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- 1. Agenda Brief Background & ... Rita Market Presence Jewel Functional Level Strategies Son Threats & Opportunities Jessica Strategy & New Business Model Jeshua Class Questions Team Q&A Team 2 Who is Whole Foods ? ● Healthy and social responsible lifestyle ● Innovative ● Focused on the quality of excellence ● Natural and organic food ● Practice win-win partnerships with our suppliers ● Create profits and prosperity
- 2. ● Care About the Community and the Environment https://www.wholefoodsmarket.com/quality-standards Rita 3 Quick Facts about Whole Foods ● CEO : John Mackey ● Founders-John Mackey, Rene Lawson Hardy, Craig Weller and Mark Skiles ● 508 Stores -487 stores in the US 14 stores in Canada 7 stores in the UK ● 95,000 Team Members ● WFM Ticker Symbol Rita 4 http://www.wholefoodsmarket.com/stores/list http://www.wholefoodsmarket.com/stores/list/canada http://www.wholefoodsmarket.com/stores/list/uk 1980 Hwol 1992 Company goes
- 3. public Jan 23 Split IPO 1.06 2003 First National Organic Grocer 2006 Purchases 100% renewable energy 2014 Intsacart and Value Matters Campaign 2017 Amazon Acquires Whole Foods Founded in Houston, Texas https://media.wholefoodsmarket.com/history/ Rita 5 https://media.wholefoodsmarket.com/history/ Current News ● Hult all food sampling ● Allocating time for elderly to shop across US and Canada
- 4. Customers 60+: extra 1 hour before store opening. ● Stores & offices: enhancing cleaning & sanitizing, temporary closure self serving bars, indoor & outdoor restaurants. ● Increasing numbers & location of hand sanitizer locations ● Enhancing online orders & delivery services ● Training employees Rita 6 7 8 9 Q1: What has created the durability of Whole Foods’ market presence? What has given them their competitive advantage? Jewel 10 ● Little competition during inception
- 5. ○ 1980: Natural foods was a new concept ○ Less than 6 other natural food stores in U.S. ● The Green Movement ● Strict quality standards ● Acquisition under Amazon.com, Inc. Jewel 11 Attributable Factors The Green Mission “... Dedicated not only to all natural foods, but to a green world and healthy people.” (p. C30) Jewel 12 The Green Mission (Cont.d) ● Reduce, Reuse, Recycle ● Food Waste Reduction ● Alternative Energy ○ Solar, Electric Vehicles, Green Building, Community Support, Product Sourcing, Palm Oil Pledge
- 6. Jewel 13 Superior Quality Standards ● Seafood: No cloned or genetically modified products ● Meat and Poultry: No antibiotic or growth hormones ● Eggs: Cage free, pasture raised and outdoor living ● Beauty: Banned 100+ ingredients commonly used ● Organic: Certified organic grocer, organic labeling, history of growth in organic, biodynamic agriculture ● Household cleaning: Red rating not accepted on Eco-Scale Jewel 14 Q2:What functional level strategies has Whole Foods employed? Have these strategies been successful? 15Son Nguyen Introduction of functional level strategies Functional Level Strategies Levels of Strategic Management 16Son Nguyen
- 7. 1. Financial Strategy ● Acquiring capital: Whole Foods sold for Amazon for $13.4B in cash ● Threatening competitors by “Amazon effect” Grocery chain share price percentage change on June 16, 2017. Source: FactSet 17Son Nguyen 1. Financial Strategy 18 Grocery Chain Price Per Share Source: Yahoo Finance Son Nguyen 1. Financial Strategy ● Amazon subsidiary ○ Bringing more shoppers into stores ■ More than 100M Prime members ■ Foot traffic: increase 16.5% in Q1 2019 ■ But, the length of store visiting: decrease ■ Trips less than 5 minutes: increase 10%.
- 8. ● Closing 12 subsidiary 365 stores ○ To reduce cost ○ Focusing on building a new Whole Foods chain with a lower price strategy 19Son Nguyen 2. Marketing Strategy: top spender in advertising in Q2 2019. ● Product & service strategy ○ Diverse healthy food: ■ Average SKUs (stock-keeping unit) ● Whole Foods- 30,000+ ● Trader Joe’s- 4,000 ● Walmart - 100,000 ● Typical grocery store- 50,000 ● (Source: Food Business News) ■ Budget private label: 365 Everyday Value ○ Excellent quality reputation ■ First U.S. Certified Organic national retailer ■ Some complaints about products’ quality after Amazon acquisition 20Son Nguyen 2. Marketing Strategy
- 9. ● Pricing Strategy ○ An extremely big major change- lowering prices ■ 2017, 2 months after the deal, Whole Foods cut prices on 500 items up to 43% ■ 2019, cutting prices again by 2.5% on average ■ Good news: Shoppers are noticing ■ Pricing is still higher than any competitors in the industry. ● Before: 20% more expensive ● Today: 12%+ more expensive 21Son Nguyen 22 “Before”: March 29, 2019 “After”: April 4, 2019 Source: Whole Foods website Son Nguyen 23 Whole Foods versus Trader Joe’s Price Chart Feb, 2019 Source: Yahoo Finance Son Nguyen
- 10. 2. Marketing Strategy ● Promotion Strategy ○ Only 11% Prime members shop several times/month ○ 42% Prime members never shop at Whole Foods (Source: Wolfe Research) ● Place/Distribution: Enhancing online shopping ○ Stopped the 5 year contract with Instacart in 2018 ○ Cooperating with Amazon shipping team ○ Ranked 5th 24Son Nguyen 25 In-store and online grocery shopper percentage in 2018 Source: Coresight Research 2. Marketing Strategy Son Nguyen 3. Human Resource Strategy ● Achieved ○ “Fortune’s 100 Best Companies to Work For” in 20 consecutive years. ○ Only 12 companies earned this honor. ○ 80%+ employees say Whole Foods is a great place to work
- 11. (Sep 2018) ● Salary strategy ○ Open salaries. ○ The salary of executive is no more than 14 times of the average annual salary of a Whole Foods worker. 26Son Nguyen ❏ Team member is sick or placed into quarantine: receive up to 2 weeks of pay. ❏ Hourly employees: an additional $2/hour through the end of April. ❏ Team Member Emergency Fund: $1.6M + ❏ Additional Paid-for Sick Time to All Crew Members. ❏ Team member is sick or placed into quarantine: receive up to 2 weeks of pay. ❏ May receive up to 26 weeks if an associate is not able to return to work after that time. Covid-19 Policy to Support the Health of Associates
- 12. Source: Company Website 27Son Nguyen Q3.What opportunities and threats can be identified through examining Whole Foods in the context of the competitive forces model and a competitor analysis? 28 Overview Competitive Forces Model 1. Threats of New Entry 2. Threats of Substitutes 3. Supplier Power 4. Buyer Power 5. Industry Rivalry SWOT Analysis Threats - Bad Publicity - Increasing Competition Opportunities - Diversification (365 Stores) - International Expansion - Alliances Jessica 29
- 13. Competitive Forces Model Threat of New Entry (LOW): Grocery industry is highly competitive, with low profit margins. Entering this market is costly and difficult. Supplier Power (MED-HIGH): Whole Foods leans toward local suppliers, but only 5% of U.S. crop land is certified organic. In addition, United Natural Foods which is its largest supplier ranges from approximately 30% of its total purchases. Buyer Power (LOW-MED): Excessive consolidation in the grocery industry provides supermarkets all the power and buyer must pay what grocers demand. Whole Foods corresponds with other retailers by having a low switching costs; otherwise consumers would move to other grocery’ stores. Jessica 30 Competitive Forces Model Threat of Substitution (HIGH): Although Whole Foods is known for its “organic food” it is highly costly too, and so buyers tend to go at a local farmer’s market in which they can save money out of their pocket. As it is easy for other grocers to sell out other organic and natural food to sell. Industry Rivalry (HIGH): Whole Foods Market is known
- 14. for its organic and natural food industry. As many food industry are entering into this “organic and natural” it would be difficult for them to face this growing competition; especially towards Trader Joe’s and Sprouts. https://ww.marketrealist.com/2018/11/porters-five-forces- analysis-whole-foods-fiscal-2018/ Jessica 31 Whole Foods >> Opportunities ● International Expansion - gave company to diversify its operational resources. It had branches in Canada and UK. ● Alliances - Amazon had become their parent company ever since 2017. Amazon prime members gets 10% off sale items at Whole Foods and weekly discounts on best-selling items. Jessica 32 Whole Foods >> Threats ● Bad Publicity - the company faced lots of negativity because of how they overcharged customers without them knowing. ● Increasing Competition - The company has established itself as a leader in the organic and natural food segment.
