Whole Foods Market

Whole Foods Market Capstone Project

NaTasha L. Mays

Sunday, June 10, 2012

Strayer University

BUS599010VA016-1124-001

Dr. Mary Hair Collins

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Abstract

This paper is a holistic analysis of Whole Foods Markets. All aspects of the company will be

discussed in an effort to illustrate the working parts of a business coming together in an effort to

build a successful and profitable company. Lastly a discussion reviewing strategic goals,

financial performance, strengths and weaknesses, pricing strategies, threats, motivational

methods and last but not least ethical behaviors in business.

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Whole Foods Market is an organic whole foods supermarket chain headquartered in Austin,

Texas. Whole Foods Supermarket came to being in 1978 at the hands of John Mackey and Rene

Lawson. It began as SaferWay, a natural foods store. In 1980 John Mackey acquired two new

partners Mark Skiles and Craig Weller. Mackey merged SaferWay with Skile’s and Weller’s

Natural Grocery store and formed Whole Foods market.

Whole Foods mission statement addresses the quality of their food but also the standards

throughout their company. Whole Foods mission statement aims to make customers and

employees aware of the present capabilities, customer focus, activities, and business makeup.

Any and all actions are driven by Whole Foods mission and core values. Whole Foods Market

has seven different core values to guide the business.

Selling the highest quality natural and organic products available

Satisfying and delighting our customers

Supporting team member happiness and excellence

Creating wealth through profits and growth

Caring about out communities and our environment

Creating ongoing win-win partnerships with our suppliers

Promoting the health of our stakeholders through healthy eating education

The mission statement summarizes the core values, it reads, Whole Food Market is a dynamic

leader in the quality food business. We are a mission-driven company that aims to set the

standards of excellence for food retailers. We are building a business in which high standards

permeate all aspects of our company. Quality is a state of mind at Whole Foods Market (Whole

Foods Market 2010). The vision statement takes the mission statement a bit further by

addressing the purpose and value of the organization. The vision statement reads, our motto

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Whole Foods, Whole People, Whole Planet emphasizes that our vision reaches far beyond just

being a food retailer. Our success in fulfilling our vision is measured by customer satisfaction,

Team Member excellence and happiness, return on capital investment, improvement in the state

of the environment, and local and larger community support (Whole Foods Market 2010). The

mission and vision statements are roadmaps as to what the company focus will be and how it will

arrive at the desired outcome whereas the core values are the building blocks.

Whole Foods Market has performed well in the organic food segment of the market.

Whole Foods performance in relation to the mission and core values encompass more than the

desire to increase revenue. Their motto is Whole Foods, Whole People, Whole Planet, with this

in mind Whole Foods goes beyond profit margins and delves into the purpose of the business and

the enthusiasm with which it conducts its business. The fiscal performance is tied directly to the

intriguing passion and purpose of Whole Foods. The excellent fiscal numbers are attained by

keeping customers happy and empowering and appreciating employees. Whole Foods Market

Inc. (NasdaqGS:WFM - News) commenced fiscal 2012 with a bang, posting better-than-

expected first-quarter 2012 results on the back of strong sales as shoppers flocked to the grocery

chain. The company has been gaining market share compared with other supermarket chains

(Zacks, 2012) As illustrated in table 1 the consolidated statement of cash flows for Whole Foods

Market shows the increase in revenue/cash flow quarter after quarter. The upward momentum

continued into the second quarter with reported sales for the quarter increasing 14% to $2.7

billion.

Employees at Whole Foods Market are enthusiastic about healthy living and utilizing

food and natural products to enhance the lifestyle. This directly contributes to living out the

mission of Whole Foods, Whole People, Whole Planet, keeping employees happy and in turn

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they produce excellent results by way of customer service and product belief. Employees are

encouraged to partake of the healthy lifestyle by being offered discounts on products. Newly

hired employees receive a 20% discount on all products offered in the store. A second layer of

encouragement and reward for employees who are living the whole healthy lifestyle is a discount

of 30% on all products sold. This demonstrates Whole Foods commitment to its mission and

vision by engaging the employees.

The strategic goals of a company are most often derived from a mission statement. The

mission statement is put into action with the creation of the strategic goals. The strategic goals

act as a roadmap, providing a clear course to reaching and achieving the desired outcomes set

forth by company management. The general business strategy for Whole Foods Market

includes; differentiation of its organic products, growth by store expansion, respecting all forms

of life, educating via public participation and an extending an invitation to join the Whole Foods

Market vision. The strategic goals are directly linked to the core values as the values serve as

building blocks for the mission, vision and strategic objectives. The association between the

core values and the strategic goals can be illustrated by linking each or several core values to one

strategic objective. There is a one to many relationship in this area, see Figure 1.

