Whole Foods What are the strengths and weaknesses of Whole Foods? What are the opportunities and threats facing Whole Foods? What are the strategic factors facing Whole Foods? Does Whole Foods have any core competencies? If yes, what are they? Does Whole Foods have a distinctive competency? If yes, what is it? Case 20 Whole Foods Market 2010: How to Grow in an Increasingly Competitive Market? (Mini Case) Patricia Harasta and Alan N. Hoffman Reflecting back over his three decades of experience in the grocery business, John Mackey smiled to himself over his previous successes. His entrepreneurial history began with a single store that he has now grown into the nation’s leading natural food chain. Whole Foods is not just a food retailer but instead represents a healthy, socially responsible lifestyle that customers can identify with. The company has differentiated itself from competitors by focusing on quality, excellence, and innovation that allow it to charge a premium price for premium products. While proud of the past, John had concerns about the future direction in which Whole Foods should head. This case was prepared by Patricia Harasta and Professor Alan N. Hoffman, Bentley University and Erasmus University. Copyright © 2010 by Alan N. Hoffman. The copyright holder is solely responsible for case content. Reprint permission is solely granted to the publisher, Prentice Hall, for Strategic Management and Business Policy, 15th Edition (and the international and electronic versions of this book) by the copyright holder, Alan N. Hoffman. Any other publication of the case (translation, any form of electronics or other media) or sale (any form of partnership) to another publisher will be in violation of copyright law, unless Alan N. Hoffman has granted an additional written permission. Reprinted by permission. The authors would like to thank Will Hoffman, Christopher Ferrari, Robert Marshall, Julie Giles, Jennifer Powers, and Gretchen Alper for their research and contributions to this case. No part of this publication may be copied, stored, transmitted, reproduced, or distributed in any form or medium whatsoever without the permission of the copyright owner, Alan N. Hoffman. Company Background Whole Foods carries both natural and organic food, offering customers a wide variety of products. “Natural” refers to food that is free of growth hormones or antibiotics, whereas “certified organic” food conforms to the standards, as defined by the U.S. Department of Agriculture (USDA) in October 2002. Whole Foods Market is the world’s leading retailer of natural and organic foods, with 193 stores in 31 states, Canada, and the United Kingdom. According to the company, Whole Foods Market is highly selective about what it sells, dedicated to stringent quality standards, and committed to sustainable agriculture. It believes in a virtuous circle entwining the food chain, human beings, and Mother Earth: Each is reliant upon the others through a beautiful and delicate symbiosis. The message of preservation and sustainability are followed while providing high-quality goods to customers and high profits to investors. Whole Foods has grown over the years through mergers, acquisitions, and new store openings. The US$565 million acquisition of its lead competitor, Wild Oats, in 2007 firmly set Whole Foods as the leader in the natural and organic food market and led to 70 new stores. The U.S. Federal Trade Commission (FTC) focused its attention on the merger on antitrust grounds. The dispute was settled in 2009, with Whole Foods closing 32 Wild Oats stores and agreeing to sell the Wild Oats Markets brand. Although the majority of Whole Foods’ locations are in the United States, European expansion provides enormous potential growth due to the large population there and because it has access to a more sophisticated organic-foods market than the United States in terms of suppliers and acceptance by the public. Whole Foods targets its locations specifically by an area’s demographics. The company targets locations where 40% or more of the residents have a college degree because its citizens are more likely to be aware of nutritional issues. Whole Foods Market’s Philosophy Whole Foods Market’s company philosophy is to be a sustainable company. While Whole Foods recognizes it is only a supermarket, management is working toward fulfilling their vision within the context of the industry. In addition to leading by example, they strive to conduct business in a manner consistent with their mission and vision. By offering minimally processed, high-quality food, engaging in ethical business practices, and providing a motivational, respectful work environment, the company believes it is on the path to a sustainable future. Whole Foods incorporates the best practices of each location back into the chain. This can be seen in the company’s store product expansion from dry goods to perishable produce, including meats, fish, and prepared foods. The lessons learned at one location are absorbed by all, enabling the chain to