- 15. - Sprouts and Trader Joe’s are their top competitors as both offers inexpensive yet innovative products; key to its value-based pricing strategy. https://bstrategyhub.com/swot-analysis-of-whole-foods-2019- whole-foods-market-swot-analysis/ https://www.investopedia.com/ask/answers/052015/who-are- whole-foods-wfm-main-competitors.asp Jessica 33 https://bstrategyhub.com/swot-analysis-of-whole-foods-2019- whole-foods-market-swot-analysis/ https://www.investopedia.com/ask/answers/052015/who-are- whole-foods-wfm-main-competitors.asp Q4.What steps has Whole Foods taken in appropriately planning strategy? Assuming Whole Foods must develop a new business model, how should they go about this? Jeshua 34 Corporate Level Strategy Jeshua 35 1. We Sell the highest quality natural and organic foods
- 16. 2. We practice win-win partnerships with our suppliers 3. We satisfy and delight our customers 4. We promote team member growth and happiness 5. We care about our community and the environment 6. We create profits and prosperity Jeshua36 Strategy - Differentiation ● Offer organic food ● Vet suppliers ● Provide personable customer service ● Amazon ○ Prime Member Discount ○ Devices in stores ○ Free Delivery Jeshua 37 Range Me Jeshua 38
- 17. Unacceptable Ingredients for Food Can you take a guess of how many items are on that list? 170 items Jeshua 39 ● benzoates ● benzoic acid ● Benzophenone ● benzoyl peroxide ● benzyl alcohol ● beta-cyclodextrin ● BHA (butylated hydroxyanisole) ● BHT (butylated hydroxytoluene) ● bleached flour ● bromated flour ● brominated vegetable oil ● burnt alum ● butylparaben ● caffeine (extended release) ● calcium benzoate ● calcium bromate ● calcium disodium EDTA ● calcium peroxide ● calcium propionate
- 18. ● calcium saccharin ● calcium sorbate ● calcium stearoyl-2- lactylate ● 2,4,5- trihydroxybutyrophenone (THBP) ● acesulfame-K ● acetoin (synthetic) ● acetone peroxides ● acetylated esters of mono- and diglycerides ● activated charcoal ● advantame ● aluminum ammonium sulfate ● aluminum potassium sulfate ● aluminum starch octenylsuccinate ● aluminum sulfate ● ammonium alum ● ammonium chloride ● ammonium saccharin ● ammonium sulfate ● apricot kernel/extract ● artificial sweeteners ● aspartame ● azo dyes ● Azodicarbonamide ● bacillus subtilis DE111 ● bacteriophage preparation
- 19. b ● canthaxanthin ● caprocaprylobehenin ● carmine ● CBD/cannabidiol ● certified colors ● charcoal powder ● Citrus Red No. 2 ● cochineal ● DATEM ● diacetyl (synthetic) ● dimethyl Silicone ● dimethylpolysiloxane ● dioctyl sodium sulfosuccinate (DSS) ● disodium 5'- ribonucleotides ● disodium calcium EDTA ● disodium dihydrogen EDTA ● disodium EDTA ● disodium guanylate ● disodium inosinate ● dodecyl gallate ● EDTA ● erythrosine ● ethoxyquin ● ethyl acrylate (synthetic) ● ethyl vanillin
- 20. (synthetic) ● ethylene glycol ● ethylene oxide ● eugenyl methyl ether (synthetic) ● FD&C Blue No. 1 ● FD&C Blue No. 2 ● FD&C Colors ● FD&C Green No. 3 ● FD&C Red No. 3 ● FD&C Red No. 40 ● FD&C Yellow No. 5 ● FD&C Yellow No. 6 ● foie gras ● gardenia blue ● GMP ● gold/gold leaf ● heptylparaben ● hexa-, hepta- and octa- esters of sucrose ● high-fructose corn syrup/HFCS ● hjijiki Jeshua 40 ● polydextrose ● potassium alum ● potassium benzoate ● potassium bisulfite (okay in wine,
- 21. mead, cider) ● potassium bromate ● potassium metabisulfite (okay in wine, mead, cider) ● potassium nitrate ● potassium nitrite ● potassium propionate ● potassium sorbate ● propane-1,2-Diol esters of fatty acids ● propionates ● propionic acid ● propyl gallate ● propylene glycol esters of fatty acids ● propylene oxide ● propylparaben ● pulegone (synthetic) ● pyridine (synthetic) ● saccharin ● saccharin sodium salt ● salatrim (short and long chain acyl triglyceride molecule) ● shark cartilage ● smoke flavor (synthetic) ● sodium acid sulfate ● sodium alum ● sodium aluminum phosphate ● sodium aluminum sulfate ● sodium benzoate ● sodium bisulfite (okay in wine, mead, cider) ● sodium cyclamate
- 22. ● sodium diacetate ● sodium lauryl sulfate ● sodium metabisulfite (okay in wine, mead, cider) ● sodium nitrate/nitrite (synthetic) ● sodium propionate ● sodium saccharin ● sodium sorbate ● sodium stearoyl lactylate ● sodium stearoyl-2-lactylate ● sodium sulfite (okay in wine, mead, cider) ● sorbic acid ● stannous chloride ● succistearin ● sucralose ● sucroglycerides ● hydrogenated oils ● inosine monophosphate ● insect Flour ● iron oxide ● kava/kava kava ● lactic acid esters of monoglycerides ● lactylated esters of mono- and diglycerides ● ma huang ● methyl silicon ● methylparaben ● microparticularized whey ● protein derived fat substitute ● monoammonium glutamate ● monopotassium glutamate
- 23. ● monosodium glutamate ● myrcene (synthetic) ● natamycin (okay in cheese-rind wax) ● neotame ● nitrates (synthetic) ● nitrites (synthetic) ● octyl gallate ● olestra ● Orange B ● partially hydrogenated oils ● plant sterols ● sucrose acetate isobutyrate ● sucrose ester ● sucrose polyester ● sulfites (okay in wine, mead, cider) ● sulfur dioxide (okay in wine, mead, cider) ● TBHQ
- 24. (tertiary butylhydro quinone) ● tetrasodiu m EDTA Jeshua 41 Customer Service Jeshua 42 Amazon Prime Members ● Discounts for Prime Members Jeshua 43 Amazon Prime Members Jeshua 44 New Business Model and Implementation What new strategy can: ● Provide stores with Organic: ○ Fruits
- 25. ○ Vegetables ○ Fresh fish ● Reduce cost of food ● Reduce Carbon footprint ● Increase in-store sales ● Provide grounds into expanding to lower income communities Jeshua45 Aquaponic Farms ● Create Automated Aquaponic Farms that grow variety of foods, and fishes. ● What is Aquaponics? Jeshua 46 Implementation ● Utilize Amazon’s autonomous robots and warehouse infrastructure ● Automate all moving parts ● Establish farms near stores and in urban areas
- 26. Jeshua 47 New Business Model Outcome ● Grow and raise own produce and fish ○ Decrease price of food ○ Cut out third party suppliers ○ Reduce CO2 emissions ● Increase ability to penetrate lower income areas ● Increase in-store sales Jeshua 48 Questions 49 Questions... In what year was Whole Foods Founded? A.1990 B.1980 C.2001 D.1880
- 27. Answer: 1980 50 What has Whole Foods done in response to Covid19? A. Designated a time for elderly to shop B. Disinfected store frequently C. Imposed purchase limits on high demand items D. All of the above Answer: D How many stores does Whole Foods have in the US? A. 508 B. 487 C. 327 D. None of the above answer : B What caused Whole Foods to get bad publicity? a. overcharging customer b. found out there was spoiled food c. it was expensive d. their foods were not organic Answer: A
