WHOLE FOODS MARKET

OVERVIEW OF WHOLE FOODS MARKET

The Whole Foods Market (WFM) began in Austin, Texas, United States with the opening of

the chain’s first location. It’s founded by four local business people that decided the natural

foods industry was ready for supermarket format. The original store was founded when

John Mackey, the current CEO and his girlfriend Rene Lawson merged their store, SaferWay,

with Clarkville Natural Grocery owned by Mark Skiles and Craig Weller.

The original Whole Foods Market opened in 1980 with a staff of only 19 people. At the time,

there were less than half dozen natural food supermarkets in existence in the country. In

1984, the retailer began expansion outside of Austin and now, with nearly 40,000

employees and almost 200 locations in North America and the United Kingdom, Whole

Foods Market is the largest supermarket retailer of natural and organic foods and products

in the world. Early 2008, they had 276 stores in the United States, Canada, and also Great

Britain. Whole Foods Market had been a leader in the natural and organic foods movement

across United States.

“Highly selective about what we sell, dedicated to our core values and stringent quality

standards and committed to sustainable agriculture” is Whole Foods Market’s uniquely

mission. Their vision is want to become an international brand synonymous not just with

natural and organic foods but also with being the best retailer in every community in which

Whole Foods Market stores were located which it means that they want to become the

most largest organic supermarket in the world. Mackey’s philosophy, marketing high-quality

natural and organic foods to more and more customers in more and more communities

would over time gradually transform the diets of individuals in a manner that would help

them live longer, healthier, more pleasurable lives. The company motto is “Whole Foods,

Whole People, and Whole Planet” give very strong meaning to United States peoples.

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WHOLE FOODS MARKET’S MOTTO:

• Whole Foods — We search for the highest quality, least processed, most flavourful

and natural foods possible because we believe that food in its purest state —

unadulterated by artificial additives, sweeteners, colourings and preservatives — is

the best tasting and most nutritious food there is.

• Whole People — Our people are our company. They are passionate about healthy

food and a healthy planet. They take full advantage of our decentralized, self-

directed team culture and create a respectful workplace where people are treated

fairly and are highly motivated to succeed.

• Whole Planet — We are committed to helping take care of the world around us, and

our active support of organic farming and sustainable agriculture helps protect our

planet. And while we assist our global neighbours through our Whole Planet

Foundation’s micro-lending operations, we also step out the back door of each of

our stores to support food banks, sponsor neighbourhood events and donate to local

non-profit groups.

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Question 1:

What are the chief elements of the strategy that Whole Foods Market is pursuing?

The Whole Foods Market founder, John Mackey strongly believed in Whole Foods’ mission

to be very selective about store inventory, sticking to the company’s core values and

ensuring that customers had an enjoyable and interactive shopping experience, while

keeping with planned strategies that have set them apart from their competitors.

The chief elements of the strategies that Whole Foods Market pursuing is believe in their

missions.

The Whole Foods Strategies:

– Store Development and Growth Strategy: Prior to 2002, Whole Foods’ strategy for

expansion meant the acquisition of smaller, similar chains. The obstacle here was

that acquisitions proved to be very limiting in square footage as well as location.

Since 2002, Whole Foods has sought to develop and build individual stores to avoid

these limitations, allowing the company to operate stores as large as 50,000 square

feet.

– Inventory: Whole Foods also seeks to stock the highest quality and most varieties of

fresh foods available, regionally and globally. This is done through careful selection

of food suppliers who are in keeping with the highest standards of food production

while maintaining a certain degree of environmental and social responsibility in the

process.

– Shopping and Merchandising: Each Whole Foods store maintains a special

environment for their customers, such as ambient lighting, natural displays, and

educational demonstrations, to encourage the shopper to be a repeat customer and

even share their experience with friends and family.

– Store Operations and Incentives: From an internal perspective, Whole Foods uses a

team-based strategy of operations. Employees are part of a democratic process of

selecting new hires, implementing new ideas and encouraging individual creative

thinking, while still maintaining accountability for successes and failures as a whole.

In addition, employees are given many options with regards to their work schedules,

benefits and company profit sharing.

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– Product: Fresh natural and organic foods and products with no preservatives or

artificial ingredients. Become the first retailer in the United States offering products

to its customers that are natural (grown without being treated with growth

hormones or antibiotics) and ’certified organic’. The product of Whole Foods are

organic, natural and gourmet foods, taking into account the environment as an

important factor, and making of the earth the first priority. They’re not a company

selling cheap products but they’re a company selling quality and health to their

customers.

