Whole Foods

Market in
2014: Vision,
Core Values
and Strategy

A Strategic Analysis
 Prepared For Presented By

Mr. Sheikh Morshed Jahan

Farzana Afrin RQ: 33 (52D)
Associate Professor & Couse
Instructor Md. Masud-ul Haq ZR: 47 (52D)

W 650: Business Strategy Abu Salman Mohammad

ZR: 52 (52D)
Abdullah

Reefat Zaman Shourov ZR: 61 (52D)

Overview

Company and Industry overview

Strategic Analysis

Recommendation based on findings

 Company Overview

Founded: 1980, in Austin, Texas

8th largest food and drug retailer in

the US (2013)

232nd in Fortune 500 list

Sales of $12.9 billion in 2013

 Industry
Overview

Organic Food Sales in the US (Mn USD)

35,000
Steady growth in organic
31,500 food sales in the US
29,220
26,708
23,607 24,803
2008: 23.6 billion USD
2013: 35 billion USD

Organic Food purchased by

over 40 million people in the
2008 2009 2010 2011 2012 2013 US

Source: www.statista.com/statistics/196952/
PESTEL ANALYSIS

Government
Policies Awareness Seasonality
Forex Policies towards Healthy & Natural Calamity
Subsidy Quality Foods Global Warming

P S E
Political
E Social
T Environmental
L
Economic Technological Legal
Purchasing Power Agriculture Antitrust &
Economic Technology Other Laws
Downturn Storage Facilities
Porters 5 Forces

Competitive Rivalry:
High

Many Sellers In The Market

Differing Cost Structures
Significant Economies Of Scale Difference And
Wal- Mart Continually Drives Down Prices

Strong Exit Barriers

High Investment In Property, Distribution And
Inventories
Porters 5 Forces

Threat of New Entrants: Moderate

Some Health Stores Grew Into Supermarkets
Some Existing Supermarkets Re-Branded

Threat of Substitutes: Moderate

Health Food Stores
Traditional Supermarkets
Supercenters
Porters 5 Forces

Bargaining Power of Suppliers: High

Local Growers, Independent and Family Farmers, Large
Corporate Farms, Co-operatives and Food Brokers
Growing Number Of Organic Food Grocers

Bargaining Power of Buyers: High

Buyers Have Options !!!
Low Switching Cost
Porters Five
Forces Summary

Porters Five Forces Level of Threat

Competitive Rivalry High

Threat of New Entrants Moderate

Threat of Substitutes Moderate

Threat of Supplier Power High

Threat of Buyer Power High

OVERALL THREAT: HIGH

 Opportunities

Awareness towards Eating Healthy Foods.

During the Economic Downturn, Whole Foods found a Cost Effective Way to give a
little something back to customers
Global Expansion of Retail Operations
Organic and Natural Food Industry Focus on Consumer Education
Global Expansion of Supply Chain
Media Coverage
Private label growth
Threats

Increased Competition
Re-branding Existing Supermarkets
Wal-Mart
Low-cost competition
Changes in Government Regulations
Changes in the governments rules and regulations on the organic food can have an adverse
effect on the consumers purchasing power.
Changes in Economic Conditions
Impact of Consumer Spending
Rising Labor & Fuel Cost
Global warming
Opportunities &
Threats
OPPORTUNITIES Weights Scale Wighted Score
Awareness 0.2 3 0.6
Cost Effective 0.25 4 1
Global Expansion of Retail Operations 0.2 3.5 0.7
Consumer Education 0.05 2 0.1
Global Expansion of Supply Chain 0.2 3.5 0.7
Media Coverage 0.05 3 0.15
Private label growth 0.05 3 0.15
TOTAL 3.4

THREATS SCALE COMMENTS

Increased Competition 0.3 4 1.2 5 Highest
Low-cost competition 0.3 4 1.2
Changes in Government Regulations 0.025 2.5 0.0625 4 High
Changes in Economic Conditions 0.2 3.5 0.7 3 Moderate
Rising Labor & Fuel Cost 0.15 3 0.45
Global warming 0.025 1.5 0.0375 2 Low
TOTAL 3.65 1 Lowest
Competitor
Grouping

Cost Dimension
LOW MODERATE HIGH

Quality
LOW MODERATE HIGH

Proximity of Stores
LOW MODERATE HIGH
EARLY DAYS OF WHOLE FOODS- NICHE MARKETING

Organic food sales accounted for 5

to 6 percent of total U.S. retail sales Market Readiness Achieved
of food and beverages in 2013.

High Profit Margin

Premium Pricing Beyond just Organic Food

High Growth due to

Consistent Growing Geographical Coverage &
Health Consciousness Supermarket Format Stores

EARLY DAYS OF WHOLE FOODS- PRODUCT DIFFERENTIATION

STRATEGIC CHANGES SINCE 2007

SUCCESSFUL IMPLEMENTATION OF
BEST COST PROVIDER STRATEGY

2007 2008 2013

EVA dropped sharply to $35.4 Overhaul of Expansion Increase Local Produce

million Strategy Local Flavor
promote local production Economic Recession Maintain Quality and
an investment in the producers Shift to New offerings drive down Price
and their communities than Organic

MORE EMPHASIZE ON SUSTAINABILITY EMPHASIZE ON VALUE PRICING

 IS THE CURRENT GENERIC STRATEGY WORKING?
ADDRESSING CHALLENGES CHALLENGES

Bulk Purchase? : High Organic Food Demands

Quality Delivered? : High 10-40% Higher Cost
Customer Experience? : High
Value Perception? : High

Employees per store? : Medium Store Acquisition and Store

Sales Volume per store? : Very High Size Implies Higher Cost
 IS THE CURRENT GENERIC STRATEGY WORKING?
ADDRESSING OPPORTUNITIES OPPORTUNITIES

Exclusive Brand? : High Rise of Private Label Products

Private Label Items? : High

These account for approximately 16 percent

of the company's nonperishable sales

environmental stewardship?: High Environmentally Friendly

Global Publicity of its initiative? : High Choices
 IS THE CURRENT GENERIC STRATEGY WORKING?