- 28. 53 What percentage were Whole Foods largest supplier in accordance to United Natural Foods? a. 5% b. 40% c. 30% d. 20% Answer: C 54 Which company of the following is Whole Foods brand alliance? a. Walmart b. Amazon c. Aldi d. Albertsons Safeway Answer: B 55 How many stores does Whole Foods have in the US A. 508 B. 487
- 29. C. 327 D. None of the above answer : B Any Questions? 57 Backup Charts 58 Backup Charts 59 Backup Charts 60 Backup Charts 61
- 35. market-is-responding-to-covid-19 https://www.traderjoes.com/announcements https://corporate.walmart.com/newsroom/2020/03/10/the-latest- on-walmarts-response-to-the-coronavirusTeam_1_Whole FoodsSlide Number 1AgendaWho is Whole Foods ? Quick Facts about Whole Foods Slide Number 5Current News Slide Number 7Slide Number 8Slide Number 9Q1: What has created the durability of Whole Foods’ market presence? What has given them their competitive advantage?Slide Number 11The Green Mission The Green Mission (Cont.d) Superior Quality Standards Slide Number 15Introduction of functional level strategies1. Financial Strategy 1. Financial Strategy1. Financial Strategy2. Marketing Strategy: top spender in advertising in Q2 2019.2. Marketing StrategySlide Number 22Slide Number 232. Marketing StrategySlide Number 253. Human Resource Strategy Slide Number 27 Q3.What opportunities and threats can be identified through examining Whole Foods in the context of the competitive forces model and a competitor analysis?OverviewCompetitive Forces ModelCompetitive Forces Model �Whole Foods >> OpportunitiesWhole Foods >> ThreatsQ4.What steps has Whole Foods taken in appropriately planning strategy? Assuming Whole Foods must develop a new business model, how should they go about this? Corporate Level StrategySlide Number 36Strategy - DifferentiationRange Me Unacceptable Ingredients for FoodSlide Number 40Slide Number 41Customer ServiceAmazon Prime MembersAmazon Prime MembersNew Business Model and Implementation Aquaponic FarmsImplementationNew Business Model OutcomeQuestions Questions...What has Whole Foods done in response to Covid19?How many stores does Whole Foods have in the US?What caused Whole Foods to get bad publicity?�What percentage were Whole Foods largest
- 36. supplier in accordance to United Natural Foods?�Which company of the following is Whole Foods brand alliance? How many stores does Whole Foods have in the USAny Questions?Backup ChartsBackup ChartsBackup ChartsBackup ChartsResourcesResourcesResourcesTeam_2_WholeFoodsWhol e Foods Case #2 AnalysisSlide Number 2Company BackgroundWhole Foods BackgroundCurrent NewsSlide Number 6Current NewsFinancial StatementsKey Financials Statements (before Amazon)Slide Number 10Case Question #1History of Whole FoodsCase Question #2Market Position & Strategy Strategic Direction Case Question #3What is a generic business level strategy?Whole Foods uses a differentiation strategyCompetitive Positioning DecisionsCompetitive Advantages and DisadvantagesCase Question #4BRAND IMAGE2nd FactorCORE VALUESRecommendationsSmall Campus Snack ShopsSummaryHistory of Whole FoodsPosition and Strategy StrategyTo Stimulate Market GrowthRecommendation THANKS!Slide Number 34Slide Number 35Kahoot Quiz! 1/2/2014 1 Case 2: Whole Foods Market Presented by Team 3 Study Hard, Party Harder David Dang Dawn Furlo Michelle Zentgraf Li Xie
- 37. Jackie Albayalde June 20, 2013 Agenda Presentation Components Speaker SWOT Analysis - Strengths Dawn Furlo & Jackie Albayalde SWOT Analysis - Weaknesses Dawn Furlo & Jackie Albayalde SWOT Analysis - Opportunities Dawn Furlo & Jackie Albayalde SWOT Analysis - Threats Dawn Furlo & Jackie Albayalde Current Events David Dang & Michelle Zentgraf Case Study Question #1 David Dang Case Study Question #2 Dawn Furlo Case Study Question #3 Jackie Albayalde Case Study Question #4 Michelle Zentgraf Case Summary Li Xie Q&A Team Quiz Team 1/2/2014 2
- 38. SWOT Analysis Strengths • High quality Products But competitive Price o Whole Foods products undergo a strict standard test. from preservative and other additives that is fresh, wholesome and safe to eat organically grown foods o Meat/poultry products adhere to higher standard test. antibiotics or added growth hormones inspection of all producers by Whole Foods completion of third‐party audit to attest findings from each producer outlining production process and how animals are treated Jackie SWOT ANALYSIS Strengths • Wide selection of products and excellent customer service. o Each store carries produce, seafood, grocery, meat and poultry, bakery, prepared foods, coffee, etc. o Customers have different shopping experience because of the following: inviting, and fun and educational Jackie
- 39. 1/2/2014 3 SWOT ANALYSIS Strengths • Focused growth strategy and innovation o Made acquisition of other stores, for example Wild Oats. o New store openings including internationally, with great offerings to customers. • Strong focus on right sizing o New stores are typically opened based on location. real estate in high urban, highly‐populated locations customers with college degree and with higher‐incomes Jackie SWOT ANALYSIS Weaknesses • "Whole Paycheck" o When you think of Whole Foods, you think about the cost (expensive) • Product recalls affect brand image
- 40. o Due to the contamination of foods and salmonella. o Incorrect labeling of products. • Weak international operations o Operations are weak in Canada and the UK opened 7 and 5 stores respectively Jackie 1/2/2014 4 SWOT Weaknesses • Increasing rental expenses o High rents results in high operating expenses and decrease in revenues. • Promotion is weak ‐ o rely heavily on "word‐of‐mouth" advertising o only less than 5% of their income spent for advertising o only use health conscious magazine for advertising Jackie Opportunities: • Expand private labels o Lower prices for customers. o Trends support increase demand for organic/natural
- 41. food products. • Advertise more o Offer coupons, store promotions, and mail advertisements to the community. • Rewards program o Frequent buyer cards • Back to basics o Buy more local products that customers are willing to pay a little more for. SWOT ANALYSIS Dawn 1/2/2014 5 SWOT ANALYSIS Threats • Intense competition o May have an adverse effect on profitability • Rebranding from existing supermarkets o Safeway o Wal‐Mart
- 42. • Stringent regulations impose additional liabilities • Changes in economic conditions o Impact on consumer spending Dawn Current News Detroit Store • Whole Foods opened on June 5th, 2013 o Store opened in Midtown area of Detroit, among middle and lower‐class communities. o Financed by city and state to further Detroit's economic development. million in state/local grants and tax credits • Efforts to break social stereotypes associated with the brand o Whole Foods is becoming more receptive to lower/middle‐class consumers. o CEO Walter Robb addressed social and racial inequalities. David 1/2/2014 6 Current News David
