Whole Foods Market in London

Download Whole Foods Market in London

Post on 11-Jul-2016




3 download

Embed Size (px)


  • Case Study Whole Foods Market in London


    Case Study Whole Foods Market in London

    On June 4, 2007, John Mackey, founder and CEO of Whole Foods Market, looked out the airplane window headed towards London with a mixture of eagerness and anxiety. Reviewing his notes, he pondered this critical moment: 48 hours until the debut of the first Whole Foods Market in London. Over the past few decades, Mackey saw his unique concept of an organic supermarket chain transform the food retail industry in North America. Whole Foods Market led the organic craze sweeping the continent and reaped high profits as a result. By 2007, Whole Foods was the leader of the industry and a symbol of high quality and healthy living. Mackey aspired to expand the chain beyond its continental borders. Mackey looked towards global expansion and identified London as an attractive market opportunity. Now headed for the opening of the 80,000 square foot outlet in Kensington neighborhood, Mackeys mind was filled with doubts. Would British consumers accept or reject the Whole Foods Market experience in comparison to established UK competitors? Would a successful opening bring opportunities for more stores and supplier relationships? Would the UK be the end of European expansion? These questions remained unclear as Mackey sat patiently, debating the future of his beloved company. Whole Foods Market History From its humble beginnings to its status as market leader, Whole Foods Market had taken an unconventional path in food retailing. Texans John Mackey and girlfriend Renee Lawson opened the small natural foods store SaferWay in 1978 as a part of a hippie college dream, later merging with Clarkson Natural Grocery. The first official Whole Foods Market opened in September 1980 in Austin, Texas. At the time, the natural foods industry in the United States was virtually none existent with less than a half dozen competitors. With 19 employees and 12,500 square feet of store space, Whole Foods Market was larger than industry standards from the beginning.

    This case was written for ESADE Business School by exchange student Elizabeth Yurkevicz under the supervision of Associate Professor Josep Franch and it is entirely based on published sources. The authors developed this case for class discussion rather than to illustrate either effective or ineffective handling of the situation. 2007 ESADE Business School. Last revision 2012.

  • Case Study Whole Foods Market in London


    Whole Foods Market grew via mergers and acquisitions of local natural food stores around the country (see Exhibit 1 for full history of acquisitions). The companys expansion plans were focused on strategic regional locations around major metropolitan and urban areas. Whole Foods Market expanded internationally in 2002 with the opening of a store in Toronto (Canada). In 2003, Whole Foods Market became North Americas first certified organic grocer. Whole Foods Market in 2007 Whole Foods Market had grown to become the worlds leader in natural and organic food retailing. In 2006, Whole Foods Market earned $203.8 million in profits on sales of $5.6 billion (see Exhibits 2 and 3), becoming the 4th largest US supermarket chain and the 5th most valued US public retailer. With 196 stores across North America (see Exhibits 4 and 5 for detail of store locations), each store averaged 34,000 square feet in size and $31 million in annual sales. For the past ten years, Whole Foods Market had also placed in the top 50 of Fortunes 100 Best Companies to Work For, most notably ranking #5 in 2007. Mackey expected to reach $12 billion in sales by 2010, by adding 25-30 new locations each year. The Whole Vision From the start, Whole Foods Market had been driven by one mission, defined by its slogan: Whole Foods, Whole People, Whole Planet. The company was committed to selling the highest quality products from local and international suppliers. Whole Foods Market believed food in its purest state was the most nutritious and most flavorful. Whole Foods Market maintained strict standards which certified organic quality, defined as:

    Carefully evaluating each and every product. Featuring foods that were free of artificial preservatives, colors, flavors, sweeteners, and

    hydrogenated fats. Being passionate about great tasting food and the pleasure of sharing it with others. Being committed to foods that are fresh, wholesome and safe to eat. Seeking out and promoting organically grown foods. Providing food and nutritional products that supported health and well-being.

