Our group members are Amy Zelezen, Amanda Roberson, Boris Pilipenko, Kinjal Gandhi, AnkushBrahmavar and Matthew Werner. We now present our analysis of Whole Foods Market.
As you can see, this is a huge industry that is a part of everyone’s lives. We set out to discover strategic issues facing Whole Foods, and here is what we found out. The green movement has popularized natural and organic foods and they are now available at many traditional grocery stores. Faced with stiff competition, how can Whole Foods maintain its competitive advantage?Let’s take a look at a Five Forces Industry Analysis. Low switching costs make buyers powerful, but this is mitigated by buyers’ inability to integrate backwards.There are many suppliers in the industry, so they are forced to compete for space on store shelves and comply with grocers’ demands. The recent popularity of store brands has diminished supplier power even further as stores have integrated backwards to cut costs. New entrants face high costs of acquiringPPE. Creating extensive supply networks is difficult, costly, and requires knowledge and solid supplier relations.There are few viable substitutes to replace the grocery store.This industry has many competitors and switching costs are low for buyers. Plus, the recent recession has created cost wars.
Whole Foods was founded by John Mackey in 1980 with a small store in Austin, Texas. Mackey’s vision was to create a natural foods supermarket – something that previously did not exist. The Whole Foods, Whole People, Whole Planet mantra still drives whole foods today as the company has grown to have 301 stores in three countries, 58,000 employees and $9 billion in sales during FY 2010.
In today’s world, are the odds stacked against Whole Foods? Some people say …-Organic and natural foods are everywhere with many grocery chains capitalizing on their popularity.-Other natural foods stores like Trader Joes, Sprouts, AJ’s, and Farmer’s Markets pose significant threats.-Farmers markets are on the rise, creating a direct competition to the Whole Foods model. -The “Whole Paycheck” reputation has made customers leave in droves. Whole Foods is not a recession-friendly place to shop. -Little effort toward traditional marketing has meant zero growth for Whole Foods.-Trader Joes has popularized store brands and Whole Foods has followed trend, cheapening its image.-Finally, organics equal high operating costs, making it difficult for stores to profit. -Plus, working with local suppliers has created a corporate headache.
We thought all of this was true, BUT as you can see, Whole Foods is more profitable than ever. Sales for 4th Quarter, 2010 increased 15%Financially Whole Foods has become much stronger than competitors by operating with high margins, strong profitability, and by keeping debt in check. The company also pays down debt before paying dividends, a smart move.
Contrary to popular belief, Whole Foods top competitors are not other natural foods stores – they are the traditional chains Kroger and Safeway. This finding was confirmed by our market study, which found that 7 out of 11 shoppers also shop at either Fry’s or Safeway.
The Whole Foods experience has built customer loyalty over the company’s 20-year history. Customers love gourmet prepared foods they can grab on the go plus the in-store dining experience. They like knowing that their produce is local and that the staff is educated about its products. Whole Foods has gotten working with local suppliers down to a science by hiring a “forager” at every storeto ensure fresh, affordable local products. Rather than being threatened by farmers markets, Whole Foods embraces them by inviting them to sell their products in their parking lots.Whole Foods benefits tremendously from the green movement, making traditional marketing unnecessary as new, educated customers come in every day. Finally, by pushing the 365 Every Day brand, Whole Foods has begun to shift from its elitist image to appeal to value shoppers. Because Whole Foods’ name is so strong, people are attracted to its store brand. This creates an opportunity for Whole Foods to be even more profitable.
And now for our recommendations. In short, Whole Foods is a well-oiled green machine that has maintained profitability in dire economic times by creating an irreplaceable experience. It was the first to chart and capture a blue ocean in the organic and natural foods industry. Whole Foods, damn the torpedoes and full steam ahead! We know that fast growth and drastic price competition are tempting – but doing so will weaken competitive advantage and dilute the Whole Foods experience. We recommend that Whole Foods not take that risk. The Whole Experience is the foundation of the company’s success.
Whole foods presentation
Whole Foods Market<br />All photos courtesy of www.wholefoods.com<br />Amy Zelezen, Amanda Roberson, Boris Pilipenko, Kinjal Gandhi, AnkushBrahmavar, Matthew Werner<br />
Industry Analysis<br />Grocery Industry in the United States<br /><ul><li>No longer an agrarian society, heavy reliance on grocery stores
$526.4 Billion Industry, 26+ major competitors, 40,275 total stores</li></ul>Five Forces Industry Analysis<br /><ul><li>Buyer Power - Moderate to High
FY 2010 Sales of $9 Billion</li></ul>Is This Sustainable?<br />
The Fall of Whole Foods?<br />Low Switching Costs<br />Organics are Everywhere<br />Organics Have High Operating Costs<br />Local Suppliers= Corporate Headache<br />The Recession<br />Whole Paycheck<br />Little Marketing = Zero Growth<br />Whole Foods isn’t the only show in town anymore<br />
Not So Fast…<br />Financial Health of Whole Foods Compared <br />to Its Top 2 Competitors, and the Market<br />Source: Hoovers<br /><ul><li>The recession has not driven buyers away from organic and natural foods.
Financially, Whole Foods outperforms its competitors .
Sales grew during 4thQuarter 2010. </li></li></ul><li>Dispelling the Myth<br />Will the real competitors please stand up?<br />
The Whole Experience<br />Keeps Customers Coming Back<br /><ul><li> Attractive, Well Designed Stores
Local Suppliers</li></ul>All while preserving your paycheck<br />
Recommendations<br />Whole Foods is a well-oiledgreen machine<br /><ul><li> The first to chart and capture a blue ocean market in the organic/natural foods industry.
Damn the torpedos- Stay the course and full steam ahead!
The industry is changing as more traditional grocery chains offer organic and natural foods. Fast growth and drastic price competition are tempting propositions, but they will weaken competitive advantage and dilute the Whole Foods Experience.
Don’t take that risk – the Whole Experience is the foundation of the company’s success. </li>