- 43. June 14, 2013, New York Daily News Michelle May 7, 2013, The Wall Street Journal "I mean, the only impediment you hear is that it’s more expensive, right? Which is less true than it used to be, and if we can get through the price thing, then we can talk about what we want to talk about, which is the quality of the food." - Walter Robb, Co‐CEO of Whole Foods 1/2/2014 7 Question #1 What steps has Whole Foods taken in appropriately planning strategy? Assuming Whole Foods must develop a new business model, how should they go about this? David What steps has Whole Foods taken in appropriately planning str ategy? • Marketing of the "4 for $15" pre‐made meals, for busy families who were still health conscious.
- 44. o Pre‐made meals strategy helped raise Whole Foods' stock price f rom $7 in November 2008 to $28 in September 2009. • Revised expansions from 29 to 17 stores in 2010, to address ind ividual stores' sales, consumer demands, and take into account suppliers and di stribution logistics. Assuming Whole Foods must develop a new business model, ho w should they go about this? • Whole Foods depends primarily on word‐of‐mouth advertising t o attract new customers. Expanding marketing efforts through other methods (internet and social media) will enable the company to gain more customers. • Whole Foods should appeal to the middle class: educate consum ers, offer deals and discounts, and erase the "prestigious" stereotype. David 1/2/2014 8
- 45. Question #2 What opportunities and threats can be identified through examining Whole Foods in the context of the competitive forces model and a competitor analysis? 1.Risk of entry by potential competitors in order to secure profit s 2.Rivalry among established companies can become intense as t he desire to grow volume increases and lower profits Dawn What opportunities and threats can be identified through examining Whole Foods in the context of the competitive forces model and a competitor analysis? Continued. 3. Bargaining power of buyers‐the ability of buyers to bargain dow n prices 4. Bargaining Power of Suppliers refers to the ability of suppliers t o raise prices and squeeze profits 5. Substitute Products 6. The Sixth Force: Complementors are companies that sell produ
- 46. cts that add value and satisfy demand Dawn 1/2/2014 9 Question #3 What has created the durability of Whole Foods’ market presence? What has given them their competitive advantage? Jackie Answer #3 What has created the durability of Whole Foods market presenc e? •Barriers to Imitation created the durability of Whole Foods market presence. o According to our textbook (pg. 96), “barriers to imitation are fa ctors that make it difficult for a competitor to copy a company’s distinctive compe tencies.” What has given them their competitive advantage? 1.Large industries – new stores and acquisitions (high investment PPE, distribution, and inventories)
- 47. 2.Branding ‐ which symbolizes Whole Foods reputation (Natural and Organic foods, no extra additives, no hormones, etc.) For example: “When Consumers T hink “Organic”, They Think “Whole Foods” 3.Price differentiation and Quality, and adhere USDA standards (from handling products to receiving, repacking, and to final sale are indeed organic foods) 4.Customer Satisfaction‐ “ word of the mouth” 5.Capabilities ‐ learned and experience employees •As listed above, these are the Distinctive Competencies that covers the valuable complementary sources (Resources and Capabilities) of Whole Foods, which also gave them a sustainable competitive advantage in the market against its rival s. Jackie 1/2/2014 10 Question #4 What functional level strategies has Whole Foods employed? Have these strategies been successful? Michelle Michelle
- 48. Declaration of Interdependence 1/2/2014 11 • Teams o Completely decentralized o Empowered Store Team Leaders o Internal competition o Democracy o Transparency o "Cross‐pollinate" Michelle "'How come you are paying this regional president this much, and I'm making this much?' I have to say, 'Because that person is more valuable. If you accomplish what this person has accomplished, I'll pay you that too.'" -John Mackey, Co-CEO • Delighted Customers o Well informed o Community involvement o Knowledgeable & helpful employees o Build brand loyalty o Unique shopping experience Michelle
- 49. 1/2/2014 12 Summary SWOT Analysis - Competing in a highly attractive industry with high competitive strength - Viewed as the best & primary provider of natural, organic, & healthy food - Increasing demands continually result in increasing market share and profits Differentiation Strategy - Be the base of competitive advantage - Allows a company to differentiate products & services - Used by Whole Foods is driven by the firm's desire to create a unique concept that customer perceive as different or distinct in some ways - Differentiate itself from competitors by focusing on quality as excellence and innovation that allow Whole Foods to charge a premium price Li Competitive Advantage • Superior efficiency - Choosing right size store in each location
- 50. - Sharing lessons • Quality - Focusing on quality and service - Setting up high-quality standards • Innovation - Selling the consumers on the entire experience - Providing “Take Action food centers” •Customer responsiveness - Giving customer value for their money - Offering extra services Li 1/2/2014 13 Walter Robb: Whole Foods' another CEO on organic growth - Interview by Fortune senior editor Geoff Colvin Walter Robb says, " Whole Foods is built on the idea that we want to encourage the creativity and intelligence of every one of our tea m members. If I could draw back the curtain, what you would see is a very stron g culture of
- 51. empowerment, and that is the secret of Whole Foods. " Li 1/2/2014 14 Questions?? Pop Quiz! 1/2/2014 15 Question 1 What are some opportunities for Whole Foods? a. Advertise More b. Increase Brand Loyalty with their 365 brand c. Offer a Rewards Card d. Give away food e. a, b, & c Question 1
- 52. What are some opportunities for Whole Foods? a. Advertise More b. Increase Brand Loyalty with their 365 brand c. Offer a Rewards Card d. Give away food e. a, b, & c 1/2/2014 16 Question 2 What would NOT be considered a threat? a. Rebranding of existing supermarket b. Changes in the customer spending habits c. Weak government regulations d. Strong government regulation e. None of the above Question 2 What would NOT be considered a threat?
