COMPANY PROFILE

Whole Foods Market, Inc.

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PUBLICATION DATE: 30 Jun 2014
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Whole Foods Market, Inc.

TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................3
Key Facts...............................................................................................................3
SWOT Analysis.....................................................................................................4

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Whole Foods Market, Inc.

Company Overview

COMPANY OVERVIEW
Whole Foods Market, Inc. (Whole Foods Market or the company) is a natural and organic foods
supermarket chain that operates through its consolidated subsidiaries. The company's supermarkets
are located in the US, Canada and the UK. It is headquartered in Austin, Texas and employed about
78,400 people as of September 29, 2013, of whom 18,500 were part-time employees and 3,200
were seasonal employees.
The company recorded revenues of $12,917 million in the financial year ended September 2013
(FY2013), an increase of 10.4% over FY2012. The operating profit of the company was $883 million
in FY2013, an increase of 18.7% over FY2012.The net profit was $551 million in FY2013, an increase
of 18.2% over FY2012.
FY2013 was a 52-week period whereas FY2012 was a 53-week period.

KEY FACTS
Head Office

Whole Foods Market, Inc.

550 Bowie Street
Austin
Texas 78703
USA

Phone

1 512 477 4455

Fax
Web Address

http://www.wholefoodsmarket.com

Revenue / turnover 12,917.0

(USD Mn)
Financial Year End

September

Employees

78,400

NASDAQ Global
Select Ticker

WFM

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SWOT Analysis

SWOT ANALYSIS
Whole Foods Market is a natural and organic foods supermarket chain that operates through its
consolidated subsidiaries. The company offers a broad and differentiated product selection with a
strong emphasis on perishable foods designed to appeal to both natural and organic food and
gourmet shoppers. An extensive product offering allows the company to address multiple customer
segments. However, intense competition could erode the companys market share and affect its
margins.
Strengths

Weaknesses

Broad product offerings

Focused growth strategy

Product recalls
Weak international presence
Increasing rental expenses

Opportunities

Threats

Increasing demand for organic products

Increasing popularity of private labels
Growing pet spending in the US

Intense competition
Stringent regulations

Strengths

Broad product offerings

Whole Foods Market offers a broad and differentiated product selection with a strong emphasis on
perishable foods designed to appeal to both natural and organic food and gourmet shoppers. Its
product selection in all of its stores includes produce, seafood, grocery, meat and poultry, bakery,
prepared foods and catering, specialty (beer, wine and cheese), coffee and tea, nutritional
supplements, vitamins, body care, lifestyle products such as books, floral items, pet products and
household products. In its stores, it stocks a large selection of organic food and non-food products.
These stores also feature catering departments, where customers can purchase made-to-order
foods. Moreover, the company's emphasis on fresh food provides it with a competitive edge over
its peers offering only packaged foods. An extensive product offering allows the company to address
multiple customer segments, apart from insulating it from any significant fall in demand for any
specific product or segment and also enables it to retain its customer base besides attracting new
customers to its stores.
Focused growth strategy

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SWOT Analysis

Whole Foods Market focuses on expansion, primarily through new store openings in existing trade
areas as well as new areas, including international locations. In the first quarter of FY2013, the
company opened stores in three different countries. It purchased six stores in the Boston area, which
were all remodeled and re-opened by year end. This helped the company to revitalize its brand in
one of its oldest markets. In addition, Whole Foods Market opened a store in Detroit, providing fresh
food to an underserved community. In total, during FY2013 and FY2012, the company opened 26
and 25 new stores, respectively. The company plans to open 33 to 38 new stores in FY2014.
The company's strategy to grow through identical store sales growth, acquisitions and new store
openings has enabled it to grow at a significant growth rate in the past. Since the natural foods
retailing industry is highly fragmented and comprises many small local and regional chains, growth
through store expansion provides the company access to desirable markets, apart from enabling it
to expand its reach to a wide customer base and diversify its revenue streams.

