This report contains a comprehensive corporate proposal for WFM. Contained within the deliverable is a SWOT Analysis, VRIO Framework, 6 Forces Analysis, and a Competitor Map of the United States grocery industry
1. i
Executive Summary
This strategic analysis will first examine internal company metrics through a SWOT Analysis
and VRIO framework. Secondly, the report will analyze external forces within this industry through a
Six Forces Analysis and a Competitor Map of both traditional and specialty grocers.
The SWOT Analysis first analyzes the key strengths and weaknesses within WFM which affect
internal company operations and returns. Notable strengths include WFM status as a quickly growing
industry leader with first-mover advantages and market influence, whereas notable weakness include
pressured margins and headwinds challenging management for the company’s future direction. Next, the
SWOT Analysis illustrates the environmental opportunities and threats within the industry as a whole.
Notable opportunities include positive sub-sector growth projections and the societal trends favors
companies like WFM; however, notable threats such as decreasing median wages and an intensifying
competitive environment post profit margin pressures across the industry.
The VRIO framework offers a snapshot into WFM’s key resources and their competitive to
highlight specific distinguishable characteristics regarding all areas of the SWOT Analysis provided
above to better understand the most influential factors in determining WFM future success. Next, a Six
Forces Analysis portrays a larger macroeconomic setting with the goal of better understanding the
environment in which WFM conducts business. Finally, the Competitor Diagram provides key metrics
regarding companies with the sub-grocery industry as well as larger traditional stores to better establish
relative benchmarks to comparatively examine WFM.
The final component of this study presents several key strategic recommendations based upon
the compilation and interpretation of key metrics throughout the report to further leverage WFM’s
strong balance sheet to continue to gain market share, power, and influence through ethical and
sustainable business practices.
2. ii
Table of Contents
Executive Summary___________________________________________________________ i
Table of Contents_____________________________________________________________ ii
Internal Analysis: SWOT Diagram_______________________________________________ 1
Internal Analysis: VRIO Framework______________________________________________ 5
External Analysis: Six Forces Analysis____________________________________________ 6
External Analysis: Competitor Map ______________________________________________ 11
Strategic Recommendations____________________________________________________ 14
Bibliography________________________________________________________________ 16
Exhibits____________________________________________________________________ 23
Executive Biographies__________________________________________________ 23
Financial Statements____________________________________________________ 25
3. 1
Internal Analysis: SWOT Analysis
Strengths (M/H) Weaknesses (M)
Financial: (M)
• Spends less on advertising and marketing on average1
than
rival supermarket operators at .9% of sales2
(M)
• Strong balance sheet containing both low long term debt, high
free cash flows in comparison to industry average3
(H)
• Comparable Store Sales Growth has averaged 8%, beating
industry averages4
(M)
• Shareholder friendly increase in share buybacks, and
resumption of dividend post financial crisis5
– result of strong
FCF – throughout rough 20146
(M)
• Over 200 more stores by 2020 using nearly no debt7
(M)
Location: (M)
• Geographically diverse with over 380 US stores in 42 states 8
Product Offerings: (H)
• Free of pesticides, preservatives, artificial sweeteners and
cruelty9
(H)
• Over 4,400 unique WFM brands, with the average store
carrying over 32,000SKUs10
(M)
• Private-label products “exclusive brands” provide more
variety, value, and differentiation11
(H)
Focused growth strategy (H)
• As of FY 2014, opening of 34 new domestic stores, 4 acquired
stores12
with a 10% increase in square footage from the
previous year- 15,162 thousand sq. ft. (H)
• Projected 2015 sales per square foot to increase about 10%13
(H)
Marketing: (L)
• Entertainment value of stores and the multisensory
‘experience’14
(M)
• Invest less in paid media and marketing than the industry15
(L)
Stewardship: (H)
• Environmentally sustainable sourcing and supply chain (H)
• Fortune’s 100 Best Companies to Work for in America for 13
consecutive years (H)
• Team culture- self governing employees are best in class and
are internally motivated16
- above industry avg. healthcare and
stock plans for achievement17
(H)
Price Perception: (M)
• Image as “Whole Paycheck” and communication issues
related to its value proposition18
(M)
• Charged with widespread pricing violations (supermarket
news) (L)19
International Presence: (L)
• 3% of sales come from the 20 stores in Canada and UK20
(L)
• Currency headwinds21
and operations difficulties in overly
saturated markets22
make these properties a misallocation
of resources and distraction23
(L)
Financial: (L)
• Gross margins for 2015 are projected to narrow24
from
35.5% to 35.2%, the result of price reduction strategy to
drive sales growth25
(L)
• High wages relative to competitors26
(M)
• Slowing comparable store sales increases27
in 2014 and
lowered future growth prospects28
(M)
• Record sales are being driven by competitive pricing
strategies29
(M)
• Recovery from a bad 201430
(L)
New Store Introductions: (H)
• Conflicting management views regarding future expansion
and vision of company operation (M)
• Cannibalization of existing stores from new offerings31
(H)
• New store model- dilution of brand name and quality
expectations + deterioration of profits32
(H)
• Betrayed customers seek new alternative specialty food
avenues33
(H)
Opportunities (M) Threats (M/H)
Specialty Grocer Sub-Industry Prospects: (H, IS)
• Whereas traditional grocers had a 3% growth in sales in 2014,
natural product sales increased over 11% in the same period34
• WFM sales account for less than 1% of US grocery market35
• Organic Trade Association estimates the avg. US household
will spend 14% of budget on organic products by 2025
Increasing Popularity of Private Labels (M, IS)
• Unique product offerings allow specialty retailers to compete
with supermarket entry into organics36
Room for further US market penetration (M, IS)
• Low interest rate environment encourages leveraged expansion
of WFM37
• Further market penetration should mirror population growth in
underserved US regions38
• Emerging millennial buyers support long-term sustainable
growth of ethical and organic foods39
Intense Competition (H, IS)
• 285 Trader Joe’s stores offer specialty foods with its
limited assortment and private label strategy40
- has
financial backing from ALDI- best in class competitor
• Conventional supermarkets’ transition to the growing and
profitable specialty grocer sub-industry41
• Highly saturated market and continued entrance of new
competitors to high yielding organic sales through existing
distribution channels42
Stringent Regulation (M, CS)
• Competition regulation with growing size and power of
WFM with federal competition regulation with the FTC43
Macroeconomic Factors (M, IS)
• Corrosion of consumer buying power and stagnant wages
negatively affects specialty stores44
• Average Wages of the grocery industry as of 2015 will be
nearly double that of all US sector averages45
Levels of Significance: High (H), Medium (M), Low (L)
Industry Specific (IS), Company Specific (CS)
4. 2
1 Whole Foods Market, 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu/
documents.php?compnumber=71872, accessed May 2015.