– Service: They’re not giving importance to business, but to quality and satisfy their

customers. The Whole Foods Market is not only taking care of their customers but

also of the environment and the planet. Whole foods deliver value to their

customers by selling the highest quality natural and organic products available,

satisfying and delighting their customers, supporting team member happiness and

excellence, creating wealth through profits and growth, caring about communities

and the environment, creating ongoing win-win partnerships with their suppliers and

promoting the health of their stakeholders through healthy eating education.

– Social Responsibility: Promote healthier eating or lifestyle and increasing consumer

knowledge and education of food safety, environment and how pesticides affect the

land as well as the human body.

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Question 2:

Is the strategy well matched to recent development and conditions in the natural and

organic food segment of food retailing industry?

Certain strategies well matched to recent development and conditions in the natural and

organic food segment of food retailing industry. Based on NASDAQ: WFMI (2011),

macroeconomic analysis which relate to the current issue can be categorized in few points

such as:

– Politic: political turmoil in Egypt is causing uncertainty in US as well, as the Obama

administration reconsiders its international strategic interests. No one is certain how

the financial markets will react; so far markets have reacted more strongly to crude

oil availability concerns than to the political turmoil directly. Somehow rather, this

political issue also will affect the development of natural and organic food segment,

because it reflects to the oils and transportations to certain areas.

– Global market news: Global stocks are on the rise thanks to strong earnings

reported in the US. A recent Wall Street Journal article expresses the belief that

markets will react less to macroeconomics in year 2011 than 2010 and will instead

revert to market “fundamentals” or companies’ numbers and risk. It’s means that,

most of US peoples accept the natural and organic food segment.

– Emerging markets: A growing consumer population and increased demand in

countries such as China and Brazil are putting inflationary pressure on global

commodities such as food and oil. These countries are also experiencing fast-rising

inflation rates in their own countries. The population growth will lead to demand on

natural and organic foods.

– Commodities: Crude oil prices have topped $100 a barrel for the first time since

2008, while gold posted its first monthly loss for the first time since July (Reuters).

Inflationary pressures on global food prices mean that grocers must specially focus

strategy on keeping prices in check.

According to Standard & Poor’s Industry Survey (2010), Whole Foods operates in the food

retailing industry, specifically within the natural and organic food segment, which is the

fastest-growing of the industry.

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Bureau of Labor Statistic (2011) stated that, the food index increased slightly in December

2010, with the fruits and vegetables index rising notably. Consumer confidence rose to a 36-

month high in December, but the economic recovery has been slow. Demand from higher-

income wage earners recovered in 2010, which greatly benefits Whole Foods as a specialty

food retailer. So that, Whole Foods has outperformed its competitors by executing targeted

pricing and promotional strategies that increased real time information to operators to

make continual pricing adjustments.

Real Simple Magazine (2010) mentioned that, of six grocers including Trader Joe’s and Wal-

Mart, Whole Foods was the only store to decrease its prices of milk, butter, eggs, apples,

and bread over the last twelve months. It happened because Whole Foods claimed they

only offering high-quality natural products, which offering a competitive advantage from

other grocers. In fact, they have their own Product Quality Standards:

– To maintain high quality you have to have high standards, and WFM are the highest

in the industry. They evaluate quality in terms of nutrition, freshness, appearance,

and taste. WFM search for quality is a never-ending process involving the careful

judgment of buyers throughout the company.

– Carefully evaluate each and every product they sell.

– Feature foods that are free of artificial preservatives, colours, flavours, sweeteners,

and hydrogenated fats.

– Passionate about great tasting food and the pleasure of sharing it with others.

– Committed to foods that are fresh, wholesome and safe to eat.

– Seek out and promote organically grown foods.

– Provide food and nutritional products that support health and well-being

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Question 3:

i. How well is Whole Foods market performing from a strategic perspective?

