whole foods market inc. swot analysis

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COMPANY PROFILE Whole Foods Market, Inc. REFERENCE CODE: BD72666B-7DBD-4CB9-A94F-4FDC7997ECA7 PUBLICATION DATE: 30 Jun 2014 www.marketline.com COPYRIGHT MARKETLINE.THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED.

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Page 1: Whole Foods Market Inc. SWOT Analysis

COMPANY PROFILE

Whole Foods Market, Inc.

REFERENCE CODE: BD72666B-7DBD-4CB9-A94F-4FDC7997ECA7PUBLICATION DATE: 30 Jun 2014www.marketline.comCOPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED.

Page 2: Whole Foods Market Inc. SWOT Analysis

TABLE OF CONTENTS

Company Overview..............................................................................................3

Key Facts...............................................................................................................3

SWOT Analysis.....................................................................................................4

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Whole Foods Market, Inc.TABLE OF CONTENTS

Page 3: Whole Foods Market Inc. SWOT Analysis

COMPANY OVERVIEW

Whole Foods Market, Inc. (Whole Foods Market or ‘the company’) is a natural and organic foodssupermarket chain that operates through its consolidated subsidiaries.The company's supermarketsare located in the US, Canada and the UK. It is headquartered in Austin, Texas and employed about78,400 people as of September 29, 2013, of whom 18,500 were part-time employees and 3,200were seasonal employees.

The company recorded revenues of $12,917 million in the financial year ended September 2013(FY2013), an increase of 10.4% over FY2012.The operating profit of the company was $883 millionin FY2013, an increase of 18.7% over FY2012.The net profit was $551 million in FY2013, an increaseof 18.2% over FY2012.

FY2013 was a 52-week period whereas FY2012 was a 53-week period.

KEY FACTS

Whole Foods Market, Inc.Head Office550 Bowie StreetAustinTexas 78703USA

1 512 477 4455Phone

Fax

http://www.wholefoodsmarket.comWeb Address

12,917.0Revenue / turnover(USD Mn)

SeptemberFinancial Year End

78,400Employees

WFMNASDAQ GlobalSelect Ticker

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Whole Foods Market, Inc.Company Overview

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SWOT ANALYSIS

Whole Foods Market is a natural and organic foods supermarket chain that operates through itsconsolidated subsidiaries. The company offers a broad and differentiated product selection with astrong emphasis on perishable foods designed to appeal to both natural and organic food andgourmet shoppers. An extensive product offering allows the company to address multiple customersegments. However, intense competition could erode the company’s market share and affect itsmargins.

WeaknessesStrengths

Product recallsBroad product offeringsWeak international presenceFocused growth strategyIncreasing rental expenses

ThreatsOpportunities

Intense competitionIncreasing demand for organic productsStringent regulationsIncreasing popularity of private labels

Growing pet spending in the US

Strengths

Broad product offerings

Whole Foods Market offers a broad and differentiated product selection with a strong emphasis onperishable foods designed to appeal to both natural and organic food and gourmet shoppers. Itsproduct selection in all of its stores includes produce, seafood, grocery, meat and poultry, bakery,prepared foods and catering, specialty (beer, wine and cheese), coffee and tea, nutritionalsupplements, vitamins, body care, lifestyle products such as books, floral items, pet products andhousehold products. In its stores, it stocks a large selection of organic food and non-food products.These stores also feature catering departments, where customers can purchase made-to-orderfoods. Moreover, the company's emphasis on fresh food provides it with a competitive edge overits peers offering only packaged foods. An extensive product offering allows the company to addressmultiple customer segments, apart from insulating it from any significant fall in demand for anyspecific product or segment and also enables it to retain its customer base besides attracting newcustomers to its stores.

Focused growth strategy

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Whole Foods Market focuses on expansion, primarily through new store openings in existing tradeareas as well as new areas, including international locations. In the first quarter of FY2013, thecompany opened stores in three different countries. It purchased six stores in the Boston area, whichwere all remodeled and re-opened by year end. This helped the company to revitalize its brand inone of its oldest markets. In addition, Whole Foods Market opened a store in Detroit, providing freshfood to an underserved community. In total, during FY2013 and FY2012, the company opened 26and 25 new stores, respectively. The company plans to open 33 to 38 new stores in FY2014.