2 Hoover’s Company Records- In-depth Records of Whole Foods Market, Inc, via LexisNexis, accessed
May 2015.
3 Whole Foods Market INC Stock Report, Capital IQ, Inc., a division of Standard & Poor’s, accessed
May 2015.
4 Whole Foods Market, 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu/
documents.php?compnumber=71872, accessed May 2015.
5 Whole Foods Market, 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu/
documents.php?compnumber=71872, accessed May 2015.
6 Morgan Stanley WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May 2015.
7 Hoover’s Company Records- In-depth Records of Whole Foods Market, Inc, via LexisNexis, accessed
May 2015.
8 Hoover’s Industry Snapshots, 2015, Specialty Food Stores, via LexisNexis, accessed May 2015.
9 Hoover’s Company Records- In-depth Records of Whole Foods Market, Inc, via LexisNexis, accessed
May 2015.
10 Whole Foods Market, 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu/
documents.php?compnumber=71872, accessed May 2015.
11 Argus WFM Analyst Report, via eTrade Securities, accessed May 2015.
12 Whole Foods Market INC Stock Report, Capital IQ, Inc., a division of Standard & Poor’s, accessed
May 2015.
13 Hoover’s Company Records- In-depth Records of Whole Foods Market, Inc, via LexisNexis, accessed
May 2015.
14 Whole Foods Market, 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu/
documents.php?compnumber=71872, accessed May 2015.
15 Whole Foods Market, 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu/
documents.php?compnumber=71872, accessed May 2015.
16 Whole Foods Market, 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu/
documents.php?compnumber=71872, accessed May 2015.
17 Morgan Stanley WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May 2015.
5. 3
18 RBC Capital Markets WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May
2015.
19 "Whole Foods to Pay $800,000 for Pricing Violations." ConsumerAffairs. Accessed May 22, 2015.
http://www.consumeraffairs.com/news/whole-foods-to-pay-800000-for-pricing-
violations-062614.html.
20 RBC Capital Markets WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May
2015.
21 Hoover’s Company Records- In-depth Records of Whole Foods Market, Inc, via LexisNexis, accessed
May 2015.
22 Jeffries WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May 2015.
23 Morningstar Consumer Defensive Sector Report, via eTrade Securities, accessed May 2015.
24 Argus WFM Analyst Report, via eTrade Securities, accessed May 2015.
25 Whole Foods Market INC Stock Report, Capital IQ, Inc., a division of Standard & Poor’s, accessed
May 2015.
26 Hoover’s Company Records- In-depth Records of Whole Foods Market, Inc, via LexisNexis, accessed
May 2015.
27 Whole Foods Market, 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu/
documents.php?compnumber=71872, accessed May 2015.
28 Morgan Stanley WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May 2015.
29 Whole Foods Market, 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu/
documents.php?compnumber=71872, accessed May 2015.
30 Whole Foods Market INC Stock Report, Capital IQ, Inc., a division of Standard & Poor’s, accessed
May 2015.
31 RBC Capital Markets WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May
2015.
32 Peterson, Hayley. "Whole Foods Is Opening a Cheaper Store." Business Insider. Business Insider, Inc,
07 May 2015. Web. 16 May 2015. <http://www.businessinsider.com/whole-foods-launches-
trader-joes-rival-2015-5>.
33 Jeffries WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May 2015.
34 Whole Foods Market INC Stock Report, Capital IQ, Inc., a division of Standard & Poor’s, accessed
May 2015.
35 Whole Foods Market, 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu/
6. 4
documents.php?compnumber=71872, accessed May 2015.
36 Hoover’s Industry Snapshots, 2015, Specialty Food Stores, via LexisNexis, accessed May 2015.
37 Jeffries WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May 2015.
38 Specialty Food Stores in the US- IBISWorld Industry Report 22529, via LexusNexus, accessed May
2015.
39 Specialty Food Stores in the US- IBISWorld Industry Report 22529, via LexusNexus, accessed May
2015.
40 Trader Joe’s Company Profile Summary, PrivCo, accessed May 2015.
41 Morgan Stanley WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May 2015.
42 Hoover’s Industry Snapshots, 2015, Specialty Food Stores, via LexisNexis, accessed May 2015.
43 Jeffries WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May 2015.
44 Specialty Food Stores in the US- IBISWorld Industry Report 22529, via LexusNexus, accessed May
2015.
