Executive Summary

Whole Foods Market, Inc.

25 Years Of Double Digit Revenue Growth $4.7B Organic Supermarket Industry Leader

Whole Foods Current Strategy

Expand Through New Store Openings Achieve $12 Billion In Sales By 2010

Executive Summary

Competitive Strategy Analysis

Supplier Power Dominates This Industry Current Strategy Lacks Aggressiveness

Recommended Strategy
Establish Partnerships With Traditional Supermarkets Achieve National Brand Equity

Overview

Porters Five Forces Analysis SWOT Analysis of Whole Foods Recommended Strategy Questions/Discussion

Market Definition

Market History
Natural And Organic Food Industry Began About 30 Years Ago Whole Foods Market Is A Founding Firm USDA Established The Organic Rule In 2002

Market Definition

All Products Sold As Organic Must Now Meet The Requirements Of The USDA Organic Rule

Approximately $13 Billion In Sales In 2005

Internal Rivalry

Threat To Profits: High

Sources Of Internal Rivalry:
Many Sellers In The Market Differing Cost Structures Strong Exit Barriers

Internal Rivalry

Differing Cost Structures

Consider A Wal-Mart Supercenter: > 100,000 Square Feet Average Supermarket Only 35,000 Square Feet Significant Economies Of Scale Difference And Wal-Mart Continually Drives Down Prices

Strong Exit Barriers

High Investment In Property, Distribution And Inventories

Entry
Threat to Profits: Medium
Originally, Health Food Stores Were Small, Expensive, And Unpredictable.

Some Health Stores Grew Into Supermarkets: Sun Harvest Whole Foods Market Some Existing Supermarkets Re-Branded Wegmanns HEB: Central Market

Segment Entry Types

Re-branded Supermarkets
H.E.B. (Texas) Created Central Market Wegmans (New York) Upgraded Locations

New Supermarket Entrants

Growing Health Food Stores (GNC) New Firms

Entrant Comparison

Barrier
Economies of Sales Government Protection Brand Loyalty Access to Key Inputs Experience Curve Network Externalities Competition Expectations

New Entrant
Strong N/A Moderate Strong Strong Strong Strong

Re-Branded
Moderate N/A Moderate Weak Weak Moderate Moderate

Overall Threat:

Low

High

Most Likely Segment Entrants

Based On The Barriers To Entry Analysis, The Most Likely Entrants Into The Organic Segment Of The Supermarket Industry Are Established Firms

Whos Next?

Substitutes And Complements

Substitutes
Threat To Profits: Medium Health Food Stores Traditional Supermarkets Supercenters

Complements
Health Industry Health Insurance Companies Health Care Specialists Fitness Centers Wellness Programs

Supplier Power

Threat to Profits: High

Local Growers, Independent And Family Farmers, Large Corporate Farms, Co-ops And Food Brokers Organic Supply Chain Underdeveloped Growing Number Of Organic Food Grocers

Buyer Power

Threat To Profits: Medium To High Buyers Have Options! Price Convenience Varying Levels Of Health Sensitivity Mixed Consumer Messages

Porters Five Forces Summary

Porters Five Forces

Internal Rivalry Entry Substitutes/Complements

Threat to Future Profits

High Medium Medium

Supplier Power
Buyer Power

High
Medium to High

Strengths

Whole Foods, Whole People, Whole Planet

Corporate Culture Customer Experience Perishables Hip Image Double Digit Growth Largest Selection

Strengths

Whole Foods:

Reputation: Healthy, Local Food

Whole People:

Branding For Affluent And Health Conscious Positive Employee Environment

Environmentalist Reputation Encourages Brand Loyalty, Holds Off Commoditization

Whole Planet:

Strengths

Whole Financing!
Strong Cash Flow And Stock Position Provide Capital For Growth In The Most Highly Desired Locations
t

4.7 Billion Dollar Revenues Revenue Growth: 21.6 Percent From 2004 To 2005 15.8 Percent From 2005 To 2006 Returning Invested Capital (ROIC): 37% Capitalization Increased To 6.8 Billion: 6th On The List Of All Grocery Chains

Weaknesses

Whole Paycheck Whole Planet? Weak International Operations

Low Employee Efficiency

Revenue per Employee = $138K versus Industry Average of $309K

Opportunities

Market Leadership in High Demand Segment

2002 USDA Organic Rule True Differentiation Organic and Natural Food Industry Focus on Consumer Education Media Coverage
Health benefits of organic foods Suspicious of contaminants (e.g. hormones, antibiotics, etc.)

Opportunities

Private Label Brands

Whole-X, Where X = Kids, Ranch, Fields, Catch, Creamery, Diary, Treat Growth Of These Brands Is High Due To Lower Price Versus Contemporary Organic Brands Potential To Sell These Products In Traditional Supermarkets

Threats

Increased Competition
Re-branding Existing Supermarkets Wal-Mart

Changes in Government Regulations Changes in Economic Conditions

Impact of Consumer Spending

Corporate Strategy

Whole Foods Current Strategy

Expand Through New Store Openings Build Versus Buy New Stores
Customized Stores To Local Preferences Open To Acquisition Opportunities

Grow Store Space At A Controllable Rate Of 14%

Preserve Corporate Culture

Achieve $12B In Sales By 2010

Medium Term Strategy

Coordinated Campaigns To Enter New Markets

Prior To Store Opening, Establish Relationships With:
Traditional Supermarkets Willing To Sell Whole-X Products Local Organic Suppliers And Growers

Aggressive Advertising Upon Store Launch:

Emphasize Whole Foods, Whole People, Whole Planet

Long Term Strategy

Build National Brand Equity

Extend Partner Relationships Into Current Markets Increase Advertising Budget From 0.4% To The Industry Average Of 1.5%
Focus On Building Brand Identity With Organics When Consumers Think Organic, They Think Whole Foods Shed The Whole Paycheck Image

Questions & Discussion