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COMPANY BACKGROUND
Whole Foods Market (WFM) opened its first vegetarian store in 1980 from an old Victorian house in Austin, Texas (WFM Highest Standard 5; Harrison, n. p.). It resulted from the merger of two grocery stores: the Safer Way and the Clarksville Natural Grocery (Harrison, n. p.). John Mackey found it at age 25 with his girlfriend Renee Lawson (age 21).
Today, 34 years later, WFM is the seventh largest public food retailer in the United States with over 7.7 million customer visits each week in its 399 stores (WFM Highest Standard 12; cf. WFM Highest Standard 5). It has expanded globally to Canada and the United Kingdom. Its revenue bulk (96.7 percent), however, continue to come from its United States market. Moreover it is the leading retailer of natural and organic foods in the country with the distinction of being the first “Certified Organic” national grocery store (12). Around 97 percent of its product offerings are perishables (14).
EXTERNAL ANALYSIS: PORTER’S FIVE FORCES
1. Force No. 1, Barriers to New Entrants (Moderately High):
Product Differentiation: In the natural foods category, “Certified Organic” products (WFM Highest Standard 12) possess an inherent and strongly differentiating product quality, considering its greater robustness in healthy food characteristics than foods classified only as natural products. The organic standards, which involves full organic cultivation methods using renewable resources and soil/water conservation strategies, are also highly protected globally (13). To compete against WFM, new entrants must first get certified as an organic food grocer, which can be highly challenging, particularly in seeking suppliers that are also organic certified. Moreover, WFM’s strategy of exclusive distribution makes it more difficult for new entrants to attract more exclusive suppliers. However, half of its exclusive brand items, which is under the 365 Everyday Value brand, are only around a third certified organic (14). This level of organic offer leaves a vulnerability against new entrants that can offer more foods (e.g. 50 percent or more) that are organic certified. In addition, Cognizant (5) reported that consumers generally distrusts organic food claims unless the certification process is known and trusted. Uncertainty in this aspect normally focuses purchase decisions on food mileage and price.
Growing Distribution Channels: Since its first store in 1980, WFM has grown into 399 stores in 24 years or an average expansion of 16.6 stores annually (WFM Highest Standard 12). It is aiming for a total of 500 stores by 2017 and 1,200 stores farther away into the future (5). Achieving number of distribution channels will take years for new entrants to execute without risking sales issues in saturated markets.
2. Force No. 2, Bargaining Power of Buyers (Low Threat)
The bargaining power of consumers rely primarily on the weakness of the demand for natural and organic food products. Any shift in consumer preference to cheaper nonorganic or non-natural foods is tantamount to strong bargaining pressure (WFM Highest Standard 24). As of 2012, the largest single market for organic foods was the United States, constituting some 44 percent of the global demand, and followed by Germany and France (Cognizant 3). A dramatic growth in organic food sales is expected at 14 percent average annually from 2013 through 2018 (4), indicating weak customer bargaining power from consumers.
3. Force No. 3, Bargaining Power of Suppliers (Low Threat)
Its virtual dependency on the 365 Everyday Value brand products makes WFM vulnerable to the bargaining power of this supplier, the loss of which can significantly impact on its product selection. This risk is also real in its relationship with United Natural Foods (UNFI), which is its single largest supplier of dry grocery and frozen products. However, WFM offers a specific benefit to these brands due to its large distribution channels, specific focus on organic products, and the consequent sales volume implications, which cannot be expected in general groceries. In fact, WFM’s niche distinctions make it the preferred outlet for organic food producers. Its exclusive contracts with suppliers provide legal safety nets against supplier abuse (e.g. six years for exclusive distribution with UNFI. Moreover, there are ample supply of organic foods, led by Asia (35 percent globally) and the United States (30 percent) (Cognizant 8).
4. Force No. 4, Substitute Products (Moderate Threat)
For organic certified food products, substitute products are difficult to find both by competing retailers and consumers. Thus, the MWF business is well-protected against substitute products although only in a strongly healthy foods-oriented market environment. If the healthy diet standards among consumers decline towards natural or regular quality foods, then substitute products become more preferable unless WFM can provide a narrow pricing difference against non-organic food products. Health-consciousness among consumers also limits its potential expansion in less health-conscious markets.
5. Force No. 5, Rivalry among Established Firms (Moderately High Threat)
The food retailing industry is inherently highly competitive often in terms of store ambience, product quality and selection, customer service, price, and any combination thereof (WFM Highest Standard 19). This is particularly true with non-organic certified foods, which abound in conventional supermarkets, warehouse membership clubs, and farmers’ markets. WFM is directly in competition with natural foods stores for health conscious consumers. However, the mass market for organic foods continue to have the highest share (49 percent) in the U.S. market; followed by natural food stores (41 percent) (Cognizant 4).
INTERNAL ANALYSIS: PORTER’S VALUE CHAIN ANALYSIS
1. Primary Activities:
1.1 Inbound Logistics: No information was obtained about the receiving, storing and dissemination (e.g., material handling, warehousing, inventory control, vehicle scheduling, and returns to suppliers) policies of WFM.
