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RUNNING HEAD: Whole Foods in 2014 Case Study 1

Whole Foods Market in 2014 Case Study:

Vision, Core Values, and Strategy

Chaniqua Hewlett

University of the Virgin Islands


Case Overview

The case study analysis presented in the preceding pages explores how the company`s value

chain, differentiation strategy, and organizational culture affects the company`s value

proposition, ability to sustain a competitive advantage, execute a winning strategy, and achieve

performance targets. Whole Foods Market, which was cofounded by John Mackey in Austin,

Texas, is a food and drug retailer that features a wide selection of natural and organic products.

The company operates in 379 stores that are located in 41 states, the District of Columbia,

Canada, and Great Britain. The case study analyzes the core values, driving forces (competitors,

suppliers, customers, etc.), the company`s mission statement, and business approaches that

defines a company`s strategy. The results of the case study illustrate the following: Whole Foods

Market must implement strategies to realize attractive profits while maintaining a competitive

advantage.

Problem Identification and Analysis

The minor problems that Whole Foods Market may have include John Mackey`s temper,

food spoilage, and employee retention. Supermarket chains` ability to copy Whole Foods`s

pricing strategy may reduce sales by price-sensitive consumers and may become a future

problem. Moreover, the major problem that Whole Foods faces is high prices for products and

their ability to globally expand operations. To emphasize, the apparent causes of the problems

involve the suppliers` costs and Whole Foods primary reliance on U.S. suppliers. Moreover, an

assumption made in the case was that Whole Foods faces inventory spoilage due to perishable

products and its sales are significantly affected by price sensitive consumers. These assumptions

were made during an analysis and evaluation of the competitive power of the company`s

resources to develop recommendations and available options that Whole Foods could implement.
Problem and Opportunity Statement

Whole Foods Market must implement a strategy that enables it to become an international

grocery chain that offers high quality natural and organic foods while maintaining a competitive

advantage.

Questions

1. What are the chief elements of the strategy that Whole Foods Market is pursuing?
Whole Foods strategy is based on their selection of products, and is tailored to its mission

of satisfying the needs of consumers, investors, staff, and suppliers in an environmentally

friendly way. The primary elements of the strategy that Whole Foods Market is pursuing

include the following: establishing large stores that sell 10,000 to 50,000 items;

establishing stores in upscale and highly populated metropolitan areas with favorable

profit projections; establishing weekly price reductions, store-brand coupons, and product

samples; using word-of-mouth advertising along with brochures and e-newsletters about

product quality, health eating, and environment; and empowering employees to provide

exceptional customer service by offering discounts, stock option plans, life and health

care insurance, retirement plans, etc.


2. Is Whole Foods strategy well matched to market conditions in the food retailing industry

(one of the criteria for a winning strategy discussed in Chapter 1)?


Based on the standards of merchandising natural and organic food, consumers` demand

for natural foods, and the revenues the company generates from fresh produce and other

perishables, Whole Foods strategy is well matched to market conditions in the food

retailing industry. During 2009 and 2013 the company`s strategy has allowed increase

sales by $4,885 million (12,917 8,032). Whole Foods also maintains a competitive

advantage with in-store eating venues, distribution centers, baking facilities, coffee

roasting operation, value prices and coupons on specific products. Consumers` demand
for organic goods is increasing; Whole Foods operates 379 stores that stocks an average

of 21,000 items which ranges from 10,000 to 50,000 and includes minimally processed

farm raised poultry and meat, fresh produce, and other preservative free products.
3. Do you think John Mackey has a good strategic vision for whole foods? Why or why

not? What do you like/ dislike about the companys mission to promote the vitality and

well-being of all individuals by supplying the highest quality, most wholesome foods

available?
John Mackey has a good strategic vision of becoming an international retail chain that

offers the highest quality natural and organic goods. Mackey`s strategy illustrates the

company`s performance targets, long term goals, and aligns well with the company`s

organizational culture, tangible and intangible resources, and consumers` demand for

nutritious goods.

The Company`s mission is memorable, focused, and indicates a directional path that

aligns well with the current market conditions, the company`s competitive resources and

capabilities, and goodwill. Ultimately, the mission is likable because it is not generic and

can be effectively communicated to employees to achieve the company`s long term goals

and increase economies of scale.

4. Do Whole Foods Markers core values as presented in case Exhibit 2 really matter? Are

they real or just cosmetic window dressing? What evidence can you cite to support

your answer? Have Whole Foods core values contributed to the companys success? Why

or Why not?
Whole Foods core values are not just cosmetic windows; The company`s core values

represent the organizational culture, illustrates the company`s vision, and shows the key

success factors. The core values are fulfilled in the following:


To promote healthy eating among employees, John Mackey created an incentive program that

rewarded employees with 25 to 35 percent discounts based on their biomarkers of good health score.
Whole Foods has established the following organizations that benefit the local and global

communities: Whole Planet Foundation, Whole Trade Guarantee Program, Whole Kids Foundation,

and Loan Program.


Whole Foods sells thousands of high quality organic food and gourmet food that are

preservative free and seafood that are environmentally friendly.


Whole Foods stopped using plastic bags at stores because the plastic is not biodegradable.

In addition, Whole Foods`s core values aid the company`s operational and financial performance, and

contributes to the company`s success in the market. The core values contribute to the success because

they promote loyal customers which translates to attractive profits, they promote a healthy working

environment which translates to exceptional customer service, and they promote the expansion of the

business which translates to an increase in market share.

5. Based on the financial statement data in case Exhibit 1, how would you address the

companys financial performance since 2009?

