingSocial's prestige than traffic at Whole Foods' 308 stores, as I argued yesterday. I'm not feeling any differently now, even if I underestimated the initial demand.

Regardless of how LivingSocial and Whole Foods are splitting the proceeds, the social coupon website will now be able to show other upscale retailers that if even a classy outfit like Whole Foods Market can play along, why not them?

It hasn't been an easy sell in the past, largely because participating merchants are typically collecting about a quarter on the dollar for every voucher sold. Selling $20 worth of merchandise for $10 -- and then letting Groupon or LivingSocial keep roughly half of the proceeds from the $10 vouchers -- is a hard sell for sellers of hard goods. Social coupons have an easier time swaying restaurant and spa operators who have healthier margins to play with.

Whole Foods Market isn't the only established retailer to go this route. Groupon's aha moment came last summer when it sold 441,000 $50 Gap (NYS: GPS) vouchers for $25 last summer. These are the deals that the media ultimately remembers, and not the 243 vouchers for a suburban Portland cantina that sold yesterday.

Will a million folks heading to an organic grocery superstore during the next three months be enough to give this once-hot investing niche its mojo back? We'll see. Groupon called off its investor road show earlier this month, but a million deal seekers clicking the "buy" button at a smaller rival prove that there's still life here.

If you want to follow the organic grocer to see how it fares after this deal, a dd Whole Foods Market to My Watchlist.

At the time this article was published Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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