In general the strategies are posted in every location as their motto “Whole Foods. Whole

People. Whole Planet.”The first strategy is to offer “the highest quality, least processed,

most flavorful and naturally preserves foods”. (Company, Whole Foods Market website,

2008). This is a bold promise to the consumer and a bold strategy which, if followed through

upon, sets Whole Foods Market up as the destination retailer for the highest quality natural

and organic foods. The second strategy is Whole People. Though the term sounds very

‘comforting’ the meaning Whole Foods Market applies to that term is very powerful. “We

recruit the best people we can to become part of our team. We empower them to make

their own decisions, creating a respectful workplace where people are treated fairly and are

highly motivated to succeed.” (Company, Whole Foods Market website, 2011). The second

strategy recognizes that all successes (and setbacks) occur with their people. By

empowering the team members to make decisions within a store, local operations of each

location would better reflect the community in which the store resides which brings us to

the third strategy, Whole Planet. This third strategy gives a name and a face to Whole Foods

Market’s sense of corporate responsibility. “On a local basis, we are actively involved in our

communities by supporting food banks, sponsoring neighbourhood events, compensating

our team members for community service work, and contributing at least five percent of

total net profits to not-for-profit organizations.” (Company, Whole Foods Market website,

2011). In a time when people tend to see the impersonal sides of corporations, Whole Foods

Market is positioning themselves as a local business with strong local ties. This plan can give

a warm, local feel to what is truly a multi-national company. People want to “feel good”

about where they spend their money.

According to Entrepreneur.com America has a growing appetite for all things healthy. The

Organic Food Association expects double digit growth through 2010. (Organic Foods on the

Rise, Sara Wilson, November 17,2006). There are at least two clouds forming on the horizon

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however. Recession fears could pose a challenge for Whole Foods Market as consumers

react to organic prices in tough financial times. Organic/natural food prices can be as much

as ‘double’ the prices of the regular counterpart item. (A Healthy Bite Out of Organic Foods,

Colleen Paulson, 2008). The second is competition. Traditional food retailers have noticed

the success of natural grocers like Whole Foods Market. Last fall Kroger launched its own

private label organic food offerings, from pasta to peanut butter. (Supermarket Giant Kroger

Expands Organic Line, msnbc.com, 2007) Wal-Mart, the nation’s largest grocery retailer (SN

Top 75 2007, Supermarket News website, 2008), is expanding its organic selection. "Like

many big companies, they (Wal-Mart) have figured out it is just good marketing and good

reputation building to be in favor of things that Americans are increasingly interested in,"

said Alice Peterson, president of Chicago-based consultancy Syrus Global. (Wal-Mart Goes

Organic, msnbc.com, 2006). With the perception of tougher economic times, people may

experiment with less expensive alternatives at well established retailers like Kroger or Wal-

Mart.

Whole Foods Market has established itself as a leader in the field by creating a purpose

driven work force, by building attractive user-friendly shopping spaces, and by offering top

of the line products. Even with inevitable changes to the Natural Grocery segment of the

retail food industry, Whole Foods Market seems poised to take advantage of the continued

growth in this sector. The company motto “Whole Foods, Whole People, Whole Planet” is, in

effect, a simplified version of the company’s strategy which is shared with each customer

who enters the building. Their success would suggest that the motto works effectively as a

model for running their business. A simple and easy-to-understand stated strategy has to

aid everyone in reaching the company’s goals.

One core value is Stewardship- “We are committed to increasing long term shareholder

value.” However, on Friday June 6, 2008 Whole Foods Market stock (WFMI) closed at

$28.50, down over 53% off its 52 week high. Now, one day isn’t a fair snapshot of the stock’s

overall performance. The stock is down off of its high as Whole Foods Markets merges with

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Wild Oats which it acquired in 2007. Rich Smith in an article on the Motley Fool wrote “Once

it gets its Wild Oats acquisition fully digested, I expect we'll see operating margins return to

their prior form -- and watch Whole Foods wholly outperform the market once again.” (This

Just In, Rich Smith, June 5, 2008). As Whole Foods Market addresses the challenges of new

competition, falling stock prices and absorbing the merger of a rival chain, there are

problems on the foreign front as well. Expansion into the United Kingdom market has

presented its own challenges. In an article titled “Whole Foods has tough first year in UK” in

ThisIsMoney.co.uk Jonathan Prynn and Elizabeth Hopkirk write “The US-owned shop has

also been criticised for high prices, particularly at the takeaway hot food and salad bars,

where a modest lunch portion can cost up to £10” (Roughly $39 in US Dollars). Natalie Berg,

a grocery research manager for the consultancy Planet Retail in the UK says “Also, in my

opinion, Whole Foods underestimated the UK market. Its core business - natural and organic

foods - is a category commonly found in the mainstream supermarkets and generally at a

lower price. Whole Foods' lack of differentiation, high prices and relatively limited brand

exposure are true weaknesses it needs to address.” (Jonathan Prynn and Elizabeth Hopkirk,

June 6, 2008) To ensure long- term shareholder value, management of Whole Foods Market

will have to address not only competition from major grocery retailers, a perceived

downturn in the economy and expenses due to growth and acquisition; they will have to be

certain that the business model used in the United States can be exported to other markets

successfully.

