Whole Foods Case Study

Strategic Plan March 2009 Allen Allaman Don Castro Satinder Chatha Jeannette Dela Cruz Flaviano Rivera 1

Case Update 2005 ∆ 2009 2

Case Update Economy Legal   2005 Gross Domestic 2005 No pending   Product increasing litigation 2008 Gross Domestic 2007 Federal Trade   Product sharp drop Commission initiates administrative court hearing over the acquisition of Wild Oats stores. 2008 FTC appeal is  without merit 3

Case Update Financial Growth S trategy • • 2005 Comparable S tores S ales 12.8% 2005 Increase S ales 15 to 20 percent • • 2005 S ales Per S quare Foot $870 2005 Comparable S ales Growth of 8% to 10% • • 2005 Cash from Operations $411 M 2005 Increase S tore S quare Footage • • 2005 Paid Cash Dividends $55 M to shareholders • 2005 Reduced Long-term Debt by $152 M 2008 Conservative Growth and B usiness S trategy • • 2008 Profit Maximization through cost containment • 2008 Comparable S tores S ales 4.9% 2008 Increase range of lower priced items • • 2008 S ales Per S quare Foot $882 • 2008 Cash from Operations $326 M 2009 S ales stabilized driven by store improvements of • • Wild Oats stores, continue differentiation, and increase 2008 S uspended Cash Dividends to shareholders • awareness of value-products 2008 Increased Long-term Debt by $995 M • FINA NCIA L HIGHLIGHTS 2008 2007 2006 2005 2004 GROWTH S INCE IPO $7,953,9 $6,591,7 $5,607,3 $4,701,2 $3,864,9 CAGR 2008 2005 1991 S ales 12 73 76 89 50 Number of S tores 275 175 10 21.0% Number of Stores at End of S ales $8.0 B $4.7 B 276 30.0% Fiscal Year 275 276 186 175 163 Earnings Per S hare $0.82 $1.98 $617,000 14.0% A verage Weekly S ales per $570,00 $617,00 $593,00 $537,00 $482,00 Operating Cash Flow $325.8 M $410.8 M $3.4 M 31.0% S tore 0 0 0 0 0 Team Members 52,900 38,000 0 31.0% Comparable Store Sales S tock Price 20.64 128.87 5.8% 25.0% 4.9% 7.1% 11.0% 12.8% 14.9% Growth Identical S tore S ales Growth 3.6% 5.8% 10.3% 11.5% 14.5% Whole Foods M arkets A nnual Report 2008 4 Whole F oods M arkets A nnual Report 2008

Case Update 2006 Recommendations Actual Actions, 2006∆2008   Expand to South Eastern States by Acquired Wild Oats Markets  acquiring the Fresh Market Chain 1. Entry into 15 new markets and 5 new states  2. Replace Wild Oats brand with Whole Foods  1. Gain access to new markets  brands  2. Retain Fresh Market brand and introduce Whole Foods brand to avoid customer attrition  3. Utilize its supply chain avoid interruptions Expanded private label brands  1. Feature over 2,000 items of 365 Everyday  Establish a new “Whole Foods Value and 365 Organic brands Brand” name 2. Increased range of lower priced grocery  items  1. Sell new brand in traditional groceries stores 2 Provide gateway experience Customer Service unchanged.  Deploy Customer Relationship Management program Challenging year for Whole Foods  Markets due to economic  1. Offer CRM membership specials and discounts slowdown and depletion of  2. Delight customers savings and privileges financial resources consumed for store and sales growth 5

Industry Analysis 6

Industry Analysis: Dominant Economic Forces 7

General Economic Health Federal Reserve Beige Book  Weak across all districts  Layoffs and pay freezes  Consumer spending is down  Retail is especially hard hit  Price discounting  8

Consumer Confidence Index down  240% since 2005 Expectations  Index is now higher than the Present Situation Index Have we hit  bottom with nowhere to go but up? 9

Industry Analysis: Five Forces of Organic Competition 10

Five Forces Analysis Rivalry (strong and getting  stronger) Substitutes (Stronger from  grocery side, weaker from restaurant side) New Entrants (Strong from  substitutes) Suppliers (moderate to weak,  but watch out for integration) Buyers (Strong, but  weakening demand) Analysis: Everyone is hurting  from the recession and fighting to remain profitable 11

Industry Analysis: Industry Evolution 12

Driving Forces Demand for Economic Value- Recession Pricing The Social Demand for Acceptance Food Does of Organics Not Decrease 13

Merger of Markets The organic and general grocery market  have merged into one  This hybrid market has organic and non- organic consumers  Organic differentiation is becoming more commoditized  There is now a need for further segmentation beyond organic vs. non- organic 14

Target Markets 15

Geographic Markets 16

Organic Industry Lifecycle The organic industry is now a subset of  the grocery market  The organic sub-market is still growing 17