The financial performance for Whole Foods Market for the a period covering the

previous 5 years, beginning 2011 shows a steady increase in net revenues and operating income,

see Figures 2 and 3. There is an intricate interdependence between financial performance,

strategic goals and strategy. The strategies developed must encompass the available resources

required to sustain the specified strategy. Whole Foods has employed a focused growth strategy

using store expansions and acquisitions as the medium to facilitate growth. To execute this

strategy financial resources are required. Whole Foods focused on specific financial items in an

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effort to support the initiatives. The cost of new store development has been lowered, the

amount of cash on hand is substantial and income is expected in an effort to keep debt low.

(Billquist, 2011) The same financial foresight required for store expansions was used to acquire

Wild Oats. There had to be cash on hand as well as income to replenish and pay down debts.

Whole Foods has also strategized to target a specific type of market which encompasses more

affluent individuals who are better educated and are generally physically fit. This target market

allows Whole Foods to price their products a bit higher than others. With the higher pricing

Whole Foods has been able to emerge with higher profits in a struggling economy thus reporting

excellent financial results. Finally Whole Foods has engaged in a differentiation strategy. The

strategy directs Whole Foods to be highly selective about their products. This type of strategy

directly increases company revenue because Whole Foods can stipulate higher prices for their

products. It has proven to be successful with a reported company profit for the first quarter of

fiscal 2012 of $118.3 million, or 65 cents per share, up 33 percent from $88.7 million, or 51

cents per share, in the same quarter last year. (Garr, 2012)

Whole Foods is classified as the largest organic foods retail chain in the market with 317

stores. The organic food market has grown substantially in the past several years. With people

becoming more health conscious the state and health of the food they eat is a fundamental part of

healthly living. With the increase in demand for organically grown foods comes a need for an

increase in suppliers. Thompson, Strickland and Gamble (2009) states the following:

“organic farmland in the United States totaled 4.1 million acres in 2005. While only 1 percent of

U.S. farmland was certified as organic in 2005, farmers were becoming increasingly interested in

and attracted to organic farming, due to the increased process they could demand for organically

grown fruits, vegetables and meats.” (C-4)

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Farmers have struggled to keep up with the demand for organic food. The fact that only 1

percent of farmland in the US is certified as organic presents a problem for keeping up with

demand. The popularity of organic foods has also captured the attention of major supermarket

retailers, in addition low entrance barriers coupled with a fast growing market have substantially

increased new entrants attempting to acquire a piece of the organic pie. Additional competition

in the market allows consumers the ability to potentially substitute products with lower priced

ones from competitors, this poses a substantial risk to Whole Foods. Major supermarkets began

to expand their offerings of organic foods because of this Whole Foods began to have issues

finding chicken and beef suppliers to stock all of its stores. Consumers have facilitated the

growth of the organic industry beyond the specialized market it once was. With this growth the

industry has had to adapt and find new ways to keep up with the consumer need. Whole Foods

has also had to compete not just with stores of their type but mainstream supermarkets as well.

Whole Foods created and launched their own organic labeled products in an effort to persuade

the consumer to purchase these specialized products from a specialized store.

Whole Foods Market possesses several strengths that contribute to their sustained and continued

success. The reputation of Whole Foods Market is a prestigious one in the industry allowing it to

demand higher prices of the market; this presents itself as a substantial strength in relation to the

bottom line. Whole Foods has a strong private label tantamount to a high quality product that is

linked to a unique and enjoyable shopping experience with expertise knowledge of the extensive

products offered in the store. The core values set forth by the organization are respected in the

market as well as by the local community and consumers. Whole Foods is viewed as the

authority when it comes to natural/organic foods. This attracts new customers who have limited

to no knowledge about eating organic or using all natural products.

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The differentiation strategy is the most appropriate strategy to employee for Whole Foods

Market. The differentiation strategy attempts to provide a competitive advantage via a product

or service offering whose attributes differ significantly from the offerings of rivals or a set of

capabilities for delivering customer value that rivals don’t have. (Thompson, Strickland &

Gamble, 2009) Whole Foods has accomplished this by providing a shopping space that is well

lit, brightly colored displays housing fruits and vegetables; eliminating cookie cutter store

designs by designing each store according to the size a layout of the space. The only static

“rule” is that all store locations must be able to accommodate a 25,000 to 50,000 square foot

facility; enhancing seafood standards which require vendors to pass an independent third-party

audit to ensure adherence to the strict quality standards. Whole Foods further accomplishes

differentiation by the level of customer service it offers to its customers. Employees of Whole

Foods are enthusiastic and knowledgeable about the products offered, this enthusiasm becomes

contagious and in-turn influences the customers. The main differentiation aspect Whole Foods

uses is the quality of its products. The first core value is “selling the highest quality natural and

organic products available.” This core value provides a distinct competitive advantage. Whole

Foods has been touted as having the highest and most stringent quality standards in the industry.

