Whole Foods MarketWhole Foods Market Case Study Case Study

By: Dan McLindonBy: Dan McLindon

Kyle McDanielKyle McDaniel

Jeremy SmileyJeremy Smiley

Tom AndersonTom Anderson

Ray MoormanRay Moorman

Whole Foods Whole Foods Key QuestionKey Question

Can Whole Foods remain competitive in Can Whole Foods remain competitive in

face of major changes in the competitive face of major changes in the competitive

environment?environment?

Overview of Whole FoodsOverview of Whole FoodsFoundedFounded 19801980

VisionVision Create an international brand , change the Create an international brand , change the whole diet of consumers for the better, whole diet of consumers for the better, pace setter in the industry, be the best in pace setter in the industry, be the best in food retailfood retail

Brand ValuesBrand Values Natural & Organic FoodsNatural & Organic Foods

Competitive PositionCompetitive Position Premium Products at a Premium Premium Products at a Premium PricePrice

Source of DifferentiationSource of Differentiation Best Quality, least processed, Best Quality, least processed, most flavorful, naturally preservedmost flavorful, naturally preserved

Status in 2008Status in 2008 275 stores, 3 countries, $6.6bn in 275 stores, 3 countries, $6.6bn in revenuerevenue

Corporate ObjectiveCorporate Objective 400 stores, $12bn in revenue400 stores, $12bn in revenue

What is changing in the What is changing in the external environment?external environment?

PEST Analysis for Whole FoodsPEST Analysis for Whole FoodsCategoryCategory IssueIssue Threats/Threats/

OpportunitiesOpportunitiesRanking (1-5)Ranking (1-5)

PoliticalPolitical 4 tier class 4 tier class system i.e. system i.e. Organic Organic DefinitionsDefinitions

OpportunityOpportunity 1 or 21 or 2

EconomicEconomic 2008 Economy 2008 Economy SoursSours

ThreatThreat 55

SocialSocial More health & More health & environmentally environmentally conscious conscious population.population.

OpportunityOpportunity 4 or 54 or 5

TechnologicalTechnological

What are the changes in What are the changes in demand? demand?

Overview of the MarketOverview of the MarketTotal Food RetailTotal Food Retail $850bn$850bn

Natural & Organic RetailNatural & Organic Retail $62bn (7.3%) – niche market$62bn (7.3%) – niche market

Growth RateGrowth Rate Growth slowed since 2000 (7-9%)Growth slowed since 2000 (7-9%)

Organic $17bn (1/3 of natural foods)Organic $17bn (1/3 of natural foods)

Key Items PurchasedKey Items Purchased Fresh fruit &vegetables – 73% Fresh fruit &vegetables – 73% (largest category)(largest category)

Big growth is processed itemsBig growth is processed items

3 Key Barriers for Consumers3 Key Barriers for Consumers Prices of organic foods – likely to Prices of organic foods – likely to decline as competition/supply decline as competition/supply increasesincreases

Lack of availability – more supply in Lack of availability – more supply in the futurethe future

Brand loyalty to natural & organic Brand loyalty to natural & organic foodsfoods

Porter’s Five ForcesPorter’s Five Forces

Heating Up

Cool To Warm

Porter’s 5 Forces – Whole Foods MarketPorter’s 5 Forces – Whole Foods Market

Whole Foods AnswerWhole Foods Answer

Changes in the Competitive Landscape Changes in the Competitive Landscape Should they really welcome competition?Should they really welcome competition?

Local, regional, independent, national, and specialty Local, regional, independent, national, and specialty stores are all competitors.stores are all competitors.

CEO say it is a gateway for customers to try CEO say it is a gateway for customers to try natural/organic foods or opportunity for the natural/organic foods or opportunity for the competition?competition?

Take a look at Store Sales GrowthTake a look at Store Sales Growth

Sales growth has been cut in half since 2004!Sales growth has been cut in half since 2004!

2004 2005 2006 2007 2008

14.9% 12.8% 11.0% 7.1% ???

Changes in the Competitive Changes in the Competitive LandscapeLandscape

We may be seeing a revolution in the food retailing We may be seeing a revolution in the food retailing business.business.

Supercenters – Marketplaces – Wholesale ClubsSupercenters – Marketplaces – Wholesale Clubs

Will the competition force Whole Foods to rethink Will the competition force Whole Foods to rethink their strategy?their strategy?

2006 US Grocery Sales # of StoresRevenue in Billions $

Conventional Retailers

25% 5812 $377

Whole Foods 0.7% 188 $5.6

What is Whole Foods Strategy?What is Whole Foods Strategy?

MarketingMarketing GrowthGrowth OperationalOperational

Marketing StrategyMarketing Strategy ProductProduct

High Quality Natural and Organic Food and High Quality Natural and Organic Food and nonfood itemsnonfood items

Offerings vary based on store size and tastes of Offerings vary based on store size and tastes of local clientelelocal clientele

Exotic offerings and product varietyExotic offerings and product variety Ex) Japanese eggplant, 40 cheeses, 20 coffeesEx) Japanese eggplant, 40 cheeses, 20 coffees

Private label productsPrivate label products Emphasis on perishables (fruits/veg., bakery Emphasis on perishables (fruits/veg., bakery

goods, meat, seafood) – 67 % of salesgoods, meat, seafood) – 67 % of sales

Marketing StrategyMarketing Strategy PricePrice

Goal is competitive price at highest qualityGoal is competitive price at highest quality Organic foods are 25 – 75% more costly to Organic foods are 25 – 75% more costly to

grow and marketgrow and market Price and Quality are competing forcesPrice and Quality are competing forces

Whole Foods chooses to focus on Quality, Whole Foods chooses to focus on Quality, therefore prices are higher than conventional therefore prices are higher than conventional grocersgrocers

Marketing StrategyMarketing Strategy PlacePlace

No standard store design. Layout No standard store design. Layout customized for site and product mix.customized for site and product mix.