Market Size Organic sales account Whole Foods is the   for approx 3% of the leading organic retailer total market 18

Market Trends The organic 2008, year-to-year   market’s sales growth is only half have become of 2007 stagnant 19

Industry Analysis: Competitive Positioning 20

Competitive Positioning Organic  positioning is on price and core market General  grocers offer commodity organic goods Social-organic  retailers have ethical differentiation 21

Competitor Market Share This is total  grocery sales, not just organic Wal-Mart sells  more groceries than all other major competitors combined Even Wal-Mart  offers discounted organic goods 22

Market Growth/ Market Share Traditional grocers  have market share advantages  Slowing growth for organic grocers 23

Primary Competitors General Grocers  Kroger  Safeway  Supervalu  Organic Grocers  Trader Joe’s  24

Primary Competitors Kroger  Business Model: increase annual earnings per share  through strong and sustainable sales growth, slightly improved operating margins, and fewer shares outstanding. Strengths:  Significant market share in 44 markets covering 31 states  Well known regional brands  Weaknesses  High expansion cost  Has little quality control in its merchandise  25

Primary Competitors Safeway  Mission Statement: To be the first choice for those  customers who have the opportunity to shop locally in a Safeway store. Strengths:  High percentage of stores remodeled into “Lifestyle”  format. Strong Private label brand  Weaknesses  Strong Labor Unions  Expensive real estate  26

Primary Competitors Supervalu  Mission Statement: To serve their customer  better than anyone else could serve them, providing customers with value through our products and services, committing ourselves to providing the quality, variety and convenience they expect. Strengths  Wide portfolio of store brands  Strong Market Share  National presence & supply chain capabilities  Weaknesses  Late entry into natural/organic market.  27 Wal-Mart Supercenter competition in key markets 

Primary Competitors Trader Joe’s  Mission Statement: To focus on providing great  value to customers by having competitive prices on all their products. Strengths:  Attempts to make grocery shopping an exotic  experience Fast inventory turnover rate  Large selection of privately labeled products.  Weakness:  Limited store sizes and locations.  No separation of organic and conventional food.  28

Changes in Competitors’ Strategies 29

Shifts in Competition High Independent Organic Retailers Kroger Safeway Low Health- Social- 30 Market Segment Organic Organic

Shifts in Competition General grocers want more of the  organic market Competition will increase  31

Industry Analysis: Key Success Factors 32

Key Success Factors A strong network of suppliers   Access to locations rich in the target market  A strong brand name  Effective marketing communications  Products must be a fit with market demand 33

Industry Attractiveness 34

Industry Attractiveness The organic industry will have a hard  couple of years  But, consumers do not want to compromise their health and will continue buying organic  Health-organic consumers will go for value-priced goods  Social-organic will also like to see more value, but will shop on ethics 35

Internal Analysis 36

Internal Analysis: Current Performance 37

General Business Strategy Whole Foods has two  narrow markets that it serves Organic differentiation  is the key-stone of Whole Foods’ mission This means Whole  Foods uses a focused differentiation strategy 38

Product Lifecycle Revenues continue to increase   Net income is in steady decline since 2006  Suggests a pre-maturing of the brand 39

Store Locations 40

Core Competencies Highest-quality brand reputation   Dedication to the social ethics of organics  Industry best customer service  Strong supply chain  Private label program 41

Value Chain 42

Product Offerings Private-Labels Categories of   Goods 43

Current Promotional Strategy Whole Deal Program  Value Tours  Discounting  44

Current Promotional Strategy Advertising Product Placement   Top Chef  45

Current Promotional Strategy Website Design  E-newsletter  signup Cooking tips  Company blogs  Product and store  locators Company and  investor information Links to Whole  Foods’ pages on social networking sites 46

Internal Analysis: SWOT 47

SWOT Strengths Weaknesses   Organic market leader Premium prices   Strong WFM-supplier High cost in expansion   collaboration High employee/customer  Finest quality of goods ratio  Good distribution system Large perishable inventory   Minimal level of expensive High inventory costs   advertising Shortage of inventory in  Well trained staff with certain categories  specialized skills Geographic limitations  Community involvement  Value price private-labels  48

SWOT Opportunities Threats   Growing market through Growth relies on new   development and stores and acquisitions penetration Weak economy resulting in  Popularity of healthy living reduction of consumer  spending Cross-over of traditional  grocers Increased competition  Leveraging of our market Unionization   leading brand Government regulations  Consumers looking for  Limited capital  value-priced goods Debt  Consumers looking for  Stock price reductions  premium goods Economic conditions could  affect goodwill 49