It is a bold move to publish your ‘core values’ in each store. “Is your organization so bold as

to list your core values in plain sight for your customers and risk showing the world how well

your employees do or do not deliver on your brand promise? How many of your employees

even know what your organization's core values are?” writes Rex Whisman. (Whole Foods

Brings Core Values To Life, Rex Whisman, January 24, 2008). This author would argue

against the ‘cosmetic window dressing’ argument. By posting the ‘Core Values’ for fans and

foes to read, the company ideally runs more transparently than other companies. How

many companies post their values for everyone to read, only to be criticized when they

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wander from those ideals? This open posting of company goals which include commitments

to extraordinary customer service, sustainable agriculture and empowering work

environments has to speak to a customer who feels that their dollars spent elsewhere are

not being used as wisely or responsibly.

SWOT Analysis and Porter’s Five Forces had been choose in explaining Whole Foods market

performing from a strategic perspective.

STRENGTHS WEAKNESSES

• High brand value. • Core Values that promote healthy lifestyles, high quality organic products, a positive work environment, and customer appreciation. • Product differentiation in the offering of high-quality natural products, offering a competitive advantage from other grocers. • Effective use of social media as a means of marketing.

• Lack of international expansion, other than the United Kingdom and Canada. • Dependence upon global food prices and suppliers such as United Natural Foods, Inc., which accounted for approx 27% of total WFM purchases in 2010. (Nasdaq:WFMI, 2011)• High prices and dependence on select natural suppliers.

OPPORTUNITIES THREATS

• Expansion of the Whole Foods brand image with the Health Starts Here food labels and wellness centers. • Store expansion into new domestic markets and international markets.

• Customers shifting buying preferences to lower-priced super markets. • Increased inflationary pressure on food items and uncertainty associated with availability of organic food items in the future.

Counterpoints:

Weaknesses

Whole Foods is confronting its weakness of minimal international exposure with plans to

expand more extensively into Canada and the United Kingdom over the next year. Although

the company only has plans to move further into the two international markets in which it

already stands, it is a fairly safe decision based off of their historic success in these markets.

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Threats

Other threats that Whole Foods face are those that plague all grocers, such as dependence

upon global food prices and exposure to rising food price indices, increased governmental

regulation of the food industry, the risks associated with dealing with perishable goods.

Whole Foods minimizes its risk by upholding its own standards of nutrition and food safety.

Porter’s Five Forces:

– Buyers: HIGH

Constant demand for best price, best quality.

Customers can always switch to a low-cost provider such as Kroger or Wal-

Mart.

Whole Foods customers are not extremely price sensitive and are very loyal.

Customer can always choose to trade down to cheaper, lower quality

produce. However, the Whole Foods customer is typically very loyal.

– Suppliers: HIGH

Whole Foods has a commitment to organic and naturally grown products,

narrowing the number of suppliers.

Supplier of natural and organic foods are more difficult to come by, and there

is always a chance for volatility in the prices of commodities.

– Threat of Substitutes: MEDIUM

Whole Foods offers a unique product in high quality organically grown

products and health products.

Substitutes include regular produce and inorganic products which can be

offered at a lower price.

Whole Foods differentiates itself as the industry leader in natural and organic

products

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– Threat of New Entrants: LOW

The grocery industry is dominated by major companies entrenched in the

market.

Whole Foods has successfully acquired many small organic grocers,

eliminating much competition.

– Rivalry: MEDIUM

While there is price competition from other grocery stores and Wal-Mart,

Whole Foods has a competitive advantage in that it sells a distinct product.

Whole Foods manages to avoid this by having a unique product sold at a

higher price.

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Question 3

ii. Does Whole Foods enjoy a competitive advantage over its rivals?

According to John Mackey and Walter Rob, Co-Chief Executive Officers and Jim Sud,

Executive VP, Growth and Development (December 2010, Management Presentation), they

enjoyed a competitive advantage over their rivals.

Whole Foods faces competition from grocery store chains such as Kroger, local natural foods

such as Trader Joes and Vitamin Cottage, restaurants and warehouse club membership

stores such as Costco. Below there are three of Whole Food’s publically traded grocery store

competitors:

– Kroger: Kroger is the number one leading grocery store chain in the country,

operating over 3,600 stores. Kroger also runs convenience stores under the names

Quik Stop and Kwik Shop. Kroger also has a host of private-label products that it uses

to differentiate products and to increase customer loyalty. It has also added a

private-label brand called “Organic for Everyone” that produces over 60 organic

items.