    Whole Foods Market offered a wide variety of natural products and services to fulfill this philosophy. Their product categories encompassed grocery, bakery, body care, floral, household items, meat and poultry, nutritional supplements, pet products, prepared foods, produce, seafood, specialty (beer, wine, and cheese), coffee, textiles, and services such as catering and cooking instructions. They featured private-label brand lines such as 365 Everyday Value, 365 Organic, and Whole Foods Premium (see Exhibit 6). Private labels made up 1,900 SKUs at Whole Foods

  • Case Study Whole Foods Market in London


    Market stores and accounted for 17% of grocery and whole body sales. Each store focused on perishable foods, which accounted for two thirds of annual sales. Whole Foods Market was dedicated to forming lasting relationships with their 42,000 employees or team members. The company recognized team members were key to success and thus, promoted mostly from within the company. No executive could earn more than 14 times the employee average. Recently, Mackey cut his annual salary to $1, claiming that he earned enough money. In addition to fair wage practices, employees were offered stock options, purchase plans, and educational seminars on nutrition and health. Employees were encouraged to meet regularly in self-directed teams and were paid to volunteer in their free time. Finally, Whole Foods Market was committed to making the world a better place by supporting sustainable agriculture and local communities. They strove to eliminate the use of pesticides, maintained fair treatment of wildlife, and practiced recycling. Not only a third of Whole Foods Markets stores composted their waste, but many used solar power and recycled materials for store layouts. The company had created charities such as the Animal Compassion Foundation and the Whole Planet Foundation, for providing funding to impoverished countries and animal welfare. Whole Foods Market supported the local communities around each store by getting involved in food banks, volunteer organizations, and neighborhood events. Whole Foods Market contributed 5% of their total profits to non-profit organizations each year. Purchasing and Distribution Whole Foods Market bought products from a combination of local, regional, and international wholesale vendors, specializing in reputable small-scale suppliers. All suppliers were subject to quality-driven, organic standards. Whole Foods Markets own distribution empire in North America included 9 regional distribution centers, 11 bake house facilities, commissary kitchens, 3 seafood processing facilities, produce procurement centers, a national meat purchasing office, and a specialty coffee procurement and roasting facility. Positioning and Marketing Whole Foods Market had been one of the first niche players in the organic foods industry. A focus on perishable, local foods had allowed Whole Foods Market to differentiate stores from conventional supermarkets and to attract a broader customer base, according to the corporate annual report. Whole Foods Market justified quality with a premium pricing strategy, selling their products at prices 35% higher than conventional supermarkets. The company supported higher prices with aspirational positioning, as consumers were willing to pay a premium for healthful, organic products and unparalleled customer service. Premium pricing combined with

  • Case Study Whole Foods Market in London


    massive corporate expansion led to negative nicknames such as Whole Checkbook and the Wal-Mart of wheat-germ, according to an article published at The Observer. On the positive side, Whole Foods Market positioned itself as a lifestyle brand and as more than just food. Along with the companys mission-driven values, each Whole Foods Market store had a neighborhood feel that aimed to create a third place between home and office, where consumers could feel comfortable shopping and sharing food. North American stores were located in major shopping centers in upscale suburban and urban locations, where consumers could afford to pay for quality luxury goods. Going to a Whole Foods Market store was an experience in itself with soft lighting and an attentive staff (see Exhibit 7). Upon entering, consumers were astounded by the colorful array of fresh produce, informative displays, free samples of new products, and delicious smells wafting from a live kitchen. Whole Foods Market went beyond the limits of a normal supermarket by offering a talking store in which consumers could learn about organic foods and environmental issues through interactive brochures, weekly cooking classes, and themed food festivals. Because the appeal of Whole Foods Market came from the in-store experience, Whole Foods Market spent less on traditional advertising than other chains. They allocated 0.4% of total revenues to the annual marketing budget. To generate buzz and excitement in communities where new stores opened, Whole Foods Market focused its marketing budget on local advertising and publicity for store openings. Whole Foods Market also spent on nation-wide public relations campaigns to maintain a socially responsible image. In-store marketing included signage and special events such as fairs, product samples, classes, and tours. To raise brand awareness outside of stores, Whole Foods relied on word-of-mouth recommendations and customer testimonials from in-store experiences. Whole Foods Market aspired to continue high growth in spite of market leadership. Their ultimate goal was to become an international brand synonymous with not just natural and organic foods, but also with being the best food retailer in every community in which we are located, as stated in the annual report. An Eye for Britain As the company grew larger in North America, executives searched for opportunities in new markets. Whole Foods Market expressed interest in the British market with their purchase of the UK natural food chain Fresh & Wild in January 2004, comprised of 7 stores, a central kitchen, and warehouses. The chain was popular in London due to its friendly and informative style of retailing. Critics believed Whole Foods Market acquired this company to obtain a firsthand glimpse into the British market and test the water before opening a main outlet. The chain had succeeded due to a large base of loyal customers and a reputable brand image in the UK.