- 53. a. Rebranding of existing supermarket b. Changes in the customer spending habits c. Weak government regulations d. Strong government regulation e. None of the above 1/2/2014 17 Question 3 What does Whole Foods use to differentiate itself from competitors? a. Price b. Quality c. Service d. b and c e. all of the above Question 3 What does Whole Foods use to differentiate itself from competitors?
- 54. a. Price b. Quality c. Service d. b and c e. all of the above 1/2/2014 18 Question 4 What percentage of their after tax profits does Whole Foods donate to not-for-profit charities? a. 5% b. 1% c. 10% d. 2% e. None of the above Question 4 What percentage of their after tax profits does Whole Foods donate to not-for-profit charities?
- 55. a. 5% b. 1% c. 10% d. 2% e. None of the above 1/2/2014 19 Question 5 Recently Whole Foods had to change their policy regarding a. Religion b. Language c. Sexual orientation d. Tattoos e. Paid vacation Question 5 Recently Whole Foods had to change their policy regarding
- 56. a. Religion b. Language c. Sexual orientation d. Tattoos e. Paid vacation 1/2/2014 20 Question 6 Second-quarter profits rose by a. 10% b. 2% c. 15% d. 20% e. 4% Question 6 Second-quarter profits rose by a. 10%
- 57. b. 2% c. 15% d. 20% e. 4% 1/2/2014 21 Porter’s Five Forces Model Main technique used to analyze competition in an industry environment Li Porter’s Five Forces Model Forces Description Rate Threat of New Entrants Whole Foods has built an very strong relationship with its suppliers , which makes it difficult for new entries. The increasing competition reduce the opportunity for profit by new entrants. Low
- 58. Intensity of rivalry among established firms Differentiation strategy protects Whole Foods from existing firms in order to maintain value proposition Medium Bargaining power of buyers Whole Foods Targeted at wealthier and more educated buyers Natural food buyers are also quite health conscious and rely on Whole Foods Low Bargaining power of suppliers There are limited natural food suppliers, firms like Whole Foods will be subject to their demands . Low Threat of substitutes Due to the customers limit of income and volatility of eating habits , customers always look for alternative of healthy foods Medium-High
- 59. Li Whole Food Case Study Oral Presentation Format: · All cases will be terminated with 30-minute oral presentations on case analysis question solutions. This time includes a minimum of 5 questions and answers from the class. Oral presentations will be in Microsoft PowerPoint format only and will consist of the instructor's assign questions to each team: the team member(s) responsible for this question will present their solutions to the class. All exhibits (typed/word-processed) are committed to PowerPoint slides so that they may be displayed during the presentation. Create 3 backup charts. These charts are placed after your summary charts in anticipation of questions. Ensure these charts are relevant and current. In addition, each slide will have the "speaker notes" section completed such that anyone in the class can give the presentation in your place eg slide purpose, supporting facts, examples, the key take away to name a few. Provide a presentation copy to the instructor at the beginning of class, 1 slide per page, and include speaker notes on the same page. Each slide must have a page number and speaker's name lower right corner. · These presentations will proceed as follows(Please also refer to the flow table below): 1) The first presenter will state his/her name and team name. 2) Provide current company background (finance, market segment/share, SWOT analysis) and latest news events in the last 90 days. 3) The presenter states question, states the team's answer to the question and presents the team's evidence/rationale, including exhibits from the analytical procedures
- 60. required to support the answer. There will be a minimum of four different presenters. Everyone must present. Each slide must have speaker's name on the lower right corner. 4) Class reviews presenter's answer, evidence, and rationale, asking questions, indicating omissions from analysis, and indicating any conflicting results from the other teams' analysis. 5) The instructor completes the review, including additional questions and/or observations relevant to the question under discussion. In addition, selected class members will ask relevant case questions as part of class participation. 6) Create fifteen (15) multiple-choice questions (minimum) based on case study and the presentation. Eight (8) out of fifteen 15 questions must reference the case, and strategy concepts. Upload with presentation. Provide questions in xls format with answer clearly identified. Use Excel template on Canvas Module page(You can see the Quiz Question Template on another file). Questions must have substance and be challenging. (But only 6 quiz questions need to be on the PowerPoint.) The 4 case questions need to be answered are(Mainly focus on answering these four case questions!!!!!): 1. What steps has WholeFoods taken inappropriately planning strategy? Assuming WholeFoods must develop a new business model, how should they go about this? 2. What opportunities and threats can be identified through examining WholeFood in the context of the competitive forces model and competitor analysis? 3. What has created the durability of WholeFoods’market presence? What has given them their competitive advantage?