Weaknesses

Product recalls
Whole Foods Market has been recalling several products in the recent years. For instance, in May
2014, the company recalled Thai Soba Noodle Salad sold in all stores in five states due to an
undeclared soy allergen. In April 2014, Whole Foods Markets Northern California region recalled
its Chipotle Chicken Wrap because it contained an undeclared allergen. The wrap, labeled as
Chipotle Chicken Wrap, was filled with a Chicken Caesar wrap mix, which contains a fish allergen
(anchovies) not declared on the Chipotle Chicken Wrap label. In February 2014, the companys
Mid-Atlantic region recalled its Tom Yom Soup because it contained milk, an undeclared allergen.
Earlier, in July 2013, Whole Foods Market recalled Crave Brothers Les Freres cheese in response
to a recall by the Crave Brothers Farmstead Cheese Company of Waterloo, Wisconsin, due to a
possible contamination with Listeria Monocytogenes. In the same month, the company recalled Trois
Comtois Morbier cheese in the Mid Atlantic, Southwest, Northern California, Southern Pacific and
Midwest regions, due to a possible contamination with Listeria Monocytogenes. In May 2013, Whole
Foods Market recalled bulk curried chicken salad and bulk vegan curried chick'n salad due to potential
presence of undeclared soy and egg allergens. In January 2013, the company recalled one lot code
of Whole Catch Wild Alaskan Sockeye Salmon, cold smoked and sliced, due to a possible
contamination with Listeria Monocytogenes. The product was sold in stores in 12 states.
Such recurrent product recalls affect the brand image of the company, which, in turn, leads to low
customer loyalty and brand equity.
Weak international presence
The company has weak international presence with just eight stores in Canada and seven stores in
the UK. Canada and the UK accounted for only 3.3% of the total revenues in FY2013. Though the
company intends to open new stores in the UK and Canada, its operations in these markets are not

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SWOT Analysis

large enough to derive economies of scale in purchasing and distribution, resulting in relatively high
product prices. The higher prices erode the competitiveness of the company relative to its established
international rivals, who have larger scale of operations and, therefore, leaner economics. In a
competitive environment, high dependence on few markets not only exposes Whole Foods Market
to the vulnerability of local market conditions but also limits the growth opportunities. Besides, the
company is deprived of the economies of scale and benefits which its competitors realize because
of their global operations.
Increasing rental expenses
Whole Foods Market has obligations under certain capital leases for rental of equipment and certain
operating leases for rental of facilities and equipment. Therefore, the change in rental expenses
charged under operating leases affects the companys business. In the recent years, the company's
rental expenses have increased significantly. Rental expense charged to operations under operating
leases for FY2013, FY2012 and FY2011 totaled approximately $374 million, $353 million and $322
million, respectively. Increasing rental expenses affect the company's profitability and consequently
have a material adverse impact on margins.

Opportunities

Increasing demand for organic products

The demand for natural and organic foods has increased over the years due to rising awareness
about the importance of natural foods in the diets. According to industry estimates, the US organic
food sales were $28 billion in 2012, an increase of 11% from 2011. Particularly, produce (fruits and
vegetables) and dairy were the top two organic food categories which accounted for 43% and 15%
of total organic sales, respectively, in 2012. This growth trend is expected to continue. In a latest
study undertaken by an industry source, nearly 80% US families reported that they purchase organic
at least sometimes. With parents focusing on providing healthier food options to their children, there
has been an increase in the frequency of purchases of organic foods in the country. Furthermore,
the awareness of the USDA Organic seal is also contributing to such a surge in sales. With consumers
looking for the seal when shopping for organic products, the study indicated that the trust in organic
products has increased. As per the industry estimates, total sales of organic products in the US will
exceed $35 billion in 2014.
Whole Foods Market offers natural and organic foods for special dietary needs in the US. The
company is well positioned to benefit from the expanding organic foods market and improve its
market share. This would enhance the company's revenue base in a lucrative and stable growth
potential market.
Increasing popularity of private labels