Colorful, inviting, funColorful, inviting, fun Gathering place to learn, interact, eat, and Gathering place to learn, interact, eat, and

grocery shopgrocery shop

PresentationPresentation Highly regarded food displays, cleanliness, wide Highly regarded food displays, cleanliness, wide

aislesaisles

Marketing StrategyMarketing Strategy PromotionPromotion

Primarily rely on word-of-mouth Primarily rely on word-of-mouth recommendationsrecommendations

0.5% of revenue spent on advertising0.5% of revenue spent on advertising Most marketing spend is for in-store signage Most marketing spend is for in-store signage

and eventsand events Store personnel is knowledgeable and Store personnel is knowledgeable and

personable personable

Growth StrategyGrowth Strategy New stores and acquisitions of small New stores and acquisitions of small

owner-managed chains in desirable owner-managed chains in desirable marketsmarkets

Ideal store size is 45,000 – 60,000 sq. ft.Ideal store size is 45,000 – 60,000 sq. ft.

Operational StrategyOperational Strategy Team-based management of store operationsTeam-based management of store operations

Many personnel, merchandising, and operating Many personnel, merchandising, and operating decisions made at store leveldecisions made at store level

Buying responsibility at the national and Buying responsibility at the national and regional levels for volume discountsregional levels for volume discounts

Own and operate many distribution centers: 2 Own and operate many distribution centers: 2 for produce, 9 bake houses, 5 commissary for produce, 9 bake houses, 5 commissary kitchens for prepared food, and a central kitchens for prepared food, and a central coffee roastercoffee roaster

What are the strengths, What are the strengths, weaknesses, opportunities, weaknesses, opportunities,

and threats for Whole and threats for Whole Foods?Foods?

SWOT AnalysisSWOT AnalysisWhole FoodsWhole Foods

STRENGTHSSTRENGTHSExperience in the IndustryExperience in the IndustryLarge, customized storesLarge, customized storesHuge selection/variety – over 30,000 itemsHuge selection/variety – over 30,000 itemsNationally Known Organic/Natural Foods Nationally Known Organic/Natural Foods Seller Seller

WEAKNESSESWEAKNESSESPrice – up to 75% higherPrice – up to 75% higherLocations – only in affluent areasLocations – only in affluent areasAdvertising Budget very low (WOM Advertising Budget very low (WOM approach)approach)Promotional Offers – no couponsPromotional Offers – no coupons

OPPORTUNITIESOPPORTUNITIESExpand private label selection – lower price for Expand private label selection – lower price for customerscustomersAdvertise more, create coupons and promotions Advertise more, create coupons and promotions to get people in the storeto get people in the storeHype right now is to eat healthier and protect the Hype right now is to eat healthier and protect the environmentenvironmentRewards program – frequent buyer cards (like Rewards program – frequent buyer cards (like Kroger cards) Kroger cards) Back to Basics – buy more local products that Back to Basics – buy more local products that people will pay more forpeople will pay more for

THREATSTHREATSConventional Supermarkets Conventional Supermarkets Bad EconomyBad EconomyLocal Farmers’ Markets/Independent Local Farmers’ Markets/Independent Retail ChainsRetail Chains

What are the future What are the future challenges for Whole challenges for Whole

Foods?Foods?

Future ChallengesFuture Challenges

Conventional Grocery Stores over saturate Conventional Grocery Stores over saturate Market & offer Organic & Natural FoodsMarket & offer Organic & Natural Foods Convince new customers to shop at WF rather Convince new customers to shop at WF rather

then more convenient storesthen more convenient stores

Pricing – being able to compete against Pricing – being able to compete against the conventional grocery chainsthe conventional grocery chains

Getting more people in the storeGetting more people in the store

Recommendations for Recommendations for Whole Foods MarketWhole Foods Market

RecommendationsRecommendations

Lower Price to Compete with Grocery Lower Price to Compete with Grocery StoresStores Add a customer rewards program for frequent Add a customer rewards program for frequent

buyersbuyers Mail coupons to customersMail coupons to customers

Expand Private Label SelectionExpand Private Label Selection Lowers mfg costs, could offer discounts to Lowers mfg costs, could offer discounts to

customer for using WF brand productscustomer for using WF brand products

RecommendationsRecommendations

Personalize Service at WFPersonalize Service at WF 3 days after purchase, email Thank You cards to 3 days after purchase, email Thank You cards to

customers after purchasescustomers after purchases 7 days after purchase, email 10% coupon to use on 7 days after purchase, email 10% coupon to use on

next purchasenext purchase Email recipesEmail recipes

Advertise, Advertise, AdvertiseAdvertise, Advertise, Advertise Mail fliers to local zip codes – show locally grown Mail fliers to local zip codes – show locally grown

foods, classes offered, items on sale, couponsfoods, classes offered, items on sale, coupons

RecommendationsRecommendations

CateringCatering Offer catering to local businesses & eventsOffer catering to local businesses & events

Do Not Buy Wild OatsDo Not Buy Wild Oats Halt expansion until WF builds up more cashHalt expansion until WF builds up more cash Focus on profitable stores and use that Focus on profitable stores and use that

philosophy to improve unprofitable storesphilosophy to improve unprofitable stores