The company's strategy to grow through identical store sales growth, acquisitions and new storeopenings has enabled it to grow at a significant growth rate in the past. Since the natural foodsretailing industry is highly fragmented and comprises many small local and regional chains, growththrough store expansion provides the company access to desirable markets, apart from enabling itto expand its reach to a wide customer base and diversify its revenue streams.

Weaknesses

Product recalls

Whole Foods Market has been recalling several products in the recent years. For instance, in May2014, the company recalled Thai Soba Noodle Salad sold in all stores in five states due to anundeclared soy allergen. In April 2014, Whole Foods Market’s Northern California region recalledits Chipotle Chicken Wrap because it contained an undeclared allergen. The wrap, labeled as‘Chipotle Chicken Wrap’, was filled with a Chicken Caesar wrap mix, which contains a fish allergen(anchovies) not declared on the Chipotle Chicken Wrap label. In February 2014, the company’sMid-Atlantic region recalled its Tom Yom Soup because it contained milk, an undeclared allergen.Earlier, in July 2013, Whole Foods Market recalled Crave Brothers Les Freres cheese in responseto a recall by the Crave Brothers Farmstead Cheese Company of Waterloo, Wisconsin, due to apossible contamination with Listeria Monocytogenes. In the same month, the company recalled TroisComtois Morbier cheese in the Mid Atlantic, Southwest, Northern California, Southern Pacific andMidwest regions, due to a possible contamination with Listeria Monocytogenes. In May 2013, WholeFoods Market recalled bulk curried chicken salad and bulk vegan curried chick'n salad due to potentialpresence of undeclared soy and egg allergens. In January 2013, the company recalled one lot codeof Whole Catch Wild Alaskan Sockeye Salmon, cold smoked and sliced, due to a possiblecontamination with Listeria Monocytogenes. The product was sold in stores in 12 states.

Such recurrent product recalls affect the brand image of the company, which, in turn, leads to lowcustomer loyalty and brand equity.

Weak international presence

The company has weak international presence with just eight stores in Canada and seven stores inthe UK. Canada and the UK accounted for only 3.3% of the total revenues in FY2013. Though thecompany intends to open new stores in the UK and Canada, its operations in these markets are not

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large enough to derive economies of scale in purchasing and distribution, resulting in relatively highproduct prices.The higher prices erode the competitiveness of the company relative to its establishedinternational rivals, who have larger scale of operations and, therefore, leaner economics. In acompetitive environment, high dependence on few markets not only exposes Whole Foods Marketto the vulnerability of local market conditions but also limits the growth opportunities. Besides, thecompany is deprived of the economies of scale and benefits which its competitors realize becauseof their global operations.

Increasing rental expenses

Whole Foods Market has obligations under certain capital leases for rental of equipment and certainoperating leases for rental of facilities and equipment. Therefore, the change in rental expensescharged under operating leases affects the company’s business. In the recent years, the company'srental expenses have increased significantly. Rental expense charged to operations under operatingleases for FY2013, FY2012 and FY2011 totaled approximately $374 million, $353 million and $322million, respectively. Increasing rental expenses affect the company's profitability and consequentlyhave a material adverse impact on margins.

Opportunities

Increasing demand for organic products

The demand for natural and organic foods has increased over the years due to rising awarenessabout the importance of natural foods in the diets. According to industry estimates, the US organicfood sales were $28 billion in 2012, an increase of 11% from 2011. Particularly, produce (fruits andvegetables) and dairy were the top two organic food categories which accounted for 43% and 15%of total organic sales, respectively, in 2012. This growth trend is expected to continue. In a lateststudy undertaken by an industry source, nearly 80% US families reported that they purchase organicat least sometimes. With parents focusing on providing healthier food options to their children, therehas been an increase in the frequency of purchases of organic foods in the country. Furthermore,the awareness of the USDA Organic seal is also contributing to such a surge in sales.With consumerslooking for the seal when shopping for organic products, the study indicated that the trust in organicproducts has increased. As per the industry estimates, total sales of organic products in the US willexceed $35 billion in 2014.