– Supervalu: It is a retail chain that acquired Albertsons in 2006, and operates 4,280

stores in 40 states. Supervalu’s sales have been falling drastically with competition

from Wal-Mart and Costco. To complete with the deep discounts offered by those

companies, Supervalu has started expanding their Save-a-lot stores which operates

as extreme value limited assortment grocery stores.

– Safeway: One of the nation’s largest food retailers, Safeway operates in the US and

in Western Canada with over 1,725 stores. Safeway also offers its own brand

products and has also been forced to add an “O Organic” line to fight with

competition from Whole Foods in the organic sector.

Relate to the competitors, Whole Foods set up their strategy which is they more focusing on

serving the special needs and tastes of buyers comprising a narrow market niche. Whole

Foods enjoyed competitive success in a specialized market niche which they be the first

organic and natural food store in United States.

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“Although the slowing economy does appear to be putting the hurt on Whole Foods, the

company's gross margin continues to put its rivals to shame”. (This Just In, Rich Smith, June

5, 2008). Whole Foods Market shows a growth trend from 2002-2005 in gross margin

percentage. Today its operations produce a gross margin percentage of 34.55%. That

number is a full 10 percentage points better than rival Kroger and almost 5 percentage

points better than Safeway. (WFMI: Competitors, Yahoo Finance, 2008) Using the data in

exhibits 9 and 10, there is stability in the net profit margin percentages during a period of

tremendous expansion, 2002-2005, meaning that growth, while fast, has been well

managed. Operating margin percentages have been fairly stable as well over the years 2002-

2005 with a dip in 2005 to 4.88%. Yahoo Finance shows current operating margin

percentages at 3.79% still ahead of Kroger’s 3.31% but lagging behind Safeway’s 4.28%.

(WFMI: Competitors, Yahoo Finance, 2008)

On April 2011, the company said that in light of increased public awareness of and FDA

hearings this week about artificial food dyes, it reminds shoppers that its strict quality

standards have prohibited artificial food colourings since the 1980s.

The Austin, Texas-headquartered Whole Foods Market said it offers products that are not

only free of artificial colourings, but also free of artificial sweeteners, preservatives,

hydrogenated fats and other prohibited additives in the company's 304 stores. "Our quality

standards prohibit artificial colours because of our deep commitment to selling the highest

quality natural and organic foods. Our shoppers rely on us to set high standards so they can

shop with peace of mind, and artificial colours are not consistent with our vision for natural

and organic food," said Joe Dickson, global quality standards coordinator (IB Staff Reporter,

2011)

Share of this Whole Foods Market (NASDAQ: WFMI, 2011), went up and touched a new 52-

week high of $66.87 on 23rd of April, 2011. The stock has been moving on the upward trend

from the past month. It proved that, Whole Foods have a great position in United States

market share. Whole Foods Market is now the world’s largest retailer of natural and organic

foods with 270 stores in North America and the United Kingdom. (Company, Whole Foods

Market website, 2008). In 2006, sales topped 5.6 billion dollars, making Whole Foods

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Market the 23rd largest Food Retailer in the United States. (SN Top 75 2007, Supermarket

News website, 2008).

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Question 3

iii. Does the company have a winning strategy?

Whole Foods Market has a proven winning strategy that has allowed them to flourish and to

grow as a business while continuing to deliver excellent financial results. This would be the

definition of a good strategy; formulate the strategy, execute the strategy, use metrics to

measure success of the strategy.

By opening stores in the United Kingdom, Whole Foods market believes that their business

model is one that can succeed throughout the world. With the lukewarm success of its first

UK location, Whole Foods Market will need to rethink its global strategy. Each country has

its own cultural and political landscape that has to be addressed before the business can be

successful in that environment.

As more mainstream grocers begin to offer natural/organic produce and meats, Whole

Foods Market will need to assure that it has a reliable supply chain to adequately supply its

current and future locations.

A premium price is paid by the consumer for the quality level of goods offered at Whole

Foods Market. They will have to address the price/value relationship if traditional grocers

begin to offer similar quality goods at prices lower than Whole Foods Market.

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Colleen P., The Motley Fool website,

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foods.aspx

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http://www.fool.com/investing/general/2008/06/05/this-just-in-upgrades-and-

downgrades.aspx

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http://www.thisismoney.co.uk/news/article.html?in_article_id=442600&in_page_id

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Html

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