45 Specialty Food Stores in the US- IBISWorld Industry Report 22529, via LexusNexus, accessed May
2015.
7. 5
Internal Analysis: VRIO Framework
Resource/ Capability Strength or
Weakness
Value Rarity Imitability Organization Competitive
Implications
Financials:
1 High Same-Store Sales
growth
S Y N Y Y T.C.A.
2 Narrowing Projected Margins W N N Y N C.P.
3 High Wages Relative to
Industry
W N Y Y Y T.C.D.
4 High FCF, Low Debt Growth
Model
S Y Y Y Y S.C.A.
Product Offerings:
5 Average SKU count per store
above specialty average
S Y N Y Y C.P.
6 Broad organic and ethically
sourced goods
S Y N Y Y T.C.A
Public Perception:
7 Light Marketing Approach S Y Y Y Y S.C.A.
8 Value Proposition
Communication
W N Y Y N T.C.D.
9 Marketing Strategy
New Store Introductions:
10 International Store Expansion W N N Y N C.D.
11 Planned Discounted Store
Expansions
W N Y N N C.D.
12 Domestic Growth Targets S Y Y Y Y S.C.A.
Human Resources:
13 Self governing in-store teams S Y Y Y Y S.C.A.
14 Politically Stout CEO W N N Y N C.P.
15 Above industry benefit
programs
S N Y Y N T.C.A.
Competitive Implications:
• C.D. = Competitive Disadvantage
• C.P. = Comparative Parity
• T.C.A. = Temporary Competitive
Advantage
• T.C.D. = Temporary Competitive
Disadvantage
• S.C.A = Sustained Competitive
Advantage
8. 6
External Analysis: Six Forces Analysis | The Specialty Grocery Sub-Industry
Threat of New Entrants (M)
Economies of Scale: (H)
• Supply side: Specialty retailers have an inherent advantage1
from the higher volume of organic distribution – economies
of scale development2
(H)
• Demand side: Customers exhibit little need to shop in
coordination with acquaintances albeit the socially minded
consumer3
(L)
Customer Switching Costs: (L)
• Customers can easily change grocers4
given the continuing
expansion5
of such niche retailers (L)
Capital Requirements:
• Variant upon the size and scope of initial startup, costs can
range from personal investments new chain at $146k6
to
privately sourced startups compared to 2.8 million for a new
Sprouts location7
(M)
• Operational costs are inherently higher as a result of
perishable fresh goods, supply chain establishment, and
managerial staffing8 9
(M)
Incumbency Advantage: (H)
• Established retailers have ease of access to customers’
loyalty, supply chain alliances, access to capital markets, and
prime real estate locations10
(H)
Access to Distribution Chains: (M)
• Sourcing of locally grown produce and establishment of
processed goods from startup producers – more likely to sell
to new entrants11
(L)
• Incorporation of flagship products from major vendors
requires a ‘suitable’ distribution P.O.S.12
(H)
Government Regulations: (L)
• Adherence to local, state, and federal regulations is slightly
more rigorous than the broader retail industry- FDA13
,
zoning, liquor licensing14
and compliance standards15
(L)
• Specialty grocers must properly comply with selected NGO
sustainability branding16
(L)
Power of Suppliers (L) Power of Rivals (H) Power of Buyers (M)
Food Production and Processing: (L)
• Food production is highly
competitive, experiences low profits
margins, and is a highly elastic supply
environment17
(L)
Dependency: (H)
• Suppliers are highly dependent on
grocers for revenue and livelihood18
(L)
Forward Integration: (M)
• Alternate distribution methods include
selling to restaurants, to foodservice
(Sysco/ Sodexo), institutional
customers via alternative channels
(internet, contractual)19
(M)
Specialty Grocer Market Shifts: (H)
• The US grocery sector is highly
saturated and intensely competitive
with few underserved geographic
regions20
(H)
Breadth of Organic Offerings: (H)
• Post financial crisis, specialty grocer
environment is increasingly
competitive as traditional retailers
have more organic offerings21 22
(H)
Deflationary Pressures: (M)
• Continued entries into this profitable
subsector reduces organic’s margins 23
Product Differentiation: (L)
• Generally standardized product
offerings augment consumer choice
with shopping locations24
Switching Costs: (L)
• Buyers may easily change retailers
without experiencing barriers to
choice25
(L)
Backward Integration: (L)
• Consumers could opt to grow produce
themselves given time and space
permit such efforts26
(L)
Elasticity of Demand (M)
• With improved organic selections and
stagnating median US wages27
,
consumers increasingly shop for
deals28
.
Complements (M) Substitutes (L)
Store Location: (M)
• Local real estate offerings can create high traffic volume
synergies, thus augmenting specialty grocers’ gross sales29
Health Conscious Education: (M)
• Public Service Announcements encourage the importance of
sustainable and organic food offerings30
(M)
The Rise of Social Media: (L)
• The communication and proliferation of gastronomes raises
awareness, standards, and social expectations of food
quality31
(L)
Aging Population: (M)
• Maturing millennial consumers prefer sustainable and local
food offerings32
(M)
• Increasingly health conscious baby boomer generation33
exert significant social influence in favor of organic food
offerings (M)
Private Label Offerings: (M)
• Switching costs reduced when private label products
introduced- increased selection and pricing power34
(L)
Decentralized Organic Gardens: (L)
• Local cooperatives and individual gardens reduce the need to
buy organic foods from a specialty retailer35
Restaurants: (L)
• Customers may purchase prepared organic meals (L36
)
Online Purchasing: (M)
• Online delivery services may further disrupt37
the traditional
distribution network by introducing competitively priced38
and convenient organic food delivery options (M)
Non Organic Food: (L)
• Price sensitive customers may partially abandon some
organic items as prices increase 39
(L)
Levels of Influence: High (H), Medium (M), Low (L)
9. 7
1
Morningstar Consumer Defensive Sector Report, via eTrade Securities, accessed May 2015.
