Whole Foods Market

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MGT401-2

Case Study: Whole Foods Market


Whole Foods Market is the world’s leading retailer of natural and organic foods, with 193
stores in 31 states, Canada, and the United Kingdom.
According to the company, Whole Foods Market is highly selective about what it sells,
dedicated to stringent quality standards, and committed to sustainable agriculture. It believes
in a virtuous circle entwining the food chain, human beings and Mother Earth: each is reliant
upon the others through a beautiful and delicate symbiosis. The message of preservation and
sustainability are followed while providing high-quality goods to customers and high profits
to investors.

Whole Foods has grown over the years through mergers, acquisitions, and new store
openings. The $565 million acquisition of its lead competitor, Wild Oats, in 2007 firmly set
Whole Foods as the leader in the natural and organic food market and led to 70 new stores.
The U.S. Federal Trade Commission (FTC) focused its attention on the merger on antitrust
grounds. The dispute was settled in 2009, with Whole Foods closing 32 Wild Oats stores and
agreeing to sell the Wild Oats Markets brand.

Although the majority of Whole Foods’ locations are in the United States, European
expansion provides enormous potential growth due to the large population and it holds a more
sophisticated organic-foods market than the U.S. in terms of suppliers and acceptance by the
public. Whole Foods targets its locations specifically by an area’s demographics. The company
targets locations where 40% or more of the residents have a college degree as they are more
likely to be aware of nutritional issues. While Whole Foods recognizes it is only a
supermarket, management is working toward fulfilling their vision within the context of the
industry. In addition to leading by example, they strive to conduct business in a manner
consistent with their mission and vision. By offering minimally processed, high-quality food,
engaging in ethical business practices, and providing a motivational, respectful work
environment, the company believes it is on the path to a sustainable future.
Whole Foods incorporates the best practices of each location back into the chain. This can
be seen in the company’s store product expansion from dry goods to perishable produce,
including meats, fish, and prepared foods. The lessons learned at one location are absorbed by
all, enabling the chain to maximize effectiveness and efficiency while offering a product line
customers love. Whole Foods carries only natural and organic products. The best tasting and
most nutritious food available is found in its purest state-unadulterated by artificial additives,
sweeteners, colorings, and preservatives. Whole Foods encourages a team-based environment
allowing each store to make independent decisions regarding its operations. Teams consist of
up to 11 employees and a team leader. The team leaders typically head up one department or
another. Each store employs anywhere from 72 to 391 team members. The manager is referred
to as the “store team leader.” The “store team leader” is compensated by an Economic Value
Added (EVA) bonus and is also eligible to receive stock options. Whole Foods tries to instill
a sense of purpose among its employees and has been named for 13 consecutive years as one
of the “100 Best Companies to Work For” in America by Fortune magazine. In employee
surveys, 90% of its team members stated that they always or frequently enjoy their job. The
company strives to take care of its customers, realizing they are the “lifeblood of our business,”
and the two are “interdependent on each other.” Whole Foods’ primary objective goes beyond
100% customer satisfaction with the goal to “delight” customers in every interaction. At the
time of Whole Foods’ inception, there was almost no competition with less than six other
natural food stores in the United States. Today, the organic foods industry is growing and
Whole Foods finds itself competing hard to maintain its elite presence.
Whole Foods competes with all supermarkets. With more U.S. consumers focused on
healthful eating, environmental sustainability, and the green movement, the demand for
organic and natural foods has increased. More traditional supermarkets are now introducing
“lifestyle” stores and departments to compete directly with Whole Foods. This can be seen in
the Wild Harvest section of Shaw’s, or the “Lifestyle” stores opened by conventional grocery
chain Safeway.

Whole Foods’ competitors now include big box and discount retailers who have made a
foray into the grocery business. Currently, the United States’ largest grocer is Wal-Mart. Not
only does Wal-Mart compete in the standard supermarket industry, but it has even begun
offering natural and organic products in its supercenter stores. Other discount retailers now
competing in the supermarket industry include Target, Sam’s Club, and Costco. All of these
retailers offer grocery products, generally at a lower price than what one would find at Whole
Foods.