Because Whole Foods has held fast to this strategy the return to shareholders has been

significant. The expected outcomes in response to the strategy are; a focused loyal customer

base whose needs are continuously met and exceeded, on or above target financial results,

growth and retained and happy employees and customers.

An acquisition is an appropriate action when the following elements are present; the

desire to grow a business at a fast pace, to create presence in an area where the entity does not

exist, to eradicate some or all direct competition and to increase sales and revenue. An

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acquisition makes sense if first the company being acquired meets certain financial criteria and it

is determine to be valuable. Whole Foods over the years has acquired various smaller natural

and organic food stores in the industry. This action proved successful as the company was

names one of the 500 Fastest-Growing Private Companies in America. The targeting of Wild

Oats presented an opportunity for Whole Foods to eliminate competition in the market. Wild

Oats stores were located in geographic areas which would allow Whole Foods to enter ten to

fifteen new markets, where they had no presence. The acquisition also presented a boost to

Whole Foods financials, raising stock prices and increasing sales. Whole Foods began to acquire

stores in 1991, by 2005 they owned stores all across the country. This richly increased their

presence and allowed them to provide a wider and enhanced selection. Market conditions should

be conducive when aggressively acquiring companies. The markets in which Whole Foods

acquired smaller businesses had minimal competition outside of the target companies.

As the leader of Whole Foods Market it would be appropriate to reward employees for

the remarkable success the company has experienced. Net income for the upscale natural-foods

grocer’s fiscal fourth-quarter 2010 totaled $57.5 million, or 33 cents a share. Analysts had

expected the grocer to earn 28 cents, according to a FactSet Research survey. Sales rose 15% to

$2.1 billion. (Andrejczak, 2010) Whole Foods earned $75.5 million, or 42 cents a share, for the

quarter ended Sept. 25, 2011 (Andrejczak, 2011) The company's profit for the first quarter of its

fiscal 2012 was $118.3 million, or 65 cents per share, up 33 percent from $88.7 million, or 51

cents per share, in the same quarter last year. (Gaar, 2012) With these types of financial results it

is only fair that the employees, team members reap the benefits of their hard work. According to

Thomas, Strickland and Gamble the use of incentives and rewards is the single most powerful

tool management has to win strong employee commitment to diligent, competent strategy

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execution and operating excellence. (Thomas, Strickland & Gamble, 2009) An appropriate

reward structure should link performance targets to every department and team member in the

organization. The reward structure would be a minimum of 12 percent of base salaries for all

employees not just management. The percentage could increase based on the financial

performance of the company. Managers and above would have the same incentive program but

with additional or varied performance standards as well as a higher percentage payout than

individual contributors. The performance standards would follow the SMART goal model in

that they would be specific, measurable, attainable, realistic and timely. Performance standards

will be crafted for each operational group in an effort to allow them to have direct impact on the

success of the assigned standard. Incentive payments would be paid out in February for the

previous year performance results. This incentive plan will encourage all employees to put forth

their very best effort in an attempt to meet and or exceed strategic goals. The reward system is

based on the quality of results that are achieved. The minimum percentage payout is in line with

the financial results reported for the previous three years including results from Q2, 2012. Once

the plan is developed all employees will be sent a letter detailing their level within the company,

the strategic objectives they are responsible for as well as the percentage payout expected for

their position. Monetary rewards would not be the sole method by which to reward employees.

Employee of the quarter nominations will be used as a vehicle to recognize employees that

consistently go above and beyond in their functional areas. A peer recognition program will be

enacted. This program will allow individual contributors to nominate their peers for a company

award for doing a good job and going above and beyond. Discounts on products and services

would also be provided in an effort to encourage employees to engage in a healthy lifestyle

which is part of the company core values.

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The company’s current strategies support ethical business behaviors because the chosen

strategies overlap company and community goals. These overlaps prove to create a competitive

advantage. Whole Foods leaders recognize that society impacts the competitive environment in

which companies do business. Society provides the team members, set the rules and regulations

by which businesses operate, drives the demand for company products and services and provides

the basic roads, telecommunications, water supply and electricity with which to operate.