1.2 Operations (processing, aggregation, and distribution: In order to serve its three major markets, WFM operates three seafood processing facilities, a specialty coffee and tea roasting operation, three regional commissary kitchens, and five bakehouses (WFM Highest Standard 17). All-natural fiber packaging has fully replaced the traditional paper and plastic materials for containers and utensils (WFM Green Mission 39).
1.3 Outbound Logistics: MWF has three seafood distribution facilities globally, and 11 regional distribution centers (WFM Highest Standard 17).
1.4 Marketing and Sales: WFM spends less resources (0.4 percent of total sales) on paid media and marketing channels than its competitors (WFM Highest Standard 19). It focuses its investments on improving individual stores in order to generate media attention and word-of-the-mouth testimonials. It also focused its resources in the less costly social media channels, such as Facebook, Twitter, Instagram, and Google+, generating an overall footprint of 9 million. Each store are provided its own account to develop direct and deeper interactions with consumers. Its first national brand campaign called Values Matter launched in 2014.
2. Secondary (Support) Activities:
2.1 Organizational Infrastructure: The store-level operations involve ten self-managed teams led by a team leader in each store and are involved in all levels in the business (WFM Highest Standard 18). Each store team is responsible for a different product group; while store team leaders work closely with each other and with department team leaders.
2.2 Human Resources Management: WFM regularly recruits employees for full-time, part-time, and seasonal posts (WFM Highest Standard 18).
2.3 Technology Development: WFM is improving its technology investments annually. It is introducing a mobile app, a loyalty scheme testing, and is unifying its point of sale system (WFM Highest Standard 6). It has implemented its web-based human resources management system called Workday to efficiently manage its human resource deployments (7). Overall, it relies on its technology infrastructure in all its business processes.
2.4 Procurement: The majority of WFM’s procurement activities occur within the United States and the North American region, while around 23 percent are sourced locally; i.e. local to the specific WFM stores (WFM Highest Standard 17).
BUSINESS-LEVEL AND CORPORATE-LEVEL STRATEGY
A. Business-Level Strategy: The nature of its perishable-focused business allow WFM the opportunity to utilize a three-pronged business strategy. First, it employs cost leadership tactics in their product pricing, consisting of increased promotions and narrow price gaps on selected value items (WFM Highest Standard 6). It is also regularly testing prices in various markets. Second, it uses quality differentiation for its products and ambiance differentiation for its outlets. WFM stores are “Organic Certified”, which make its products perceivably distinct and of higher quality, although only a third of the products are actually organic certified (12; cf. Cognizant 5). It focuses its efforts at differentiating the customers’ shopping experience in its stores. To accomplish this, it has a program of refreshing its stores that are over 10 years old. Third, as an organic product grocer, it is also essentially a niche player in the $89.4 billion natural products retail segment in the larger supermarket industry; a segment that increased by 11 percent in sales value in 2013 (WFM Highest Standard 13).
B. Corporate-Level Strategy (Tradeoffs Core businesses for profit growth): Despite its “certified organic” status, WFM is still more than 50 percent natural products retailer, representing its core products offering. Its growth also involves the acquisition of other natural and organic food grocers, such as Wild Oats in 2007 (Harbin and Humphrey 99).
RECOMMENDATIONS
There are areas of vulnerability in WFM’s internal and external contexts. In order to correct these vulnerabilities, the company must implement these recommendations:
(1.) Take effective control in shaping consumer preferences towards strong demand for organic-only foods: The strongest threat that WFM is facing is the change of consumer preference from organic products to nonorganic products. Healthy foods consciousness shaping activities must be establish to ensure a growing consumer preference for organic foods to the point of demanding it and no other options considered.
(2.) Refocus new major markets: Lately, WMF opened in the United Kingdom and Canada markets when the second and third largest markets for organic foods are Germany and France, respectively. Thus, in terms of market selection, this choice was apparently a mistake on the bases of potential market share it can acquire in these two markets. Refocusing its market development into these two European markets should be more profitable.
Works Cited
Cognizant. Supply Chain Management of Locally-Grown Organic Food: A Leap toward
Sustainable Development. Teaneck, NJ: Cognizant, 2014. Print.
Harbin, James L. and Patricia Humphrey. “Whole Foods Market, Inc.” Journal of Case Research
in Business and Economics. May 2010, 2(1): 95-111.
Harrison, J.D. “When We Were Small: Whole Foods.” The Washington Post. 30 Jul. 2014. Web.
<https://www.washingtonpost.com/business/on-small-business/when-we-were-small-whole-foods/2014/07/29/5203bd98-1680-11e4-9349-84d4a85be981_story.html>
Kortbech-Olesen, Rudy. The United States Market for Organic Food and Beverages. Geneva,
Switzerland: International Trade Centre, 2002. Print.
WFM (Whole Foods Market). Green Mission Report 2012. Austin, TX: Whole Foods Market,
2012. Print.
WFM (Whole Foods Market). The Highest Standard Weren’t Available, So We Created Them:
2014 Annual Report. Austin, TX: Whole Foods Market, 2014. Print.