- 61. 4. What functional level strategies have WholeFoods employed? Have these strategies been successful? # 108137 Cust: Cengage Au: Hill Jones Pg. No. 27 Title: Strategic Management Server: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4-CARLISLE Publishing Services CASE 2 Whole Foods Market: 2010 How to Grow in An Increasingly Competitive Market? Reflecting back over his three decades of experience in the grocery business, John Mackey smiled to him- self over his previous successes. His entrepreneurial history began with a single store which he has now grown to the nation’s leading natural food chain. Whole Foods is not just a food retailer but instead represents a healthy, socially responsible lifestyle that customers can identify with. The Company has differentiated itself from competitors by focus- ing on quality as excellence and innovation that al- lows them to charge a premium price for premium products. This strategy has formed their success over
- 62. the last 30 years but like any success story there are limits to how far it can go before a new direction is needed so that it remains successful for the next 30 years. While proud of the past, John had concerns about the future direction Whole Foods should head. Company Background Whole Foods carries both natural and organic food offering customers a wide variety of products. “Natu- ral” refers to food that is free of growth hormones or antibiotics, where “certificated organic” food con- forms to the standards, as defined by the U.S. Depart- ment of Agriculture (USDA) in October 2002. Whole Foods Market® is the world’s leading retailer of natu- ral and organic foods, with 193 stores in 31 states and Canada and the United Kingdom. John Mackey, cur- rent president and cofounder of Whole Foods, opened “Safer Way” natural grocery store in 1978. The store had limited success as it was a small location allowing only for a limited selection, focusing entirely on veg- etarian foods. John joined forces with Craig Weller and Mark Skiles, founders of “Clarsville Natural Grocery” (founded in 1979), to create Whole Foods Market. This joint venture took place in Austin, Texas in 1980 resulting in a new company, a single natural food market with a staff of nineteen. In addition to the supermarkets, Whole Foods owns and operates several subsidiaries. Allegro Cof- fee Company was formed in 1977 and purchased by Whole Foods Market in 1997 now acting as their coffee roasting and distribution center. Pigeon Cove is Whole Foods seafood processing facility, which was founded in 1985 and known as M & S Seafood until 1990. Whole Foods purchased Pigeon Cove
- 63. in 1996, located in Gloucester, MA. The Company is now the only supermarket to own and operate a waterfront seafood facility. The last two subsidiar- ies are Produce Field Inspection Office and Select Fish, which is Whole Foods West Coast seafood pro- cessing facility acquired in 2003. In addition to the above, the Company has eight distribution centers, seven regional bake houses and four commissaries. “Whole Foods Market remains uniquely mission driven: The Company is highly selective about what they sell, dedicated to stringent quality standards, and committed to sustainable agriculture. They be- lieve in a virtuous circle entwining the food chain, human beings and Mother Earth: each is reliant upon the others through a beautiful and delicate symbio- sis.” The message of preservation and sustainability are followed while providing high quality good to customers and high profits to investors. Patricia Harasta and Alan N. Hoffman Rotterdam School of Management, Erasmus University and Bentley University The authors would like to thank Will Hoffman, Christopher Ferrari, Robert Marshall, Julie Giles, Jennifer Powers and Gretchen Alper for their research and contributions to this case. Please address all correspondence to: Dr. Alan N. Hoffman, Department of Management, Bentley University, 175 Forest Street, Waltham, MA 02452-4705, voice (781) 891-2287, [email protected], fax (781) 459-0335. Printed by permission of Dr. Alan N. Hoffman, Bentley University.
- 64. C27 25843_case02_ptg01_hr_C27-C37.indd 27 1/20/12 1:59 PM Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. # 108137 Cust: Cengage Au: Hill Jones Pg. No. 28 Title: Strategic Management Server: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4-CARLISLE Publishing Services Section A: Business-Level StrategyC28 People will better understand that all actions have repercussions and that planning and foresight cou- pled with hard work and flexibility can overcome almost any problem encountered. It will be a world that values education and a free exchange of ideas by an informed citizenry; where people are encouraged to discover, nurture, and share their life’s passions.”
- 65. While Whole Foods recognizes it is only a super- market, they are working toward fulfilling their vi- sion within the context of their industry. In addition to leading by example, they strive to conduct busi- ness in a manner consistent with their mission and vision. By offering minimally processed, high quality food, engaging in ethical business practices and pro- viding a motivational, respectful work environment, the Company believes they are on the path to a sus- tainable future. Whole Foods incorporate the best practices of each location back into the chain. This can be seen in the Company’s store product expansion from dry goods to perishable produce, including meats, fish and prepared foods. The lessons learned at one location are absorbed by all, enabling the chain to maximize effectiveness and efficiency while offering a product line customers love. Whole Foods carries only natural and organic products. The best tasting and most nutritious food available is found in its purest state—unadulterated by artificial additives, sweeteners, colorings, and preservatives. Whole Foods continually improves customer of- ferings, catering to its specific locations. Unlike busi- ness models for traditional grocery stores, Whole Foods products differ by geographic regions and lo- cal farm specialties. Employee & Customer Relations Whole Foods encourages a team based environment allowing each store to make independent decisions regarding its operations. Teams consist of up to eleven employees and a team leader. The team lead-
- 66. ers typically head up one department or another. Each store employs anywhere from 72 to 391 team members. The manager is referred to as the “store team leader.” The “store team leader” is compen- sated by an Economic Value Added (EVA) bonus and is also eligible to receive stock options. Whole Foods tries to instill a sense of purpose among its employees and has been named for 13 con- secutive years as one of the “100 Best Companies to Whole Foods has grown over the years through mergers, acquisitions and new store openings. The $565 million acquisition of its lead competitor, Wild Oats, in 2007 firmly set Whole Foods as the leader in natural and organic food market and added 70 new stores. The Federal Trade Commission (FTC) focused their attention on the merger on antitrust grounds. The dispute was settled in 2009, with Whole Foods closing 32 Wild Oats stores and agreed to selling the Wild Oats Markets brand. The organic grocer’s stock plunged in 2008 as its sales staggered. Later that year the private equity firm Green Equity Investors invested $425 million in Whole Foods, thereby acquiring about a 17% stake in the chain. For the first time in its 29-year history, Whole Foods reported negative same-store sales in the quarter ended December 2008 as traffic in its stores fell. Today Whole Foods is listed in the S & P 500 and ranked 284th in the Fortune 500. It is the world’s leading natural and organic foods supermarket and is America’s first national certified organic grocer. In 2009, it had sales of $8 billion and 289 stores;
- 67. 273 stores in 38 states of the US and the District of Columbia, 6 stores in Canada, and 5 stores in the UK. The Company has grown from 19 original em- ployees to more than 53,500 team members.1 While the majority of Whole Foods locations are in the U.S., European expansion provides enormous potential growth due to the large population and it holds “a more sophisticated organic-foods market than the U.S. in terms of suppliers and acceptance by the public.” Whole Foods targets their locations spe- cifically by an area’s demographics. The Company targets locations where 40% or more of the residents have a college degree as they are more likely to be aware of nutritional issues. Whole Foods Market’s Philosophy Their corporate Website defines the company philos- ophy as follows, “Whole Foods Market’s vision of a sustainable future means our children and grand- children will be living in a world that values human creativity, diversity, and individual choice. Businesses will harness human and material resources without devaluing the integrity of the individual or the plan- et’s ecosystems. Companies, governments, and in- stitutions will be held accountable for their actions. 25843_case02_ptg01_hr_C27-C37.indd 28 1/20/12 1:59 PM Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage
