Question 1: Whole Foods mission/vision
What I like about Whole Foods mission of “Whole Foods, Whole People, Whole Planet” is that it covers all the aspects important for the success of any business. It focuses on providing high-quality foods, support to employees or team members and the local communities, as well as growth. Whole Foods gained its prominence through its commitment to offer the highest of natural and organic food. It recognises the fact that customers are the most important assets for any business and fulfilling their needs is paramount.
The company takes seriously the mission and core values underlying its vision. Firstly, its primary focus is on the quality of its food. Quality is one of the core values outlined in the Declaration of Interdependence. It set quality standards outlining what ingredients it should use and which it cannot use. The rules also prohibited foods with artificial colourings, hydrogenated oils, among other unhealthy ingredients. However, there have been concerns by some employees and critics that the company has watered down some of its quality standards as it grew.
The company has also maintained its core value of supporting team member excellence and happiness. It offers fair remuneration packages for employees and embraces an open-book culture to enhance transparency. It is viewed as one of the best employers as it provides full-time employment as well as benefit such as health insurance. Due to its open-book policy and support to employees, the company has many employees committed to its mission, in most of its stores.
In addition, the company undertook to give back to the local communities. It pays its team members for up to twenty hours of service to the community. It also reduces the impact of its operations on the environment. It was the first retailer to build a store that meets the LEED Green Building Rating System’s standards. Furthermore, it stores support local growers and food producers.
Question 2: Financial performance
Key financial statistics
Profitability
The corporation experienced an increase in net sales from the year 2000 through to 2008. Net income also increased from -$4.83 million in 2000 to $ 203 million in 2006. It then fell in both 2007 and 2008. Its profit margin increased from -0.26% in 2000 to 3.63% in 2006. However, it dropped in 2007 to 2.8% and later to 1.43% in 2008. It implies that the company generated only $0.143 for every dollar of net sales. The above information shows that the company’s profitability improved steadily between the years 2000 and 2004 then declined in 2007 and 2008. The company’s net income in 2006 was the highest among its competitors such as Kroger, Wal-Mart, Wild Oats, and other corporations listed in the case. Therefore, it indicates that the company was more profitable than its competitors.
Solvency
Debt-equity ratios for the company indicate that it had adequate assets to pay its liabilities in each of the years from 2000 to 2008. For instance, in 2006, its debt-equity ratio was 31.27% implying that it used debt to finance only 31% of the total assets. In the same year, Walmart, Kroger and Wild Oats had debt to equity ratios of 59%, 76% and 76% respectively. It implies that the company was more solvent than its competitors in the market.
In a nutshell, Whole Foods is doing well in meeting its strategic performance test. Its net sales grew steadily from 2000 through to 2008. In terms of profitability, the company performed better than its competitors, according to 2006 statistics. Its debt-equity ratio also indicates that it is financially stable and has a lower financial risk as compared to competitors since only a small percentage of its total assets are financed through borrowing.
Question 3: Competitive advantage test
Whole Foods Inc. has a competitive advantage over Wild Oats, Fresh Market and Trader Joe’s. Whole Foods has a large number of stores that enable it to spread its sources of revenue. It also has an advantage in its wealth of experience. The company bought several stores and adopted their best practices while ensuring that it teaches the employees of the acquired businesses the Whole Foods culture. Wild Oats was struggling financially hence could not effectively compete with Whole Foods. When Whole Foods proposed to acquire Wild Oats, Mackey explained that the move was strategic to avoid price wars even though Wild Oats had lost $60 million in the last six years.
Trade Joe’s was the strongest competitor to Whole Foods as stated by Mackey. Its strategy was to sell at lower prices, and this was a threat to Whole Foods, which was nicknamed “Whole Paycheck” for its premium rates. The advantage Whole Foods has over Trader Joe’s is its large size and the wide range of products it offers. The stores average between 7,500 and 10,000 square feet and can only accommodate 2,500 products. It implies that Trader Joe’s stores cannot carry many items such as flour, sugar, among other products expected in a grocery store. Whole Foods’s stores sell a wide range of goods hence consumers can get most of the commodities they need under one roof.
Question 4: Recommendations
- Competitive pricing: The market for organic foods has seen a rise in competition due to the entry of other firms such as Trader Joe’s, small competitors as well as conventional supermarkets. Trader Joe’s strength was its competitive pricing as opposed to Whole Foods that customers considered as “Whole Paycheck”. Smaller competitors also charge lower prices, and this takes away some consumers from Whole Foods. As many firms enter the market, consumers become sensitive to prices hence a reduction in prices or charging competitive prices will increase the company’s revenues. In order to charge competitive prices, the company should purchase from low-price suppliers and enhance efficiency of its operations to reduce operating costs.
- Market segmentation: The Company has become under immense from consumers and employees who feel that it has deviated from its initial mission of natural organic products. However, other products such as flour, sugar are necessary to meet the needs of other customers. To counter competition from small firms that are considered to provide natural foods, the company may set up distinctive stores in designated areas. These stores should strictly provide natural foods with the rest of the stores supplying a wide range of products. In addition, local foragers will enable the company to buy from local growers and promote their products.
- Improving efficiency in stores: Rather than expansion through acquisitions, the company should invest in improving the efficiency of its stores. The company can do this through investment in training, efficient methods, among others. The company will increase the total revenue if it improves revenue per square feet in the stores. For instance, Trader Joe’s had annual revenue of $1,444 per square foot, almost twice the $783 that Whole Foods earned per square feet. In addition, it will save the company large amounts of money spent in acquiring well-developed companies. Whole Foods bid to acquire Wild Oats at $18.50 per share despite the company losing $60 million in the last six years. It also experienced low profits due to high merger integration costs of acquired firms and new stores.
- Non-price competition measures: The Company should focus on non-price aspects such as improving the quality of its products, better customer service, among other factors. These will make the company’s products less elastic. Mackey stated that the company agreed to offer a high price per share for Wild Oats despite the company making losses, just to reduce price wars. It implies that the company had been engaging in price-wars in order to gain competitive advantage.
- Advertising and sales promotion: Whole Foods can enhance its revenues through advertising and other sales promotion measures. Some customers consider its products as expensive and Trader Joe’s exploited the opportunity to sell at lower prices. Advertising is necessary to clarify that the company’s products are not expensive. Consumers had nicknamed the firm as “Whole Paycheck”. Communication is also necessary to dispel fears that the company has compromised its initial quality standards.