2
Hoover’s Industry Snapshots, 2015, Specialty Food Stores, via LexisNexis, accessed May 2015.
3
Bemporad, Raphael, and Mitch Baranowski. "Conscious Consumers Are Changing the Rules of Marketing.
Are You Ready?" BBMG. November 1, 2007. Accessed May 22, 2015.
https://www.fmi.org/docs/sustainability/BBMG_Conscious_Consumer_White_Paper.pdf.
4
Lutz, Ashley. "Whole Foods Is Falling to Competitors Because of One Mistake." Business Insider. Business
Insider, Inc, 16 May 2015. Web. 16 May 2015. <http://www.businessinsider.com/whole-foods-biggest-
problem-2015-5>.
5
Hoover’s Industry Snapshots, 2015, Specialty Food Stores, via LexisNexis, accessed May 2015.
6
Henning, Katherine. "Grocery/Convenience Store Start-Up Profile." Illinois Department of Commerce and
Community Affairs. Accessed May 22, 2015.
https://www.illinois.gov/dceo/SmallBizAssistance/BeginHere/Documents/GroceryConvenienceStore.pd
f.
7
Sprouts Farmers Market. 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.
edu/documents.php?compnumber=136871
8
Morningstar Consumer Defensive Sector Report, via eTrade Securities, accessed May 2015.
9
"Grocery Market Sales per Employee." Revenue per Employee (WFM), Sales per Employee, Current and
Historic Results, Rankings and More, Quarterly Fundamentals. Accessed May 21, 2015.
10
"The Incumbent's Advantage." Harvard Business Review. October 1, 2008. Accessed May 22, 2015.
https://hbr.org/2008/10/the-incumbents-advantage.
11
"How Small Companies Can Get Big, Fast." Forbes. Accessed May 22, 2015.
http://www.forbes.com/sites/michaelskok/2014/04/10/how-small-cos-can-get-big-fast/.
12
"How Small Retailers Get Big Brands to Trust Them." Bloomberg.com. Accessed May 22, 2015.
http://www.bloomberg.com/bw/articles/2012-02-24/how-small-retailers-get-big-brands-to-trust-them.
13
"U.S. Food and Drug Administration." FDA Food Code. Accessed May 22, 2015.
http://www.fda.gov/Food/GuidanceRegulation/RetailFoodProtection/FoodCode/.
14
"ZONING AND LICENSING TO REGULATE THE RETAIL ENVIRONMENT AND ACHIEVE PUBLIC
HEALTH GOALS." DUKE FORUM FOR LAW & SOCIAL CHANGE. Accessed May 22, 2015.
http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1037&context=dflsc.
15
"How to Comply with Advertising Laws." US Small Business Administration. Accessed May 22, 2015.
https://www.sba.gov/content/how-comply-with-advertising-laws.
16
Henning, Katherine. "Grocery/Convenience Store Start-Up Profile." Illinois Department of Commerce and
Community Affairs. Accessed May 22, 2015.
10. 8
https://www.illinois.gov/dceo/SmallBizAssistance/BeginHere/Documents/GroceryConvenienceStore.pd
f.
17
Hoover’s Industry Snapshots, 2015, Specialty Food Stores, via LexisNexis, accessed May 2015.
18
"The Relationship between Supermarkets and Suppliers: What Are the Implications for Consumers?"
Consumer International. Accessed May 22, 2015.
http://www.consumersinternational.org/media/1035307/summary, the relationship between
supermarkets and suppliers.pdf.
19
Consumer Defensive Sector Report, Morningstar Equity Research, accessed May 2015.
20
Morningstar Consumer Defensive Sector Report, via eTrade Securities, accessed May 2015.
21
Walmart. 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu/documents
.php?compnumber=8865
22
JP Morgan WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May 2015.
23
Guggenheim WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May 2015.
24
Hoover’s Company Records- In-depth Records of Whole Foods Market, Inc, via LexisNexis, accessed May
2015.
25
RBC Capital Markets WFM Analyst Report, Thompson Reuters/Thompson ONE, accessed May 2015.
26
Satran, Joe. "Local Produce Increasingly Preferred To Organic, Consumer Survey Shows." The Huffington
Post. Accessed May 22, 2015. http://www.huffingtonpost.com/2012/09/26/local-produce-
organic_n_1917485.html.
27
"Real Median Household Income in the United States." Federal Reserve Bank. Accessed May 22, 2015.
https://research.stlouisfed.org/fred2/series/MEHOINUSA672N.
28
Whole Foods Market, 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu/
documents.php?compnumber=71872, accessed May 2015.
29
"How Small Companies Can Get Big, Fast." Forbes. Accessed May 22, 2015.
http://www.forbes.com/sites/michaelskok/2014/04/10/how-small-cos-can-get-big-fast/.
30
"Public Service Announcements- Obesity in America." We Can! PSAs, News & Events, NHLBI, NIH.
Accessed May 22, 2015. http://www.nhlbi.nih.gov/health/educational/wecan/news-events/public-
service-announcements.htm.