Internal Analysis Financial Performance 50

Balance Sheet Ratios •Current Ratio on gradual decline •Debt to Equity Ratio show debt indicating Cash and Receivables averaging 50 percent of the are insufficient to cover current equity stake in assets then liabilities increases to 120 percent •Debt to Asset Ratio shows rapid •Days of Inventory show 9 days increase in debt from line of on average sell inventory credit and long term loans and capital leases •InventoryTurnover shows monthly average to sell its merchandise inventory. 51

Income Statement Ratios Gross Profit set by company to Pre-Opening and relocation as a • • achieve 34 percent as a percentage of Gross Margin shows minimal consumption of Gross Profit Net Profit Margin averaging 5 • percent of sales Earning Per Share (EPS) favorable • from 2004 to 2007 but drops to Direct Store Opening Expenses as • insufficient level in 2008 a percentage of Gross Margin shows large consumption of Gross Profit 52

Internal Analysis Strategic Advantages 53

Strategic Advantages The Whole Foods brand stands for best-  quality, organic goods  Whole Foods appeals to a greater social responsibility  Whole Foods has a strong distribution network  Private-label brands provide high-quality at value-priceing 54

Internal Analysis Central Strategic Issues 55

Central Issues Revenues are flattening   Net income is plummeting  Consumer confidence and buying power is shrinking  Debt/Equity ratio is unfavorable 56

Recommended Strategy 57

Recommended Strategy Financial Objective 58

Financial Objectives Grow Net Income   Cut Cost  Increase Revenue  Reduce Capital Expenditures  Raise Capital through Equity Shares and Reduce Borrowing 59

Financial Objectives Grow Net Income Increase Revenue   Open 14 new stores and deploy Impact of recession requires   Wild Oats stores conservative growth Reduce Capital  Open less stores and reduce  Expenditures average square footage Scale back on discretionary No influence on deflating   spending , close stores, reuse factors but some influence equipment, and terminate leases over cost Raise Capital through  Equity Shares and Reduce Cut Cost  Borrowing Deflating prices provide  Sell shares of common stock to  opportunity to negotiate lower raise capital for new store prices and rates with purchases suppliers and landlords Equity capital will avoid debt  Savings will reduce supply through banking institutions  chain costs and cost of goods 60

Financial Objectives As Whole Foods Markets pursues more growth, it  will manage its operating expenses relating to new stores and closing unprofitable stores The pre-opening expenses for 14 new stores will  be $3 million and relocation, store closure, and lease terminations costs will be approximately $886 thousand based on closing 4 stores These actions will reduce capital expenditures and  grow net income 61

Recommended Strategy Strategic Objectives 62

Business Strategy Focused differentiation   Increase marketing and goodwill to grow comparable store sales  Look for ways to decrease upstream supply costs  Continue long-run expansion 63

Recommended Strategy Strategic Objectives Marketing 64

Marketing Recommendations General  Marketing Increase  marketing budget 65

Marketing Recommendations Target Market  Reaffirm Whole Foods’ commitment to its core,  social-organic market Reach out to the price sensitive, health-organic  market Target the cross-over market from the  restaurant industry, who are looking for less- expensive dining options Focus marketing efforts on the West Coast and  New England, regions with the highest organic market density 66

Marketing Recommendations Price  Use ‘Value-Based Pricing’ to set goods prices  that reflect perceived value A price skimming strategy should be continued  since Whole Foods’ COGS is higher than competitors Try to lower check-out aisle receipts without  discounting too deeply 67

Marketing Recommendations Product  Repackage goods to be sold as “Cook-at-home  Restaurant Boxes” Increase private-label meat and seafood  offerings Expand service offerings  Store-events  Online ordering  68

Marketing Recommendations Promotions  Advertising  Target restaurant cross-overs  “Get more, Live Healthy”  Restaurant parody  Media placement  69

Marketing Recommendations Promotions  Product Placements  Top Chef  Hell’s Kitchen  Biggest Loser  70

Marketing Recommendations Public Relations  Use community outreach  to solicit media coverage and publicity Use store events and  goodwill for editorial content 71

Marketing Recommendations Online Marketing  Website Functionality  Coordinate with the advertising campaign  Create a page targeted to restaurant cross-overs  Build on the advertising message  Program a compare-and-contrast function  Online Partnerships  Share users with sites having complementary content  Replace Whole Foods’ recipe page with an application  from Conde Nast Imbed expansion ads into recipes  72

Marketing Recommendations Sales Promotions  CRM Loyalty Program  Discount club card  Require online sign-up  For every $1,000, get 10% off voucher  Collect direct marketing information  Track product preferences and sales accruement  Invite the highest ranked customers to customer  appreciation events 73

Marketing Recommendations Place  Reduce store openings by 30% of 2008 levels  Direct store growth in the Pacific Northwest and  build a presence in Britain 74