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SWOT Analysis

Demand for private label products has been growing in the US since last few years. These products
provide customers with an attractive alternative to higher-priced national brands. Instead of buying
expensive brands, consumers across the industry are turning to generic and private label products.
Even upper-income shoppers are more willing to buy generic, which has traditionally appealed more
to shoppers with limited budgets. According to industry sources, among all major US retail channels,
private label sales increased by approximately 3% to reach nearly $109 billion in 2012. Since 2009,
annual growth of store brands sales has averaged approximately 5%, compared to national brands
sales annual growth of approximately 2%.
The company offers more than 2,600 products under its store brands such as Whole Foods Market,
365 Everyday Value and Whole Catch. It also offers specialty and organic coffee, tea and drinking
chocolates through its subsidiary Allegro Coffee Company. In FY2013, the companys exclusive
brands accounted for approximately 16% of its non-perishable sales and approximately 12% of its
total retail sales. Increasing popularity of private label products among consumers and the company's
emphasis on enhancing its value offerings is expected to have a favorable impact on the company's
sales and profit margins.
Growing pet spending in the US
The US pet industry, considered to be one of the largest in the world, has been growing at a strong
pace. According to a survey conducted by an industry association, about 68% of the US households
own a pet, which is equivalent to approximately 82.5 million households. According to industry
estimates, pet spending in the US increased about 4.5% to exceed $55 billion in 2013. Pet food
category recorded the highest growth in spending and it accounted for approximately 39% of the
overall market in 2013. Furthermore, the pet industry expenditure in the US is forecast to increase
by about 5% in 2014.
Whole Foods Market provides a variety of choices to pet owners regarding different feeding
philosophies. The company also offers products for pets with specific dietary needs, preferences
and sensitivities. The companys pet product offering ranges from natural and organic to grain or
gluten-free diets to special formulas for weight control, joint support, and urinary tract health.
Furthermore, Whole Foods Market has been strengthening its product offering in the pet segment
in the recent times. For instance, in October 2013, the company introduced Whole Paws, a line of
premium value pet food. This product line features 24 products for dogs and cats, including items
ranging from grain-free adult dog food and training treats to indoor cat formula and litter with baking
soda. Therefore, Whole Foods Market is well positioned to capitalize on the growing pet spending
in the US.

Threats

Intense competition

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SWOT Analysis

Food retailing is a large, intensely competitive industry. Whole Foods Market competes with local,
regional, national and international conventional and specialty supermarkets, natural foods stores,
warehouse membership clubs, smaller specialty stores, farmers' markets, and restaurants. Each of
these competes with the company on the basis of product selection, quality, customer service, price
or a combination of these factors. Most supermarkets offer at least a limited selection of these
products, while some have chosen to expand their selection more aggressively. The companys key
competitors include Safeway, The Kroger Co., Trader Joe's Company, Sprouts Farmers Market,
Weis Markets, Winn-Dixie Stores, Wal-Mart Stores and Arden Group. Some of these competitors
have significantly larger and have substantially greater resources than the company. For instance,
Safeway generated revenues of $36,139.1 million in the financial year ended December 2013, while
The Kroger Co. generated revenues of $98,375 million in the financial year ended January 2014. In
comparison, the company generated revenues of $12,917 million in FY2013. High level of competition
could erode the companys market share and affect its margins.
Stringent regulations
As the company operates in the natural and organic foods market, its stores and products are subject
to several laws and regulations relating to health, sanitation and food labeling. The company is also
required to comply with provisions regulating licensing for beer and wine or other alcoholic beverages
in many stores. Several federal agencies and departments, including the Food and Drug Administration
(FDA), the Federal Trade Commission (FTC), the Consumer Product Safety Commission (CPSC),
USDA and the Environmental Protection Agency (EPA) set critical standards for the manufacturing,
processing, formulation, packaging, labeling and advertising of products. Failure to comply with
these standards could result in penalties and seizure of marketing and sales licenses. These
regulations also result in additional compliance costs, which could reflect in reduced margins.

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