31
Holmberg, Christopher. "Food And Social Media -- A Complicated Relationship." The Huffington Post.
Accessed May 22, 2015. http://www.huffingtonpost.com/christopher-holmberg/food-and-social-media-
a-c_b_4898784.html.
32
Morningstar Consumer Defensive Sector Report, via eTrade Securities, accessed May 2015.
11. 9
33
"Baby Boomer Food Trends." LoveToKnow: Senior Citizens. Accessed May 22, 2015.
http://seniors.lovetoknow.com/Baby_Boomer_Food_Trends.
34
Whole Foods Market, 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu/
documents.php?compnumber=71872, accessed May 2015.
35
"Organic Agriculture: An Increasing Global Trend." Mother Earth News. Accessed May 22, 2015.
http://www.motherearthnews.com/organic-gardening/organic-agriculture-global-trend-zb0z11zwar.aspx.
36
"Organic Food in Restaurants a Growing Trend." Organic Consumers Association. Accessed May 22, 2015.
https://www.organicconsumers.org/old_articles/Organic/noras052202.php.
37
Consumer Defensive Sector Report, Morningstar Equity Research, accessed May 2015.
38
Hoover’s Industry Snapshots, 2015, Specialty Food Stores, via LexisNexis, accessed May 2015.
39
"Consumer Attitudes towards Organic versus Conventional Food with Specific Quality Attributes." NJAS -
Wageningen Journal of Life Sciences. Accessed May 22, 2015.
http://www.sciencedirect.com/science/article/pii/S157352141000031X.
13. 11
External Analysis: Competitor Map
LegalStatus
PrivateLabel
International
Locations
Loyalty
Program
2014SKUs/
storeavg
TotalSquare
Footage
Average
SquareFeet
perStore
Salesper
squarefoot
UnitGrowth
2014
Comparable
SameSales
Growth
MarketCap
Gross
Margin
ROI
CurrentRatio
Longterm
debt
Revenueper
Employee
(peryear)
Specialty Food Grocer
1
Whole
Foods
Market Public Y
US,
CA,
UK
Y
(piloting)
32,000 15.1
million
41,000 $983.00
34
stores
4.30%
15.22
billion
33.92% 31.05% 1.12
24,700
thousands
$171,456
2
Sprouts
Farmers
Market Public Y US
Y 5,200 5.3
million
27,502 $471.00
17
stores
10.70%
4.58
billion
29.70% 19.66% 1.51
256,357
thousands
$175,000
3
Trader
Joe's Private Y US
N 3,300
?
13,000 $1,750.00
5
stores
10%+ - - - - 4,000,000 358,730
4
The Fresh
Market Public Y US
N 45,000
3.58
million
21,000 $533.00
22
stores
2.90%
1.66
billion
34.10% 31.05% 1.12
not
available
$141,773
Traditional Grocers
5 Kroger Public Y US
Y 45,000
162
million
61,000 $496.00
15
stores
6.00%
70.34
billion
21.16 18.63 0.78
1,844
millions
$225,000
6
Vons/
Safeway Private Y
US,
MEX
Y
not
found
62.32
million
47,000 $548.00
26
stores
1.70%
7.40
billion
28.79% 31.10% 2.04
2.9
billion
$215,000
7
Supervalu
Inc. Public Y
US,
CA, IR
Y
14,000-
21,000
16
million
50,000 $510.00
-7
stores
2.30%
2.32
billion
14.47 20.24% 1.11
2.73
billion
$250,000
8 Publix Private Y US
N 31,000
51.2
million 50,000
$552.00
22
stores
6.40%
15.47
billion
27.82 28.50% 1.38%
193
million
$180,659
LegalStatus
PrivateLabel
International
Locations
Loyalty
Program
2014SKUs/
storeavg.
TotalSquare
Footage
Average
SquareFeet
perStore
Salesper
squarefoot
UnitGrowth
2014
Comparable
SameSales
Growth
MarketCap
GrossMargin
ROI
CurrentRatio
Longterm
debt
Revenueper
Employee(per
year)
14. 12
Row 1: Whole Foods Market, 2014 Annual Report. Mergent Online.
http://www.mergentonline.com.lib
.pepperdine.edu/documents.php?compnumber=71872, accessed May 18, 2015.
Row 1: "Whole Foods Market Reports First Quarter Results." Accessed May 21, 2015.
http://www.wholefoodsmarket.com/sites/default/files/media/Global/Company
Info/PDFs/WFM-2014-Q1-financial.pdf.
Row1: "Grocery Market Sales per Employee." Revenue per Employee (WFM), Sales per Employee,
Current and Historic Results, Rankings and More, Quarterly Fundamentals. Accessed
May 21, 2015. http://csimarket.com/stocks/singleEfficiencyet.php?code=WFM.
Row 1: Whole Foods Market, 2014 Company Financials. Mergent Online, accessed May 20, 2015.
Row 2: Sprouts Farmers Market, 2014 Company Financials. Mergent Online, accessed May 20, 2015.
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edu/documents.php?compnumber=136871
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Accessed May 21, 2015. http://supermarketnews.com/retail-financial/sprouts-boosts-sku-
counts-shelf-heights.
Row 3: "Fortune." Inside the Secret World of Trader Joe's. August 23, 2010. Accessed May 21, 2015.
http://archive.fortune.com/2010/08/20/news/companies/inside_trader_joes_full_version.f
ortune/index.htm.
Row 3: Trader Joe’s Company Profile Summary, PrivCo, accessed May 2015.