Key Metrics are:

Trend in Firms Comparable Sales : Projected to slow down (From 6.9% to 5.5% - 6.2%)
Employee Voluntary Turnover Rate: 10% for 2013 (Lower than Industry Average)
Earning per Share :Projected to increase from $1.47 to $1.58-1.65
Sales per square feet : $983 per square foot (Double the Typical Average)

Whole Food is successful in aligning its profitability and strategic success. But, the industry
phase is moving from growth to maturity causing a slowdown in sales growth.
RESOURCES & CORE COMPETENCIES

Feature Resources Core Competency

Product Mix 5 4 (VRIN test met)
Efficient team approach to management 5 4 (VRIN test met)
Store Atmosphere 2
Store Size 4
Store Location 2 3 (Imitable)
Partnership with Suppliers 4 3 (Not Rare)
Pricing research capability 3 3 (Not Rare)
Relationship to many suppliers 4
Decentralization 4 3 (Not Rare)
Product variety with innovation 4 3 (Not Rare)
Creative merchandising perishable categories 5 4 (VRIN test met)
For Strength, 5= very strong, 1= Not at all strong
For Core Competency, 4=All criteria of VRIN test met
INTERNAL FACTOR ANALYSES SUMMARY

Product Mix
Hand-stacked produce, appealing displays of fresh seafood and
meats, open kitchens and teams of in-store chefs, scratch bakeries,
prepared food stations, salad bars, gourmet
food sections
STRENGTHS/CORE
COMPETENCIES
Effective Team Approach to Management Creative merchandising perishable
Store Personnel categories
Management from Acquired Shops 60% as opposed to average of 40%

WEAKNESSES Store Development Time & Cost Lack of Exclusive Retailer License
$12 m in cost Miss opportunity to sell unique
12-24 months to renovate products at a low price
Low net working capital
 STRATEGY ALIGNMENT

MISSION, VISION, VALUES STRATEGY BOTTOM LINE

 Whole Foods, Whole People, Whole Planet

MISSION

To promote the vitality and

well-being of all individuals
by supplying the highest
quality, most wholesome
foods available.
 Entered Great Britain in 2004 by purchasing
Fresh and Wild

379 stores in the United States, Canada, and

Great Britain

Organic products accounted for an estimated

30 percent of total sales in fiscal 2013
International brand
Highest-quality natural and Designated as the first national "Certified
organic foods available Organic" grocer by Quality Assurance
International
Being the best food retailer
in every community in
which it operated #1 seller of organic food
STRATEGY: AIMING FOR GROWTH

We Create Wealth
2003 : 117 Stores through Profits &
2014 (May) : 379 Stores Growth

Acquired competitor Wild

Oats Markets in 2007 for
$700 million
Profit
 STRATEGY: PROVIDING QUALITY
NATURAL AND ORGANIC FOOD
We Sell the Highest
Quality Natural and
Organic Products Organic products accounted
Available for an estimated 30 percent
of total sales in fiscal 2013.

Stringent quality measures

78 chemicals in unacceptable
Profit ingredients
 STRATEGY: VALUE-BASED OFFERS
Price points such as $0.99 We Satisfy, Delight
Attractive signs such as this and Nourish Our
weeks hot deals Customers
Size for every budget

STRATEGY: EMPLOYEE EMPOWERMENT We Support

AND COMPENSATION Team Member
Happiness and
Excellence
Team leaders can hire team
members
Salary Cap for managers
People
STRATEGY: ENVIRONMENTALLY
SUSTAINABLE PRACTICES
We Practice and
Advance
Paperless ordering systems Environmental
Biodegradable supplies for Stewardship
food and wine sampling
Company and community
recycling drives
Eco-scale Rating system
Planet
 Employee Stock options Whole Kids Foundation
401(k) retirement savings
5% Days
Benefits package
Whole Planet Foundation
20% discount
Society Strategy of Environmental
Best cost offers sustainability
Value Creation

Personal Customer
service in stores
Value Chain Local producer loan
Wide range of products Partners program

Employees 25% products from local

farms

Supplier relations
Customers United Natural Foods

Share price $42.7 in Dec 2012,

increased to $52.9 in May, 2014
EPS increased from $.42 to
Shareholders $1.48 from 2009 to 2013

Competitive Maturity
 MAJOR CONCERN

Increased Competition
Growing market attracting
competitors

Kroger, Trader Joes, Walmart,

Costco
 RECOMMENDATIONS

1. Marketing Campaigns

Entry of Walmart is an ominous sign

Television ads
With increased competition, word of
mouth may no longer be enough
Social Media ads
Brand Identity can become blurry

Collaboration with gyms Its a growing market, and

and fitness centers competitors might take away new
customers
 RECOMMENDATIONS
2. International Expansion

International Markets represent

Europe opportunities due to lower competitive
threat

Demand and Supply gap for organic

Asia products exists in Europe

Organic sales across Europe increased by

more than 25% in the five years to
August 2013

Source: http://www.foodnavigator.com/Policy/EU-organic-
supply-demand-gap-uncertainty
 RECOMMENDATIONS

3. Low cost Product Line

Additional product lines
Several competitors follow a low- based on low-cost appeal
cost approach, such as Costco,
Walmart etc.

Whole Paycheck connotation is Appeal to cost-conscious

still present millennials