Recommended Strategy Strategic Objectives Community Stewardship Strategy 75

Community Stewardship Strategy Community Events  “Our Community Cares Days”  Donate 10% of specific days’, private-label sales to  participating charities Promote the events through signage and publicity  Sponsorship  “Fitness Challenge”  Tie into product placements  Promote through social networking sites and publicity  76

Community Stewardship Strategy Retail-Sales Forecasting  77

Recommended Strategy Strategic Objectives Operations Strategy 78

Operations Strategy 20% reduction in work hours for hourly  employees “A way to avoid further layoffs”  Affects 10% of employees  Save the company $28 million a year  Some of the money saved will be used to  finance R&D 79

Operations Strategy Pay Freeze  Employees making more than $75,000 will not  get raises Share the sacrifice with those who are losing  their hours Pay bonuses in stock options  Exceptions to this rule for key management  80

Operations Strategy Fund a R&D project to develop  computerized, customer assistance modules Size of an ATM machine  Gives “Farm-2-Fork” tracking  Provides nutritional information, cooking  instructions, and recipes Activated by the Whole Foods loyalty club card  Tracks searches-to-sales  $20,000 to implement, paid through work hour  reduction 81

Operations Strategy Use Whole Foods’ buying power to  pressure suppliers Negotiate for lower wholesale prices  Threaten globalizing sourcing from Latin  America Reduce COGS growth from 22.5% in 2008, to  20% in 2009-2011 82

Recommended Strategy Financial Projections 83

Income Statement Projection Dire ctStoreExpe e ns Num r of Store be s A ssumes continued operational costs and activation of Wild S ustain revenue growth through 14 new stores and Oats fleet of stores and new stores launches through S ales and closing 6 underperforming stores Marketing initiatives. Conservatively grow stores to 2011 Pre pe o ningExpe e ns s Sale s A ssumes regular new store openings through 2011 A ssumes average revenue based on total square footage of all stores at $804 per sqft. Re location, s reclos to ureandle ete ination as rm Re nueGrow ve th A ssumes net store activity based on closing and terminating A ssumes average store square footage of 40,000 sqft leases and moving stores to more desirable locations. multiplied by the 14 new stores which add 560,000 sqft. A verage revenue per square foot multiplied by added square feet increases revenue to $450 million Cos Goo tof ds A ssumes a set gross margin of 34 percent, however, margin could increase through savings negotiated from the supply chain. 84

Income Statement Projection 85

Balance Sheet Projection Current Liabilities (cont’d) Curre ntAs e s ts AccountsPayable Cas h Negotiate with vendors to extend credit terms to net Manage cash through tighter credit policies that 60 days. require customer remittance net 30 days. Note: C ollecting receivables net 30 days and paying bills net 60 days will create a positive cash flow which allows company Me rchandis eInve ntory to meet its billing terms. Manage M erchandise Inventory at lower levels to reflect impact from recession, price negotiation with Payroll, bonus be fits , ne suppliers, and decline in consumer spending. A rrange work schedule for hourly employees to reduce 40 hour work week to 32 hours Prope , Plant, & Equipm nt rty e Reflect store lease improvements, new equipment, Divide ndsPayable and computer systems required for new stores. S uspend dividends payable until company achieves favorable net income Curre ntLiabilitie s Curre ntL/T de & capital le eo ations bt as blig Longte rmde andcapital le eoblig bt as ations Renegotiate price per square foot on capital leases S ystematically terminate leases for closed stores and to reflect current market rates. negotiate new lease rates Com onStock m Increase stock offers to raise capital to fund new stores and avoid bank debt 86

Balance Sheet Projection 87

Cash Flow Projection 88

Cash Flow Projection 89

Conclusion 90

Conclusion Whole Foods will probably have a difficult time  over the next few years Revenue growth can be spurred through a  marketing campaign and community outreach Costs can be controlled through reductions in  direct labor, using buyer power to push down COGS, and reducing capital cost growth Net income may not grow as much as Whole  Foods might like, but the company can remain profitable 91

Thanks for your attention See you at GRADUATION!!! 92

http://www.techgig.com	2402
http://www.slideshare.net	623
http://sugarcan19.wordpress.com	144
http://dulcesycomidascaseras.blogspot.com	29
http://keranakhalilah.blogspot.com	9
http://static.slidesharecdn.com	6
http://translate.googleusercontent.com	4
http://citlearn.blackboard.com	3
http://fassfive.wordpress.com	3
http://search.mywebsearch.com	3
http://a2.vox-data.com	3
http://www.skunttz.com	2
http://twitter.com	1
http://paper.li	1
http://webcache.googleusercontent.com	1
https://lms.kku.edu.sa	1
http://wildfire.gigya.com	1

Whole Foods Case Study

by allenallaman on Mar 24, 2009

Accessibility

Categories

Tags

Upload Details

Usage Rights

17 Embeds 3,236

Statistics

Whole Foods Case Study — Presentation Transcript