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University." Graziadio Business Review Graziadio School of Business and Management
Pepperdine University RSS. Accessed May 21, 2015.
Row 4: The Fresh Market. 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu
/documents.php?compnumber=130261
Row 4: The Fresh Market, 2014 Company Financials. Mergent Online, accessed May 20, 2015.
Row 4: "The Fresh Market Inc (TFM): Highest-Margin Food Retailer At A Decent Multiple.” Stock
Analyst Database. Accessed May 21, 2015.
http://www.istockanalyst.com/finance/story/6613226/the-fresh-market-inc-tfm-highest-
margin-food-retailer-at-a-decent-multiple.
Row 5: “Kroger’s Sales in the U.S., 2014 | Statistic.” The Statistic Portal 2015. Accessed May 21, 2015.
http://www.statista.com/statistic/241198/sales-of-kroger/
Row 5: Kroger Co. 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu
/documents.php?compnumber=4788
15. 13
Row 5: "The Kroger Co. - Investors." The Kroger Co. - Investor Relations. Accessed May 21, 2015.
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http://www.thekrogerco.com/vendors-suppliers/supplier-diversity/doing-business.
Row 6: "Safeway (SWY) Gross Margin Trends." Gross Margin for SWY. Accessed May 21, 2015.
http://www.wikinvest.com/stock/Safeway_(SWY)/Data/Gross_Margin.
Row 6: Safeway Company Profile Summary, PrivCo, accessed May 2015. http://www.privco.com.lib
.pepperdine.edu/private-company/safeway-inc
Row 6: "Safeway Boosts Pace of New-Store Openings." Supermarket News. Accessed May 21, 2015.
http://supermarketnews.com/latest-news/safeway-boosts-pace-new-store-openings.
Row 6: "Safeway Putting Itself Up for Sale." Forbes. Accessed May 21, 2015.
http://www.forbes.com/sites/maggiemcgrath/2014/02/19/safeway-putting-itself-up-for-
sale/.
Row 7: Supervalu Inc. 2014 Annual Report. http://www.mergentonline.com.lib.pepperdine.edu
/documents.php?compnumber=8015
Row 7: Stoffel, Brian. "3 Numbers to Know Before Buying Grocery Stocks- Sales Per Square Foot."
Motley Fool Investments. Accessed May 21, 2015.
http://www.fool.com/investing/general/2013
/08/19/beginning-investor-3-numbers-to-know-before-buying.aspx.
Row 7: "FAQ: Investing in SuperValu." Supervalu: Investor Relations. Accessed May 21, 2015.
http://www.supervaluinvestors.com/phoenix.zhtml?c=93272&p=irol-faq#36943.
Row 7: "Supervalu's Profit Rises Sharply as All Units Thrive." Star Tribune: Business. Accessed May
21, 2015. http://www.startribune.com/supervalu-s-profit-rises-sharply-as-all-units-
thrive/287787351/.
Row 8: Publix Super Markets Inc. 2014 Annual Report.
http://www.mergentonline.com.lib.pepperdine.edu
/documents.php?compnumber=4788
Row 8: Publix Super Markets Inc, PrivCo, accessed May 2015
http://www.privco.com.lib.pepperdine.edu
/private-company/publix-super-markets-inc
16. 14
Strategic Recommendations:
Over the past 35 years, Whole Foods Market (WFM) has grown into an organic and
natural goods market leader with over 400 stores throughout the United States, Canada, and the
United Kingdom. As WFM has well outperformed the S&P 500 Index over this high growth
ascent to market dominance within the specialty grocery subsector, rivalry within the industry
has increased dramatically resulting in the first substantial and credible threats to WFM’s core
business as imitators are flooding the market with lower priced organic alternatives. To maintain
sustainable growth expectations, WFM must refocus the scope and direction of their aggressive
expansion efforts, reverse the gross margin deterioration for sold goods and the decline in
comparable store yields for existing locations, and to limit the growth of share buybacks and
dividends to further reinvest capital within the company.
In a bid to address the growing success of discount specialty organic distributors, WFM
currently wishes to create a new business model in which a new discounted store concept is to be
introduced to counter such threats and maintain market share. The dangers of such a divergence
from the core operations of WFM have the ability to dilute the elite and powerful brand name of
the corporation. Such a divestment into a completely different store concept is inherently risky
and not consistent with a sustainable and relatively risk adverse growth model proposition which
has served the company well in the past- WFM in its current state is considered best in breed
specialty grocery retailer. One such example of a misguided market entries within WFM
included the introduction of underperforming international locations in Canada and the UK that
were ill conceived in terms of branding strategy, execution, and operation into this completely
new market segment. Rather, WFM should refocus their efforts upon financing the existing high-
end retail segment to remodel existing store locations and to enter new domestic markets in the
Southwest and Southeast United States to further leverage WFM’s core operational strengths.
17. 15
Likewise, such a refocus upon bettering existing locations and expanding domestically
with the established store model strongly and positively correlates with the argument to correct
the worrying decline in key store metrics. Although same-store sales increased 4% this past year,
this growth is a sharp deviation from the past decade average of 10% same-store sales growth per
year for WFM. Although some deterioration in gross profit margins is acceptable through
WFM’s newly introduced sales price reduction strategy, this metric, too, can be stabilized
through the reallocation of financial resources away from international expansion efforts and
towards domestic growth strategies through the opening of new stores. Likewise, interior
redesigns across all existing locations should reinvigorate foot traffic within store locations and
reignite the exciting shopping experience that is a hallmark of the WFM Brand.