- 68. Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. # 108137 Cust: Cengage Au: Hill Jones Pg. No. 29 Title: Strategic Management Server: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4-CARLISLE Publishing Services Case 2: Whole Foods Market: 2010 How to Grow in An Increasingly Competitive Market? C29 competing in the supermarket industry include Tar- get, Sam’s Club and Costco. All of these retailers of- fer grocery products, generally at a lower price than what one would find at Whole Foods. Another of Whole Foods’ key competitors is Los Angeles based Trader Joe’s, a premium natural and organic food market. By expanding its presence and product offerings while maintaining high quality at low prices, Trade Joe’s has found its competitive niche. It has 215 stores, primarily on the west and east coasts of the U.S., offering upscale grocery fare such as health foods, prepared meals, organic pro- duce and nutritional supplements. A low cost struc- ture allows Trader Joe’s to offer competitive prices while still maintaining its margins. Trader Joe’s stores have no service department and average just
- 69. 10,000 square feet in store size. Additional competition has arisen from grocery stores, such as Stop ‘N Shop and Shaw’s, which now incorporate natural foods sections in their conven- tional stores, placing them in direct competition with Whole Foods. Because larger grocery chains have more flexibility in their product offerings, they are more likely to promote products through sales, a strategy Whole Foods rarely practices. A Different Shopping Experience The setup of the organic grocery store is a key com- ponent to Whole Foods’ success. The store’s setup and its products are carefully researched to ensure that they are meeting the demands of the local com- munity. Locations are primarily in cities and are chosen for their large space and heavy foot traffic. According to Whole Foods’ 10K, “approximately 88% of our existing stores are located in the top 50 statistical metropolitan areas.” The Company uses a specific formula to choose their store sites that is based upon several metrics, which include but are not limited to income levels, education, and popula- tion density. Upon entering a Whole Foods supermarket, it becomes clear that the Company attempts to sell the consumer on the entire experience. Team mem- bers (employees) are well trained and the stores themselves are immaculate. There are in-store chefs to help with recipes, wine tasting and food sam- pling. There are “Take Action food centers” where customers can access information on the issues that Work For” in America by Fortune magazine. In em-
- 70. ployee surveys, 90% of its team members stated that they always or frequently enjoy their job. The company strives to take care of their cus- tomers, realizing they are the “lifeblood of our busi- ness,” and the two are “interdependent on each other.” Whole Foods’ primary objective goes beyond 100% customer satisfaction with the goal to “de- light” customers in every interaction. Competitive Environment At the time of Whole Foods’ inception, there was al- most no competition with less than six other natural food stores in the U.S. Today, the organic foods in- dustry is growing and Whole Foods’ finds itself com- peting hard to maintain its elite presence. In the early- to mid-2000s, its biggest competitor was Wild Oats. In 2007, Whole Foods put a bid on Wild Oats for $670 million2 and drew an anti-trust in- vestigation from the FTC. The FTC felt that a merger of the two premium natural and organic supermar- kets would create a monopoly situation, ultimately harming consumers. It was found that although Whole Foods and Wild Oats were the two key play- ers in the premium natural and organic food market, they are not insulated from competition from conven- tional grocery store chains. With the decision coming down in favor of Whole Foods and Wild Oats, the transaction was completed. Although this eliminated Whole Foods most direct competitor, they still faces stiff competition in the general grocery market. Whole Foods competes with all supermarkets. With more U.S. consumers focused on eating health- fully, environmental sustainability, and the green
- 71. movement, the demand for organic and natural foods has increased. More traditional supermarkets are now introducing “lifestyle” stores and depart- ments to compete directly with Whole Foods. This can be seen in the Wild Harvest section of Shaw’s, or the “Lifestyle” stores opened by conventional gro- cery chain Safeway. Whole Foods competitors now include big box and discount retailers who have made a foray into the grocery business. Currently, the U.S. largest gro- cer is Wal-Mart. Not only do they compete in the standard supermarket industry, but they have even begun offering natural and organic products its Supercenter stores. Other discount retailers now 25843_case02_ptg01_hr_C27-C37.indd 29 1/20/12 1:59 PM Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. # 108137 Cust: Cengage Au: Hill Jones Pg. No. 30 Title: Strategic Management Server: C/M/Y/K Short / Normal / Long
- 72. DESIGN SERVICES OF S4-CARLISLE Publishing Services Section A: Business-Level StrategyC30 Beyond the green movement, Whole Foods has been able to tap into a demographic that appreciates the “trendy” theme of organic foods and all natural products. Since the store is associated with a type of affluence, many customers shop there to show they fit into this category of upscale, educated, new age people. The Economic Recession The uncertainty of today’s market is a threat to Whole Foods. The expenditure income is low and “all natural foods” are automatically deemed as expensive. Because of people being laid off, having their salaries cut, or simply not being able to find a job, they now have to be more selective when pur- chasing things. While Whole Foods has been able to maintain profitability, its questionable how long they will last if the recession continues or worsens. The reputation of organic products being costly may be enough to motivate people to not ever enter through the doors of Whole Foods. In California, the chain is frequently dubbed “Whole Paycheck.”4 However, the Company understood that it must change a few things if it were to survive the decrease in sales felt because customers were not willing to spend their money so easily. They have been working to correct this “pricey” image by expanding offerings of private label products through their “365 Every- day Value” and “365 Organic” product lines. Private
- 73. label sales accounted for 11% of Whole Foods total sales in 2009, up from 10% in 2008. They have also instituted a policy that their 365 product lines must match prices of similar products at Trader Joe’s.5 During the economic recession, restaurants had a severe impact. A survey conducted showed that adults were eating out 50% less than they were prior to the economic crash.6 Whole Foods saw this as opportunity to enter a new area of business, the premade meals sec- tor. They began selling premade dinners and lunches marketing towards those still on the go but interested in eating healthy and saving money. Offering the feed “4 for $15” deal, they were able to recapture some lost sales. In November of 2008, the stock fell to $7 dollars. After the premade meals were created, the stock in- creased to $28 dollars in September 2009.7 If Whole Foods continues to come up with innovative ideas to still compete during a recession, there is much opportu- nity as the economy evolves and climbs up the economic life cycle into recovery, expansion, and boom states. affect their food such as legislation and environmen- tal factors. Some stores offer extra services such as home delivery, cooking classes, massages and valet parking. Whole Foods goes out of their way to ap- peal to the above-average income earner. Whole Foods uses price as a marketing tool in a few select areas, as demonstrated by the 365 Whole Foods brand name products, priced less than similar organic products that are carried within the store. However, the Company does not use price to differ- entiate itself from competitors. Rather, Whole Foods focuses on quality and service as a means of standing out from the competition.
