ASSIGNMENT #2 - COMPETITIVE FORCES AND SWOT ANALYSIS

ASSIGNMENT #2 - Competitive Forces and SWOT Analysis. .. . BUS 599 10-23-2011

ASSIGNMENT #2 - COMPETITIVE FORCES AND SWOT ANALYSIS

Discuss the trends in retailing of organic foods and the impact of these trends on Whole Foods Market. Even though Whole Foods Market founded in 1980 (Thompson, Strickland & Gamble, 2009), the legal base for the natural and organic foods established with Organic Food Production Act in 1990. In 2000, the amount of these types of foods in the conventional market increased. 2 years later in October 2002, labeling standards for organic products was established by the U.S. Department of Agriculture. The number of the supermarkets choosing natural and organic foods increased, and these supermarkets established special sections for natural and organic foods. The producing and marketing sector of these foods gained so attraction that almost all big food producing and marketing companies either became a partner of an organic food producer or began to offer organic foods to the customers. Organic farmlands have grown to the 4.1 million acres in 2005 (Thompson, Strickland & Gamble, 2009), and all 50 states had certified organic farmland. (Thompson, Strickland & Gamble, 2009) The main reasons which made the customers incline towards the natural and organic foods were that they were healthier than the products on the market, that they were pure and there was no artificial remnants on the foods, and that they had positive environmental effects. (Thompson, Strickland & Gamble, 2009) Since more and more consumers had tendency towards the natural and organic foods day by day, the number of the supermarkets offering organic foods and the kinds of the organic foods in the supermarkets increased. As a result of more supermarkets involvement into this sector and competition between them decreased the share of Whole Foods in the market. Moreover, Whole Foods Market had difficulties to find enough amount of organic food for the retail supermarkets. For example, in 2007, While Safeway, Publix and Kroger were

ASSIGNMENT #2 - COMPETITIVE FORCES AND SWOT ANALYSIS

stocking organic beef and chicken in their stores, Whole Foods Market was struggling to find organic beef and chicken suppliers big enough to supply all its stores. (Thompson, Strickland & Gamble, 2009) Evaluate the competitive environment of the firm: Apply Porters model and analyze each factor relative to the company. Porters Five-Forces Model is a powerful and analytical tool to evaluate the effects of other factors in the competitive environment. He uses five forces, which are;

firms in other industries offering substitute products, suppliers of raw materials, parts, components or other resource inputs, potential new entrants, buyers (Thompson, Strickland, Gamble, 2009) Due to natural and organic foods features and their high prices in comparison to

conventional foods, it seems unlikely for other firms to produce and offer substitute products. In this regard, there seems to be no firm to compete with them. However, even though Once Whole Foods Market was the unique company to offer natural and organic foods into the market, and it offered huge variety of these kind of foods like 30,000 kinds, other companies such as Fresh Market, Trader Joes, Sunflower Fresh & Easy Neighbourhood and Farmers Market recognized potential profits of this market and got involved in it. In this context, Whole Foods share in the market decreased gradually. On the other hand, the increase in the number of competitors resulted in problems on finding natural and organic foods. For example, in 2007, while its competitors Safeway, Publix and

ASSIGNMENT #2 - COMPETITIVE FORCES AND SWOT ANALYSIS

Kroger were stocking organic beef and chicken in a number of their stores, Whole Foods Market was struggling to find organic beef and chicken suppliers big enough to supply its stores. (Thompson, Strickland & Gamble, 2009) In this regard, Whole Foods Market applied different strategies to maintain their supply chain. They overpaid to suppliers to maintain their production and they started their own production facilities. While the market was enlarging, the customers interest also increased day-by-day due to their concern over healthy way of life. The increase in the demand on natural and organic foods attracted more companies to focus on this area, which was a kind of vicious cycle. Discuss which environmental factor poses the most significant threat to Whole Foods and what the company can do to combat it. The economic crisis throughout the world in 2008 impacted the global economy deeply, during which many banks and companies went bankruptcy. This crisis impacted Whole foods sales negatively by decreasing nearly % 10.91. In the same time period, their acquisition of Wild Oaks affected its financial situation of the company. Moreover, FTC questioned their acquisition of Wild Oaks and started a challenge with Whole Foods. Due to the increase in demand towards natural and organic food, it became more difficult to meet the customer needs. In addition, more companies are attracted to involve in this business sector. As a result of the increase in both demand and supply sides, the number of the supermarkets increased. The demand from the customers and the involvement of new companies into the natural and organic food sector poses some threats. It became very difficult for the food companies to sustain the organic foods, and the saturation of the market led to decrease in profits.