Such efforts can be sustainably achieved from a social, environmental, and financial
perspective through transparent and unified communication from WFM’s management regarding
this focused growth strategy. Having above industry average free cash flow generation is
beneficial to future expansion efforts; however, it is recommended that stock buybacks should be
curtailed in conjunction with such improvement efforts mentioned above to avoid assuming
additional debt; rather, fuel future earnings per share growth can be funded by increased sales
and scales of economy has the company solidifies its US store locations and offerings. To further
ameliorate stockholder concerns about future operations and potentially short term EPS
headwinds, it is suggested that WFM should announce, in conjunction with revised future growth
strategies, consistent dividend payouts with the goal of obtaining status in the Dividend
Aristocrats Index. Such a goal coincides financially coincides with WFM’s sustainability
strategy by both enticing long term investments from shareholder through mitigating future
concerns regarding the profitability and direction of WFM’s responsible growth approach
moving forward.
18. 16
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20. 18
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23. 21
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24. 22
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25. 23
Exhibits
Key Executive Biographies:
John P. Mackey
Co-Chief Executive Officer
Mr. Mackey became co-CEO of Whole Food Market in 2010 after loyally serving the company
from 1978 to 2009 as Chairman of the Board. Under his tenure, WFM stock price has
appreciated approximately 2,679.43%, a figure significantly above comparable corporations
during similar periods. Notably, he receives total annual compensation of one USD.
Walter Robb
Co-Chief Executive Officer
Mr. Robb first joined the Whole Foods team in 1991, and he quickly was promoted to President
of the Northern Pacific Operations Region in 1993 where he significantly grew the store’s
presence. In 2000, he became the President of Operations, then COO in 2001, and later Co-
President in 2004. In 2010, he joined Mr. Mackey as co-CEO of Whole Foods.
A.C. Gallo
President
Mr. Gallo first joined Whole Food’s through the company’s acquisition of his employer, Bread
and Circus, Inc. , in 1992. Since this time, he has served positions of Vice President and
President of the North Atlantic Region, Executive Vice President of Operations, COO in 2004,
and most notably his re-appointment as COO of WFM in 2010.
John B. Elstrott
Chairman of the Board
With a doctorate in Economics and founding of the Levy-Rosenblum Institute for
Entrepreneurship at Tulane University, Mr. Elstrott brings his expertise to WFM through his
serving of Direction of the Company from 1995, and his position as Lead Director from 2001 to
2009. Today, he serves as the Chairman of the Board of Whole Food.
Glenda J. Flanagan
Executive Vice President
Mrs. Flanagan has served as the CFO of Whole Foods since 1988 and well as serving as the
Secretary and Principal Accounting Officer during this time.
26. 24
James P. Sud
Executive Vice President
Mr. Sud served as Director of Whole Foods Market from 1980 to 1997, and since has served as
COO from 1997-2001, and later as Executive Vice President of Growth and Business Develop
for the company.
David Lannon
Executive Vice President
Mr. Lanon first joined Whole Foods through the company’s acquisition of Bread & Circus in
1992. Since this time, he has served has Store Team Leader, Director of Store Operations and
Vice President of the North Atlantic Region from 2007- 2011, and as the Executive Vice
President of Operations of WFM from 2012 to present.
Kenneth Meyer
Executive Vice President
Mr. Meyer joined Whole Foods through the company’s acquisition of Fresh Fields Market in
1996. Since this time, he has served as a Store Team Leader, Vice President of the Southwest
Region, President of the South Region, President of the Mid-Atlantic Region from 2004- 2012,
and most recently has Executive Vie President of Operations of WFM.
Source: Company Executives- Merchant Online.
27. 25
Exhibits: Financial Statements
As Reported Annual Balance Sheet
Report Date 09/28/2014 09/29/2013 09/30/2012
Currency USD USD USD
Audit Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Cash & cash equivalents 190000000 290000000 89016000
Short-term investments - available-for-sale securities 553000000 733000000 1131213000
Restricted cash 109000000 111000000 102873000
Accounts receivable 198000000 188000000 196503000
Merchandise inventories 441000000 414000000 374269000
Prepaid expenses & other current assets 97000000 93000000 76511000
Deferred income taxes 168000000 151000000 132246000
Total current assets 1756000000 1980000000 2102631000
Land 139000000 77000000 76592000
Buildings & leasehold improvements 2628000000 2427000000 2219763000
Capitalized real estate leases 81000000 33000000 24876000
Fixtures & equipment 2099000000 1706000000 1674089000
Construction in progress & equipment not yet in service 362000000 269000000 53328000
Gross property & equipment 5309000000 4512000000 4048648000
Less accumulated depreciation & amortization 2386000000 2084000000 1855965000
Property & equipment, net of accumulated depreciation and
amortization 2923000000 2428000000 2192683000
Long-term investments - available-for-sale securities 120000000 302000000 221426000
Goodwill 708000000 679000000 662938000
Intangible assets, net of accumulated amortization 81000000 65000000 62399000
Deferred income taxes 132000000 72000000 42834000
Other assets 24000000 12000000 9305000
Total assets 5744000000 5538000000 5294216000
Current installments of long-term debt & capital lease
obligations - - 1012000
Current installments of capital lease obligations 2000000 1000000 -
