Whole Foods Market Case Study

By: Dan McLindon Kyle McDaniel Jeremy Smiley Tom Anderson Ray Moorman

Whole Foods Key Question

Can Whole Foods remain competitive in face of major changes in the competitive environment?

Overview of Whole Foods

Founded Vision 1980
Create an international brand , change the whole diet of consumers for the better, pace setter in the industry, be the best in food retail

Brand Values
Competitive Position Source of Differentiation Status in 2008

Natural & Organic Foods

Premium Products at a Premium Price Best Quality, least processed, most flavorful, naturally preserved 275 stores, 3 countries, $6.6bn in revenue

Corporate Objective

400 stores, $12bn in revenue

What is changing in the external environment?

PEST Analysis for Whole Foods

Category Issue Threats/Opport unities Ranking (1-5)

Political

4 tier class system i.e. Organic Definitions

2008 Economy Sours

Opportunity

1 or 2

Economic Social

Threat

5 4 or 5

More health & Opportunity environmentally conscious population.

Technological

What are the changes in demand?

Overview of the Market

Total Food Retail Natural & Organic Retail $850bn $62bn (7.3%) niche market

Growth Rate
Key Items Purchased

Growth slowed since 2000 (7-9%) Organic $17bn (1/3 of natural foods)
Fresh fruit &vegetables 73% (largest category) Big growth is processed items

3 Key Barriers for Consumers

Prices of organic foods likely to decline as competition/supply increases Lack of availability more supply in the future Brand loyalty to natural & organic foods

Porters Five Forces

Potential Entrants

Suppliers

Competitive Rivalry

Buyers

Heating Up Cool To Warm

Substitutes

Porters 5 Forces Whole Foods Market

Forces
Threat of Substitute Products Bargaining Power of Suppliers

Description
Easy switch to the conventional retailers. Specialty stores built right in to their strategies. Largest food processors acquiring organic food producers. Only 1% of farmland used for organics.

Conventional Retailers
High

Medium to High

Bargaining Power of Buyers

For the most part, conventional retailers determine what we pay.

Low

Intensity of Competition

Degree of commitment by the conventional retailers will determine the intensity.

High

Threat of New Entrants

Entrants are already there! Their intensity of their pursuit of the natural/organic market is the question.

Low Medium

Whole Foods Answer

Forces
Threat of Substitute Products Bargaining Power of Suppliers

Whole Foods Answer to the Competition

Acquisitions, taking on debt, reducing available cash. Hoping to get into new markets. Plans for new stores, varied floor plans. Use local suppliers. But only 1% of farmland being farms as organic. The big retailers are in a better position to deal with suppliers. Growing and marketing organic foods runs 25 to 75% higher than conventional. Conventional retailers setting the price and gaining market share.

The Result
Slowing growth since 2000. Struggling to find beef and chicken suppliers.

Intensity of Competition

Spend less(%) than the competition.

Bargaining Power of Buyers

For the most part, conventional retailers determine what we pay.

At will.

Threat of New Entrants

Entrants are already there! Their intensity of their pursuit of the natural/organic market is the question.

Already there.

Changes in the Competitive Landscape

Should they really welcome competition?
Local, regional, independent, national, and specialty stores are all competitors. CEO say it is a gateway for customers to try natural/organic foods or opportunity for the competition?

Take a look at Store Sales Growth

2004 14.9% 2005 12.8% 2006 11.0% 2007 7.1% 2008 ???

Sales growth has been cut in half since 2004!

Changes in the Competitive Landscape

We may be seeing a revolution in the food retailing business. Supercenters Marketplaces Wholesale Clubs

2006
Conventional Retailers Whole Foods

US Grocery Sales

# of Stores

Revenue in Billions $

25%
0.7%

5812
188

$377
$5.6

Will the competition force Whole Foods to rethink their strategy?

What is Whole Foods Strategy?

Marketing Growth Operational

Marketing Strategy
Product
High Quality Natural and Organic Food and nonfood items Offerings vary based on store size and tastes of local clientele Exotic offerings and product variety
Ex) Japanese eggplant, 40 cheeses, 20 coffees

Private label products Emphasis on perishables (fruits/veg., bakery goods, meat, seafood) 67 % of sales

Marketing Strategy
Price
Goal is competitive price at highest quality Organic foods are 25 75% more costly to grow and market Price and Quality are competing forces
Whole Foods chooses to focus on Quality, therefore prices are higher than conventional grocers

Marketing Strategy
Place
No standard store design. Layout customized for site and product mix. Colorful, inviting, fun
Gathering place to learn, interact, eat, and grocery shop

Presentation
Highly regarded food displays, cleanliness, wide aisles

Marketing Strategy
Promotion
Primarily rely on word-of-mouth recommendations 0.5% of revenue spent on advertising Most marketing spend is for in-store signage and events Store personnel is knowledgeable and personable

Growth Strategy
New stores and acquisitions of small owner-managed chains in desirable markets Ideal store size is 45,000 60,000 sq. ft.

Operational Strategy
Team-based management of store operations
Many personnel, merchandising, and operating decisions made at store level

Buying responsibility at the national and regional levels for volume discounts Own and operate many distribution centers: 2 for produce, 9 bake houses, 5 commissary kitchens for prepared food, and a central coffee roaster

What are the strengths, weaknesses, opportunities, and threats for Whole Foods?

SWOT Analysis Whole Foods

STRENGTHS Experience in the Industry Large, customized stores Huge selection/variety over 30,000 items Nationally Known Organic/Natural Foods Seller OPPORTUNITIES
Expand private label selection lower price for customers Advertise more, create coupons and promotions to get people in the store Hype right now is to eat healthier and protect the environment Rewards program frequent buyer cards (like Kroger cards) Back to Basics buy more local products that people will pay more for

WEAKNESSES Price up to 75% higher Locations only in affluent areas Advertising Budget very low (WOM approach) Promotional Offers no coupons

THREATS Conventional Supermarkets Bad Economy Local Farmers Markets/Independent Retail Chains

What are the future challenges for Whole Foods?

Future Challenges
Conventional Grocery Stores over saturate Market & offer Organic & Natural Foods
Convince new customers to shop at WF rather then more convenient stores

Pricing being able to compete against the conventional grocery chains Getting more people in the store

Recommendations for Whole Foods Market

Recommendations
Lower Price to Compete with Grocery Stores
Add a customer rewards program for frequent buyers Mail coupons to customers

Expand Private Label Selection

Lowers mfg costs, could offer discounts to customer for using WF brand products

Recommendations
Personalize Service at WF
3 days after purchase, email Thank You cards to customers after purchases 7 days after purchase, email 10% coupon to use on next purchase Email recipes

Advertise, Advertise, Advertise

Mail fliers to local zip codes show locally grown foods, classes offered, items on sale, coupons

Recommendations
Catering
Offer catering to local businesses & events

Do Not Buy Wild Oats

Halt expansion until WF builds up more cash Focus on profitable stores and use that philosophy to improve unprofitable stores