(Thomas, Strickland & Gamble, 2009) Whole Foods is committed to doing business in an

ethical and legal manner therefore, the ethical climate at Whole Foods supports doing the right

thing due to its social responsibility, staffing structure and quality standards. The ethical climate

at Whole Foods is clear and concise. Whole Foods has developed documents, charters polices

and process to facilitate an ethical environment. Efforts to employ an ethical strategy and

observe ethical principles in operating business are in direct concert with being a good corporate

citizen and being engaged in socially responsible business behavior. Whole Foods has made

charitable contributions and donated time team member time for community service endeavors.

(Thomas, Strickland & Gamble, 2009) Whole Foods take serious its responsibility to be an

active participants in all local communities in which it operates. Whole Foods donates a

minimum of 5 percent of its profits every year to various community organizations. (Whole

Foods, 2012) Whole Foods further supports ethical business behaviors by taking actions to

enhance employee well-being and make the company a great place to work. (Thomas,

Strickland & Gamble, 2009) Whole Foods supports team member happiness and excellence by

rewarding effort and results, creating an environment where motivated team members can do

well and reach their highest potential, the structure of the work unit within Whole Foods is one

of self-directed teams, information that may be potentially impacting to team member jobs is

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readily available all compensation information is available for review and leveraging the

diversity of team member ideas in an effort to produce creativity and receive multiple

contributions which drives innovation. Quality standards at Whole Foods play an enormous role

in supporting ethical business behaviors. Quality can be viewed as the cornerstone of ethical

business behaviors. Quality is all about the value a product has in relation to other contending

products. When consumers spend money on products they expect that they are receiving the best

value for their money. Whole Foods ensures this by adhering to high standards and aims to

provide the highest quality products to its customers by evaluating the ingredients for freshness,

safety, taste, appearance and nutritive value.

All in all Whole Foods Market appears to be a progressive and stable company with

aggressive growth plans for the future. Extensive effort has been exerted in planning and

execution of all of aspects of the business. Whole Foods has to capitalize on its individual

strengths and opportunities to sustain its edge in the marketplace. Currently, they are classified

as the number one organic food retailer in the United States. John Mackey’s vision for Whole

Foods Market to be the international brand known for being the best retailer of natural and

organic foods has come to fruition through the careful execution of vision, mission, core values

and strategy.

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References

Zacks, E. R. (2012, May 3). Whole foods posts healthy 2q. Retrieved from

http://finance.yahoo.com/news/Whole-Foods-Healthy-zacks-1176500019.html

Texas-based Whole Foods again one of 'best' places to work.” Anonymous.

The Colorado Springs Business Journal. Colorado Springs:Jan 30, 2009

Billquist, A. (2011, September 26). Growth strategy of whole foods and kroger. Retrieved from

http://www.augustbillquist.com/2011/09/26/growth-strategy-of-whole-foods-and-kroger/

Thompson, A., Strickland, A. J., & Gamble, J. (2009). Crafting & executing strategy. New York,

NY: McGraw-Hill Larning Solutions.

Andrejczak, M. (2010, November 3). Whole foods profit up 58%; shares gain. Retrieved from

http://articles.marketwatch.com/2010-11-03/industries/30693961_1_executive-john-

mackey-shares-food-retailers

Gaar, B. (2012, Feburary 8). Whole foods posts highest-ever quarterly profit, plans to keep

growing. Retrieved from http://www.statesman.com/business/whole-foods-posts-highest-

ever-quarterly-profit-plans-2160646.html

Whole foods market. (2012). Retrieved from http://www.wholefoodsmarket.com/

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Table 1

Figure 1

Core Value Strategic Objective

Selling the highest quality natural and organic

products available

Differentiation of its organic

products

Satisfying and delighting our customers Respecting all forms of life

Supporting team member happiness and

excellence

Respecting all forms of life

Creating wealth through profits and growth Growth by store expansion

Creating ongoing win-win partnerships with our

suppliers

Differentiation of its organic

products

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Promoting the health of our stakeholders through

healthy eating education

Respecting all forms of life

Educating via public participation

and an extending an invitation to

join the Whole Foods Market

vision.

Caring about out communities and our

environment

Respecting all forms of life

Educating via public participation

and an extending an invitation to

join the Whole Foods Market

vision.

Figure 2

Operating Income for previous 5 years

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Figure 3

Net Revenue for previous five years