Another of Whole Foods’ key competitors is Los Angeles-based Trader Joe’s, a premium
natural and organic food market. By expanding its presence and product offerings while
maintaining high quality at low prices, Trader Joe’s has found its competitive niche. It has 215
stores, primarily on the west and east coasts of the United States, offering upscale grocery fare
such as health foods, prepared meals, organic produce, and nutritional supplements. A low
cost structure allows Trader Joe’s to offer competitive prices while still maintaining its
margins. Trader Joe’s stores have no service department and average just 10,000 square feet
in store size. Whole Foods exists in a time where customers equate going green and being
environmentally friendly with enthusiasm and respect. In recent years, people began to learn
about food and the processes completed by many to produce it. Most of what they have
discovered is disturbing. Whole Foods launched a nationwide effort to trigger awareness and
action to remedy the problems facing the U.S. food system. It has decided to host 150
screenings of a 12 film series called “Let’s Retake Our Plates,” hoping to inspire change by
encouraging and educating consumers to take charge of their food choices. Jumping on the
bandwagon of the “go green” movement, Whole Foods is trying to show its customers that it
is dedicated to not only all natural foods, but to a green world and healthy people. As more
and more people become educated, the company hopes to capitalize on them as new customers.
Beyond the green movement, Whole Foods has been able to tap into a demographic that
appreciates the “trendy” theme of organic foods and all natural products. Since the store is
associated with a type of affluence, many customers shop there to show they fit into this
category of upscale, educated, new age people.

Whole Foods has historically grown by opening new stores or acquiring stores in affluent
neighborhoods targeting the wealthier and more educated consumers. This strategy has worked
in the past; however, the continued focus on growth has been impacting existing store sales.
Average weekly sales per store have decreased over the last number of years despite the fact
that overall sales have been increasing. It is likely that this trend will continue unless Whole
Foods starts to focus on growing sales within the stores it has and not just looking to increase
overall sales by opening new stores. It is also increasingly difficult to find appropriate locations
for new stores that are first and foremost in an area where there is limited competition and also
to have the store in a location that is easily accessible by both consumers and the distribution
network. Originally Whole Foods had forecast to open 29 new stores in 2010 but this has since
been revised downward to 17.

Opening up new stores or the acquisition of existing stores is also costly. The average cost
to open a new store ranges from $2 to $3 million, and it takes on average 8 to 12 months. A
lot of this can be explained by the fact that Whole Foods custom builds the stores, which
reduces the efficiencies that can be gained from the experience of having opened up many new
stores previously. Opening new stores requires the company to adapt its distribution network,
information management, supply, and inventory management, and adequately supply the new
stores in a timely manner without impacting the supply to the existing stores. As the company
expands, this task increases in complexity and magnitude.

The organic and natural foods industry overall has become a more concentrated market
with few larger competitors having emerged from a more fragmented market composed of a
large number of smaller companies. Future acquisitions will be more difficult for Whole Foods
as the FTC will be monitoring the company closely to ensure that it does not violate any federal
antitrust laws through the elimination of any substantial competition within this market.
Over the last number of years there has been an increasing demand by consumers for
natural and organic foods. Sales of organic foods increased by 5.1% in 2009 despite the fact
that U.S. food sales overall only grew by 1.6%. This increase in demand and high margin
availability on premium organic products led to an increasing number of competitors moving
into the organic foods industry. Conventional grocery chains such as Safeway have remodeled
stores at a rapid pace and have attempted to narrow the gap with premium grocers like Whole
Foods in terms of shopping experience, product quality, and selection of takeout foods. This
increase in competition can lead to the introduction of price wars where profits are eroded for
both existing competitors and new entrants alike.

Unlike low-price leaders such as Wal-Mart, Whole Foods dominates because of its brand
image, which is trickier to manage and less impervious to competitive threats. As competitors
start to focus on emphasizing organic and natural foods within their own stores, the power of
the Whole Foods brand will gradually decline over time as it becomes more difficult for
consumers to differentiate Whole Foods’ value proposition from that of its competitors.

Questions
1. Determine the mission statement and the vision of the company Whole Foods.

2. What is/are the strategy (ies) adopted by Whole Foods?

3. Draw the SWOT table of this company.

4. Explain the contribution of the various functional areas (operations, marketing, finance,
HR …) to the overall well-being of the company.

5. Explain the issues related to strategic competitive advantage of the company.

 

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