2013 2012 2011 2010 2009


Gross Profit Margin 35.84% 35.52% 34.99% 34.82% 34.30%
Return on sales 6.84% 6.35% 5.42% 4.86% 3.54%
Net profit Margin 4.27% 3.98% 3.39% 2.73% 1.83%
Net Return on Assets 9.95% 8.80% 7.99% 6.17% 3.88%
Return on stockholders equity 14.21% 12.26% 11.47% 10.37% 9.03%
Return on invested capital 14.11% 12.18% 11.40% 8.54% 6.21%
Networking Capital (million) 892 1126 574 414 371
Total Debt to Asset Ratio 0.00487 0.0045 0.0041 0.1276 0.1953
3 9 6 5
Long term debt-to-capital ratio 0.00691 0.0062 0.0059 0.1766 0.3122
7 8 1 1
Long term debt-to-equity ratio 0.00696 0.0063 0.0060 0.2144 0.4539
1 2 9 3
Based on the current Long term debt-to-equity ratio of 0.00696, Whole Foods has a

greater opportunity to borrow additional funds if necessary.


Return on Sales has increased the company`s profitability by 3.30% since 2009.
The company`s net working capital of 892 million shows that the company has sufficient

internal funds to pay its current liability on a timely basis and finance store expansions

without borrowing excessive funds or increasing the equity capital. In contrast, the 234

million change in net working capital from 2012 to 2103 may have occurred due to

incurring accounts payable, selling assets, selling shares, etc.


The current Long term debt-to-capital ratio of 0.00691 illustrates a high

creditworthiness, strong balance sheet strength, the ability to borrow additional funds,

and reduction in its reliance on long term borrowing since 2009.


The Net profit Margin shows a steady increase after tax profits by 2.44%
The Net return on Assets shows an increase in the return earned by stockholders by

6.07% and the Return on Stockholders` equity shows that investors are earning an

average return.
The return on invested capital illustrates that Whole Foods is effectively using their

capital investments to increase the company`s visibility in the marketplace.

Based on Whole Foods`s sales trends and earnings growth, the company has transcended

from being burden with debt after the 2008 recession to having a good financial performance.

Since 2009 to 2013, Whole Foods has increased its ability to cover operating expenses and

expand its operations in desired geographic areas.

6. Based on the store operations in Exhibit 3 and 4, how well is Whole Foods Market

performing from a strategic perspective? Does Whole Foods enjoy a competitive

advantage over its 3 chief rivals? Does the company have a winning strategy?
Although the rapid expansion of stores reduced after the recession in 2008 and the

unsuccessful acquisition of Wild Oats tradename and stores, Whole Foods Market is still

performing well from a strategic perspective. Whole Foods strategy to scale back store
expansions has allowed the company increase their total square footage at lower

development costs than the development costs in 2007. The growth strategy along with

the pricing strategy, store location strategy, and merchandising strategy has contributed to

the sales increases. To emphasize, the sales increases resulted from the following: loyal

and new customers, and increase in brand awareness from nonprofit activities and

customer coupon programs.

Whole Foods has a competitive advantage over its competitors (The Fresh Market, Trader

Joe`s, and Sprouts Farmers Market) based on the following: larger product selection,

larger stores, more local and international geographic locations, product merchandising,

and in-store restaurants. Based on the fit test, the competitive advantage test, and the

performance test, Whole Foods has a winning strategy. The company`s strategy aligns

well with company`s resources, the market conditions, value chain activities, the

company`s objectives, and competitive capabilities. Additionally, the company has

achieved a sales revenue of $12.9 billion which is higher than the 2013 sales revenues of

Fresh Market, Trader Joe`s, and Sprouts Farmers Market.

7. What recommendations would you make to John Mackey regarding the actions that

Whole Foods` management needs to take to sustain the company`s growth and financial

performance?
The management team should use strategic group mapping to analyze competitors`

market position to determine if Whole Foods has a stronger market position and to

maximize on market opportunities.


To reduce supplier costs and enhance value to customers, the management team should

collaborate with suppliers to identify mutual beneficial opportunities.


The management team should host weekly activities in their stores to increase brand

awareness and to create a brand image that encourages the consumption of organic and

natural products despite the extra costs.

Alternative Solutions

Establish customer rewards programs

Advantage: Creates branding opportunities, increases customers, increases differentiation

Open restaurants and bakeries that are separate from the stores

Advantage: geographic expansion, fulfills the vision of providing gourmet food

Partner with grocery chains to sell Whole Foods private label products

Advantage: increase profits, increase in competitive power of resources, increases value

proposition, increases the target mix to include bargain shoppers

Recommendation

The recommended action for Whole Foods is to broaden its market niche by collaborating

with suppliers to reduce costs, expanding the private labels products, and establishing

small groceries that are tailored to price sensitive shoppers. The positive effects include

fulfilling the demands of consumers and evolving consumers` association of healthy

eating to the company. The negative effects include lease obligations and import

regulations.

SWOT Analysis
Implementation

In order to maintain a competitive advantage and expand the market niche, Whole Foods

management should conduct an analysis of their competitors` position in the market and analyze

the competitiveness of the company`s resources. Next, management should create a budget that

will allow the buying team to extend the company`s supplying network internationally to

negotiate better costs and purchase more exotic produce. Once the buying team has successfully

lowered the suppliers` costs, management should collaborate with the producers of the Whole

Foods brand product to expand the product line. Secondly, management should collaborate with

the finance team and board members to establish small stores that would sell the Whole Foods

brand products and other organic products at value prices.

General comment /Conclusion

Ultimately, Whole Foods Market should continue to revolutionize how consumers associate
organic goods to the company by implementing a strategy that broadens the market niche and
offers more value priced goods that maintains the company`s guarantee of fresh, natural and
organic goods

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