  • Case Study Whole Foods Market in London


    The British market for organic foods had become more attractive in the past decade. Similar to the US, organic food was the fastest growing sector in food retailing. The UK market for natural foods had grown by 50% in the past 4 years as consumers became more health conscious and globally aware. Recent food scares, such as mad cow, salmonella, and bird flu, had led to higher concern with food safety ethics (see Exhibit 8). The organic craze was spearheaded by Prince Charles, who advocated natural farming methods and a ban on genetically modified foods. Mintel estimated that by 2011, the UKs organic and natural food market would be worth more than $3.8 billion. The British government supported the organic movement by aspiring for 70% of domestically sold organic food to be produced within the UK by 2010, as published in the New Statesman. Competitive Landscape in the United Kingdom The European food retail market was dominated by European players (see Exhibit 9) and some of its trends were somewhat different from the trends observed in the United States (see Exhibit 10). The UKs food retail industry was the second largest market in Europe after France (see Exhibit 11), claiming 19.4% of the total European industry value and a growth above 3% (see Exhibit 12). Supermarkets accounted for two thirds of the UK food retail market, making this the preferred retail channel for selling food (see Exhibit 13). However, other retail forms, such as convenience stores, had gained popularity due to governmental restrictions on land use by major chains. Another important aspect of the UK food retail industry was the proliferation of private label products by food chains. The penetration of store brand products in the UK was the highest in Europe, according to Datamonitor. All the major supermarket chains offered their own premium, health, and childrens line of private products (see Exhibit 14) to adapt to increased consumer interest in cooking and food preparation. Despite attempts, major chains had struggled with organic lines due to fragmented suppliers and difficulties in maintaining organic standards. Instead of starting from scratch, stores had acquired niche brands that served the organic market. Other trends included an increase in fair trade offerings and expansion into non-food concept stores. The UK supermarket industry was extremely competitive and concentrated, with the four major grocery chains Tesco, ASDA, Sainsburys, and Morrison. In 2007, these four major players controlled 75% of the domestic market worth 125 billion pounds, equivalent to $246 billion. Reports noted that 90% of the urban population in Britain had access to three or more large supermarkets within 20 minutes of driving. Even the UK was not the most concentrated market in Europe (see Exhibit 15), the dominance of such major players had come under the question of governmental authorities. All four chains were being investigated for the third time in six years

  • Case Study Whole Foods Market in London


    by a Competition Commission after complaints from local farmers and independent grocers of monopolistic practices, such as predatory pricing and eliminating smaller competitors (see Exhibits 16 to 18). According to an article published in The Glasgow Herald, consumers have to start talking about a moratorium on changing laws so that local communities can stop supermarkets. As it is, if we keep going in the direction we are headed in, we're going to end up with the retail equivalent of a one-party state

    Tesco As Europes second largest food retailer (see Exhibit 19), Tesco led the UK market with a 30% share of the UK grocery market and $83 billion (43 billion GBP) in worldwide profits. The companys 2,318 locations dominated in two-thirds of UKs postal code areas and had a higher market share than ASDA and Sainsb...