Whole Foods Market offers natural and organic foods for special dietary needs in the US. Thecompany is well positioned to benefit from the expanding organic foods market and improve itsmarket share. This would enhance the company's revenue base in a lucrative and stable growthpotential market.

Increasing popularity of private labels

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Demand for private label products has been growing in the US since last few years. These productsprovide customers with an attractive alternative to higher-priced national brands. Instead of buyingexpensive brands, consumers across the industry are turning to generic and private label products.Even upper-income shoppers are more willing to buy generic, which has traditionally appealed moreto shoppers with limited budgets. According to industry sources, among all major US retail channels,private label sales increased by approximately 3% to reach nearly $109 billion in 2012. Since 2009,annual growth of store brands sales has averaged approximately 5%, compared to national brandssales annual growth of approximately 2%.

The company offers more than 2,600 products under its store brands such as Whole Foods Market,365 Everyday Value and Whole Catch. It also offers specialty and organic coffee, tea and drinkingchocolates through its subsidiary Allegro Coffee Company. In FY2013, the company’s exclusivebrands accounted for approximately 16% of its non-perishable sales and approximately 12% of itstotal retail sales. Increasing popularity of private label products among consumers and the company'semphasis on enhancing its value offerings is expected to have a favorable impact on the company'ssales and profit margins.

Growing pet spending in the US

The US pet industry, considered to be one of the largest in the world, has been growing at a strongpace. According to a survey conducted by an industry association, about 68% of the US householdsown a pet, which is equivalent to approximately 82.5 million households. According to industryestimates, pet spending in the US increased about 4.5% to exceed $55 billion in 2013. Pet foodcategory recorded the highest growth in spending and it accounted for approximately 39% of theoverall market in 2013. Furthermore, the pet industry expenditure in the US is forecast to increaseby about 5% in 2014.

Whole Foods Market provides a variety of choices to pet owners regarding different feedingphilosophies. The company also offers products for pets with specific dietary needs, preferencesand sensitivities. The company’s pet product offering ranges from natural and organic to grain orgluten-free diets to special formulas for weight control, joint support, and urinary tract health.Furthermore, Whole Foods Market has been strengthening its product offering in the pet segmentin the recent times. For instance, in October 2013, the company introduced Whole Paws, a line ofpremium value pet food. This product line features 24 products for dogs and cats, including itemsranging from grain-free adult dog food and training treats to indoor cat formula and litter with bakingsoda. Therefore, Whole Foods Market is well positioned to capitalize on the growing pet spendingin the US.

Threats

Intense competition

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Food retailing is a large, intensely competitive industry. Whole Foods Market competes with local,regional, national and international conventional and specialty supermarkets, natural foods stores,warehouse membership clubs, smaller specialty stores, farmers' markets, and restaurants. Each ofthese competes with the company on the basis of product selection, quality, customer service, priceor a combination of these factors. Most supermarkets offer at least a limited selection of theseproducts, while some have chosen to expand their selection more aggressively. The company’s keycompetitors include Safeway, The Kroger Co., Trader Joe's Company, Sprouts Farmers Market,Weis Markets, Winn-Dixie Stores, Wal-Mart Stores and Arden Group. Some of these competitorshave significantly larger and have substantially greater resources than the company. For instance,Safeway generated revenues of $36,139.1 million in the financial year ended December 2013, whileThe Kroger Co. generated revenues of $98,375 million in the financial year ended January 2014. Incomparison, the company generated revenues of $12,917 million in FY2013. High level of competitioncould erode the company’s market share and affect its margins.

Stringent regulations

As the company operates in the natural and organic foods market, its stores and products are subjectto several laws and regulations relating to health, sanitation and food labeling. The company is alsorequired to comply with provisions regulating licensing for beer and wine or other alcoholic beveragesin many stores. Several federal agencies and departments, including the Food and Drug Administration(FDA), the Federal Trade Commission (FTC), the Consumer Product Safety Commission (CPSC),USDA and the Environmental Protection Agency (EPA) set critical standards for the manufacturing,processing, formulation, packaging, labeling and advertising of products. Failure to comply withthese standards could result in penalties and seizure of marketing and sales licenses. Theseregulations also result in additional compliance costs, which could reflect in reduced margins.

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