- 74. Whole Foods spends much less than other super- markets on advertising, approximately 0.4% of total sales in the fiscal year 2009. They rely heavily on word-of-mouth advertising from their customers to help market themselves in the local community. They are also promoted in several health conscious maga- zines, and each store budgets for in-store advertising each fiscal year. Whole Foods also gains recognition via their charitable contributions and the awareness that they bring to the treatment of animals. The Company do- nates 5% of their after tax profits to not-for-profit charities. It is also very active in establishing systems to make sure that the animals used in their products are treated humanly. The Green Movement Whole Foods exists in a time where customers equate going green and being environmentally friendly with enthusiasm and respect. In recent years, people be- gan to learn about food and the processes completed by many to produce it. Most of what they have dis- covered is disturbing. Whole Foods launched a na- tionwide effort to trigger awareness and action to remedy the problems facing the U.S. food system. It has decided to host 150 screenings of a 12 film series called “Let’s Retake Our Plates,” hoping to inspire change by encouraging and educating consumers to take charge of their food choices. Jumping on the band wagon of the “go green” movement, Whole Foods is trying to show its customers that it is dedi- cated to not only all natural foods, but to a green world and healthy people. As more and more people become educated, the Company hopes to capitalize
- 75. on them as new customers.3 25843_case02_ptg01_hr_C27-C37.indd 30 1/20/12 1:59 PM Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. # 108137 Cust: Cengage Au: Hill Jones Pg. No. 31 Title: Strategic Management Server: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4-CARLISLE Publishing Services Case 2: Whole Foods Market: 2010 How to Grow in An Increasingly Competitive Market? C31 by the Organic Rule. This certification verifies the handling of organic goods according to stringent na- tional guidelines, from receipt through repacking to final sale to customers. To receive certification, retail- ers must agree to adhere to a strict set of standards set forth by the USDA, submit documentation, and
- 76. open their facilities to on-site inspections—all de- signed to assure customers that the chain of organic integrity is preserved. Operations Whole Foods purchases most of their products from regional and national suppliers. This allows the Company to leverage its size in order to receive deep discounts and favorable terms with their vendors. It still permits store to purchase from local producers to keep the stores aligned with local food trends and is seen as supporting the community. Whole Foods operates ten regional distribution centers to support its stores. It also operates two procurement centers, four seafood-processing and distribution centers, a specialty coffee and tea procurement and brewing operation, five regional kitchens, and eight bake house facilities. Whole Foods largest third-party sup- plier is United Natural Foods which accounted for 28% of total purchases in 2009, down from 32% in 2008. Product categories at Whole Foods include, but are not limited to: • Produce • Seafood • Grocery • Meat and Poultry • Bakery • Prepared Foods and Catering • Specialty (Beer, Wine and Cheese) • Whole body (nutritional supplements, vitamins, body care and educational products such as books)
- 77. • Floral • Pet Products • Household Productsi While Whole Foods carries all the items that one would expect to find in a grocery store (and plenty that one would not), their “. . . heavy emphasis on perishable foods is designed to appeal to both natu- ral foods and gourmet shoppers.” Perishable foods Organic Foods a Commodity When Whole Foods first started in the natural foods industry in 1980 it was a relatively new concept and over the first decade Whole Foods enjoyed the benefits of offering a unique value proposition to consumers wanting to purchase high quality natural foods from a trusted retailer. Over the last few years, however, the natural and organic foods industry has attracted the attention of general food retailers that have started to offer foods labeled as natural or or- ganic at reasonable prices. As of 2007, the global demand for organic and natural foods far exceeded the supply. This is becom- ing a huge issue for Whole Foods, as more traditional supermarkets with higher purchasing power enter the premium natural and organic foods market. The supply of organic food has been significantly im- pacted by the entrance of Wal-Mart into the compet- itive arena. Due to the limited resources within the U.S., Wal-Mart begun importing natural and organic foods from China and Brazil, which led to it coming under scrutiny for passing off non-natural or organic products as the “real thing.” Additionally, the quality of natural and organic foods throughout the entire
- 78. market has been decreased due to constant pressure from Wal-Mart. The distinction between what is truly organic and natural is difficult for the consumer to decipher as general supermarkets have taken to using terms such as “all natural,” “free-range,” “hormone free,” confusing customers. Truly organic food sold in the U.S. bears the “USDA Organic” label and needs to have at least 95% of the ingredients organic before it can get this distinction.8 In May 2003 Whole Foods became America’s first Certified Organic grocer by a federally recog- nized independent third-party certification organi- zation. In July 2009, California Certified Organic Growers (CCOF), one of the oldest and largest USDA-accredited third-party organic certifiers, indi- vidually certified each store in the U.S., complying with stricter guidance on federal regulations. This voluntary certification tells customers that Whole Foods have gone the extra mile by not only following the USDA’s Organic Rule, but opening their stores up to third-party inspectors and following a strict set of operating procedures designed to ensure that the products sold and labeled as organic are indeed organic–procedures that are not specifically required 25843_case02_ptg01_hr_C27-C37.indd 31 1/20/12 1:59 PM Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does
- 79. not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. # 108137 Cust: Cengage Au: Hill Jones Pg. No. 32 Title: Strategic Management Server: C/M/Y/K Short / Normal / Long DESIGN SERVICES OF S4-CARLISLE Publishing Services Section A: Business-Level StrategyC32 urban, high-population locales. They do not have a standard store design, instead each store’s design is customized to fit the size and configuration of the site selected. They have traditionally opened stores in upper-income, more urban neighborhoods that typi- cally have a high percentage of college graduates.9 The Company tracks what it calls the “Tender Period” which is the time between when it takes pos- session of the leased space for construction and other purposes and the time when the store is opened for business. Exhibit 1 shows the time and cost involved can be significant with preopening expenses running between $2.5 and $3 million dollars and the time re- quired ranging from 8.5 to 12.6 months. If Whole Foods opens 17 stores per year, this will consume $43 to $51 million dollars of its available cash each year.
- 80. When opening a new store, Whole Foods stocks it with almost $700,000 worth of initial inventory, which their vendors partially finance. Like most conventional grocery stores, the majority of Whole Foods inventory is turned over fairly quickly; this is especially true of produce. Fresh organic produce is central to Whole Foods existence and turns over on a faster basis than other products. Financial Operations Whole Foods Market focuses on earning a profit while providing job security to its workforce to lay the foundation for future growth. The company is determined not to let profits deter the Company from providing excellent service to its customers and quality work environment for its staff. Their mission statement defines their recipe for financial success. now account for two-thirds of its sales. This is dem- onstrated by the Company’s own statement that, “We believe it is our strength of execution in perishables that has attracted many of our most loyal shoppers.” Whole Foods also provides fully cooked fro- zen meal option through their private label Whole Kitchen, to satisfy the demands of working fami- lies. For example, The Whole Foods Market located Woodland Hills, CA that has redesigned its prepared foods section more than three times in response to a 40% growth in prepared foods sales. Whole Foods doesn’t take just any product and put it on their shelves. In order to make it into the Whole Foods grocery store, products have to under go a strict test to determine if they are “Whole Foods
- 81. material.” The quality standards that all potential Whole foods products must meet include: • Foods that is free of …