ASSIGNMENT #2 - COMPETITIVE FORCES AND SWOT ANALYSIS

In order to challenge with these factors mentioned above, Whole Foods Market can maintain its legal struggle with FTC regarding acquisition of Wild Oaks. On the other hand, they can make long term contracts with natural and organic food producers or they can build partnership with them to guarantee their procurement. They can assume the production of some items where they might encounter problems in the near future. Moreover, they can continue their education programs to attract more customers towards natural and organic foods. Complete a SWOT analysis and identify significant opportunities and threats facing the organization. Strengths Its financial situation was increasing continuously, as shown on Exhibit 5 the store

sales in 2000 increased from $1,838,630 to $6,591,773 in 2007 at 7.1 %. Since it gave great importance to the employees happiness and excellence, the

employees in the stores were highly motivated, loyal to the company and they are very happy in the working environment. They were not the member of any of the workers union. Internal competition between the stores provided them opportunities to implement

new practices and experiments. Whole Foods. The education they provided to their stakeholders increased their loyalty towards

ASSIGNMENT #2 - COMPETITIVE FORCES AND SWOT ANALYSIS

high quality.

Its natural and organic foods in the stores were more than 30,000 and they were all

They sold Whole Foods stocks on NASDAQ which provided high support to their

financial operations. 2011) It had close interest in social programs and participated in these programs. It Whole Foods Market has a lot of food producing facilities. (wholefoodmarket.com,

demonstrated social conscience and community citizenship. (Thompson, Strickland & Gamble, 2009) It supported small producers to not to lose its suppliers, and maintain the foods

supply chain and quality. They gave great importance to customer service and their satisfaction.

Weaknesses partner. There was an ongoing challenge with FTC related with acquisition of Wild Oats. Whole Foods Market had high debt rate. They allocated too little fund for the advertisement and marketing. They have been working on the natural and organic foods sector without any

ASSIGNMENT #2 - COMPETITIVE FORCES AND SWOT ANALYSIS

foods.

The prices of the natural and organic foods were higher than the conventional

There was a lot of supermarkets which are working in the same sector, and they

have huge market shares. Opportunities In order to expand their market, they can allocate more fund for the advertisements,

or they can increase the usage information technology to reach more potential customers. They can create partnership with some other natural and organic food company in

order to reach more customers and to decrease its debt rates. revenue. foods. They can expand the numbers of their suppliers to ensure natural and organic They can decrease the prices to provide more customers reach natural and organic They can start membership systems as on Costco, Samsclub or BJs to increase its

foods continuity. Threats They can increase the number of the products labeled with their own name.

ASSIGNMENT #2 - COMPETITIVE FORCES AND SWOT ANALYSIS

There were a lot of companies working on the same sector, and the number of

which were getting higher due to continuously increasing interests of the customers. Even though their suppliers were dependable to provide natural and organic foods,

any negligence related to providing organic foods might result in losing trust of the customers. The involvement of any big wholesale market into this sector might result in high

drops on sales amounts. less profit. The economic crisis might affect the natural and organic food negatively, and it If there had been more competitors in the sector, the company would have made

might result in high drops on the incomes. The prices of the natural and organic foods were quite high and everybody can not

afford to buy them.

Discuss how Whole Foods Market can use it strengths and opportunities to achieve a sustained competitive advantage in the marketplace.

ASSIGNMENT #2 - COMPETITIVE FORCES AND SWOT ANALYSIS

Even though Whole Foods Market has a significant place in the market with high quality products, the company can make further steps to benefit from its strengths and opportunities in the market. They are ; They can allocate more funds for the advertisement and marketing. In this regard,

they can use information technology more effectively. They can provide more information about their social conscience projects and activities regarding communities and environment. They can start a membership application as in Costco, Samsclub and BJs. They

can send monthly coupons, e-mails and coupons to offer the customers special discounts. They can reward the teams or individuals who lead to start new experiments

contributing EVA. They can wholesale its high quality natural and organic food items under their own

brands to the other supermarkets working in the same business. They can sell more stocks on NASDAQ in order to finance their future projects. They can use their food producing facilities as a hub, and they can sell the foods

from these facilities to other natural and organic food sellers. They can establish partnership with the suppliers to sustain high quality products. They can merge with some other natural and organic food supermarkets to expand

their coverage area and to reduce the risks.

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They can establish new facilities to produce some items purchased from outside

suppliers, and create new job opportunities through its social conscience programs.

References:

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Thompson, A.A., Strickland, A.J., & Gamble, J.E. (2009). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases: 2009 custom edition (17th ed.). New York: McGraw-Hill-Irwin Whole Foods Market (2011, October 23) Retrieved 23 October, 2011 from http://wholefoodsmarket.com/stores/