maximize effectiveness and efficiency while offering a product line customers love. Whole Foods carries only natural and organic products. The best tasting and most nutritious food available is found in its purest state—unadulterated by artificial additives, sweeteners, colorings, and preservatives. Employee and Customer Relations Whole Foods encourages a team-based environment allowing each store to make independent decisions regarding its operations. Teams consist of up to 11 employees and a team leader. The team leaders typically head up one department or another. Each store employs anywhere from 72 to 391 team members. The manager is referred to as the “store team leader.” The “store team leader” is compensated by an Economic Value Added (EVA) bonus and is also eligible to receive stock options. Whole Foods tries to instill a sense of purpose among its employees and has been named for 13 consecutive years as one of the “100 Best Companies to Work For” in America by Fortune magazine. In employee surveys, 90% of its team members stated that they always or frequently enjoy their job. The company strives to take care of its customers, realizing they are the “lifeblood of our business,” and the two are “interdependent on each other.” Whole Foods’ primary objective goes beyond 100% customer satisfaction with the goal to “delight” customers in every interaction. Competitive Environment At the time of Whole Foods’ inception, there was almost no competition with less than six other natural food stores in the United States. Today, the organic foods industry is growing and Whole Foods finds itself competing hard to maintain its elite presence. Whole Foods competes with all supermarkets. With more U.S. consumers focused on healthful eating, environmental sustainability, and the green movement, the demand for organic and natural foods has increased. More traditional supermarkets are now introducing “lifestyle” stores and departments to compete directly with Whole Foods. This can be seen in the Wild Harvest section of Shaw’s, or the “Lifestyle” stores opened by conventional grocery chain Safeway. Whole Foods’ competitors now include big box and discount retailers who have made a foray into the grocery business. Currently, the United States’ largest grocer is Wal-Mart. Not only does Wal-Mart compete in the standard supermarket industry, but it has even begun offering natural and organic products in its supercenter stores. Other discount retailers now competing in the supermarket industry include Target, Sam’s Club, and Costco. All of these retailers offer grocery products, generally at a lower price than what one would find at Whole Foods. Another of Whole Foods’ key competitors is Los Angeles–based Trader Joe’s, a premium natural and organic food market. By expanding its presence and product offerings while maintaining high quality at low prices, Trader Joe’s has found its competitive niche. It has 215 stores, primarily on the west and east coasts of the United States, offering upscale grocery fare such as health foods, prepared meals, organic produce, and nutritional supplements. A low-cost structure allows Trader Joe’s to offer competitive prices while still maintaining its margins. Trader Joe’s stores have no service department and average just 10,000 square feet in store size. A Different Shopping Experience The setup of the organic grocery store is a key component to Whole Foods’ success. The store’s setup and its products are carefully researched to ensure that they are meeting the demands of the local community. Locations are primarily in cities and are chosen for their large space and heavy foot traffic. According to Whole Foods’ 10-K, “approximately 88% of our existing stores are located in the top 50 statistical metropolitan areas.” The company uses a specific formula to choose store sites that is based upon several metrics, which include but are not limited to income levels, education, and population density. Upon entering a Whole Foods supermarket, it becomes clear that the company attempts to sell the consumer on the entire experience. Team members (employees) are well trained and the stores themselves are immaculate. There are in-store chefs to help with recipes, wine tasting, and food sampling. There are “Take Action food centers” where customers can access information on the issues that affect their food such as legislation and environmental factors. Some stores offer extra services such as home delivery, cooking classes, massages, and valet parking. Whole Foods goes out of its way to appeal to the above-average income earner. *** Please provide details for each answers below. Thanks. *** Topic 2: Case #20 Whole Foods

What are the strengths and weaknesses of Whole Foods?

What are the opportunities and threats facing Whole Foods?

What are the strategic factors facing Whole Foods?

Does Whole Foods have any core competencies? If yes, what are they?

Does Whole Foods have a distinctive competency? If yes, what is it?

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