Accounts payable 276000000 247000000 247089000
Accrued payroll, bonus & other benefits due team members 379000000 367000000 307164000
Dividends payable 43000000 37000000 25959000
Other current liabilities 557000000 436000000 395964000
Total current liabilities 1257000000 1088000000 977188000
Obligations under capital lease agreements for equipment - - -
Cash flow hedge instrument - - -
Term loan - - -
Total long-term debt - - -
Total long-term debt & capital lease obligations - - -
Less: current installments - - -
Long-term debt & capital lease obligations, less current
installments 60000000 26000000 23110000
Deferred lease liabilities 548000000 500000000 440822000
Other long-term liabilities 66000000 46000000 50627000
Total liabilities 1931000000 1660000000 1491747000
Common stock 2863000000 2765000000 2592369000
Common stock in treasury, at cost 711000000 153000000 28599000
Accumulated other comprehensive income (loss) -7000000 1000000 5266000
Retained earnings (accumulated deficit) 1668000000 1265000000 1233433000
Total shareholders' equity 3813000000 3878000000 3802469000
28. 26
Exhibits: Financial Statements
As Reported Annual Income Statement
Report Date 09/28/2014 09/29/2013 09/30/2012
Currency USD USD USD
Audit Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Sales 14194000000 12917000000 11698828000
Cost of goods sold & occupancy costs 9150000000 8288000000 7543054000
Gross profit 5044000000 4629000000 4155774000
Direct store expenses 3586000000 3285000000 2983419000
General & administrative expenses 446000000 397000000 372065000
Pre-opening expenses 67000000 52000000 46899000
Relocation, store closure & lease termination cost 11000000 12000000 9885000
Operating income 934000000 883000000 743506000
Interest expense - - 354000
Investment & other income 12000000 11000000 8892000
Income before income taxes 946000000 894000000 752044000
Current federal income taxes 359000000 321000000 233598000
Current state income taxes 82000000 73000000 53725000
Current foreign income taxes 2000000 3000000 4541000
Total current income taxes 443000000 397000000 291864000
Deferred federal income taxes (benefit) -66000000 -44000000 863000
Deferred state income taxes (benefit) -10000000 -10000000 -6225000
Deferred foreign income taxes (benefit) - - -31000
Total deferred income taxes (benefit) -76000000 -54000000 -5393000
Provision for income taxes 367000000 343000000 286471000
Net income (loss) 579000000 551000000 465573000
Income available to common shareholders - 551000000 465573000
Weighted average shares outstanding - basic 367800000 371200000 364802000
Weighted average shares outstanding - diluted 370500000 374500000 368888000
Year end shares outstanding 360400000 372400000 370874000
Net income (loss) per share - basic 1.57 1.48 1.275
Net income (loss) per share - diluted 1.56 1.47 1.26
Dividends declared per common share 0.48 1.4 0.28
Number of full time employees 58100 56700 53100
Number of part time employees 26100 18500 16400
Number of temporary employees 3000 3200 3200
Total number of employees 87200 78400 72700
Number of common stockholders 1345 1384 1453
29. 27
Exhibits: Financial Statements
As Reported Annual Cash Flow
Report Date 09/28/2014 09/29/2013 09/30/2012
Currency USD USD USD
Audit Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Net income (loss) 579000000 551000000 465573000
Depreciation & amortization 377000000 339000000 311550000
Loss (gain) on disposition of fixed assets - - 2223000
Share-based payment expense 68000000 57000000 42288000
LIFO expense (benefit) 16000000 2000000 100000
Deferred income tax expense (benefit) -78000000 -51000000 -8039000
Excess tax benefit related to exercise of team member stock
options -9000000 -37000000 -50349000
Accretion of premium/discount on marketable securities 27000000 31000000 15710000
Deferred lease liabilities 36000000 51000000 77044000
Other net income adjustments 12000000 9000000 -1695000
Accounts receivable -14000000 9000000 -29879000
Merchandise inventories -41000000 -42000000 -37075000
Prepaid expenses & other current assets -4000000 -17000000 -1779000
Accounts payable 30000000 - 9606000
Accrued payroll, bonus & other benefits due team member 12000000 60000000 25285000
Other current liabilities 54000000 51000000 94918000
Other long-term liabilities 23000000 -4000000 4234000
Net cash flows from operating activities 1088000000 1009000000 919715000
Development costs of new locations -447000000 -339000000 -261710000
Other property & equipment expenditures -263000000 -198000000 -194539000
Purchase of intangible assets -20000000 - -
Purchase of available-for-sale securities -720000000 -1252000000 -3009503000
Sales & maturities of available-for-sale securities 1054000000 1534000000 2138221000
Decrease (increase) in restricted cash 2000000 -8000000 -10917000
Payment for purchase of acquired entities, net of cash
acquired -73000000 -22000000 -
Other investing activities -17000000 -4000000 -2901000
Net cash flows from investing activities - -289000000 -1341349000
Common stock dividends paid -170000000 -508000000 -94505000
Issuance of common stock 42000000 81000000 370226000
Purchase of treasury stock -578000000 -125000000 -28599000
Excess tax benefit related to exercise of team member stock
options 9000000 37000000 50349000
Payments on long-term debt & capital lease obligations -1000000 -2000000 -305000
Net cash flows from financing activities -698000000 -517000000 297166000
Effect of exchange rate changes on cash & cash equivalents -6000000 -2000000 1480000
Net change in cash & cash equivalents -100000000 201000000 -122988000
Cash & cash equivalents at beginning of year 290000000 89000000 212004000
Cash & cash equivalents at end of year 190000000 290000000 89016000
Interest paid - 2000000 2839000
Federal & state income taxes paid 429000000 378000000 201771000
Source: Company Financials- Merchant Online.