Whole Foods Teaching Note 1
Teaching Note: Whole Foods Market: 2010 How to Grow in an Increasingly
Competitive Market?
Synopsis of Case
This case outlines Whole Foods’ competitive approach to dominating natural and organic food sales. Focal points in the case are the emphasis on quality and innovation, specified target groups, the Whole Foods shopping experience, and differentiation other than price.
Listed on the S & P 500 and Fortune 500 companies, Whole Foods successes are due in part to its mission to provide high quality food, ethical business practices, motivational, and respectful work environment. Locating stores where 40% of residents have a college degree and in highly populated metropolitan areas and requiring foods to be fresh, safe, organic, and reflective of a healthy lifestyle has played a role in a well established Whole
Foods brand image. Increased competitive aspects, however, have triggered Whole Foods to examine the need for new direction and ways to stimulate and sustain growth in the industry.
Teaching Objectives
The main teaching objectives of this case are:
1.
To discuss the steps necessary in planning strategy
2.
To utilize the competitive forces model to identify opportunities and threats.
3.
To look at sources and durability of competitive advantage.
4.
To discuss how functional level strategy can be used for competitive advantage.
5.
To discuss the role of competitive positioning in choosing a business model strategy.
6.
To determine the basis for generic level strategies.
7.
To recognize and discuss factors contributing to market growth and their impact on strategy.
The case works best when positioned towards the beginning of a strategic management course. It is very useful for illustrating the material related to the impacts of competition on strategic decision making. The case can also be used to discuss factors that impact the choice of business models. The case works particularly well when teaching the strategic actions necessary for increased growth.
Strategic Issues and Discussion Questions
1. What steps has Whole Foods taken in appropriately planning strategy? Assuming
Whole Foods must develop a new business model, how should they go about this?
Whole Foods has done many things to maintain a 30 year record of success many of which fall into the category of good planning. The following list encompasses those steps
Whole Foods Teaching Note 2 that Whole Foods has made for appropriate planning and a few actions performed in each step:
Having a mission and set of major corporate goals o “The Company is highly selective about what they sell, dedicated to stringent quality standards and committed to sustainable agriculture. They believe 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.” o Company philosophy, “Whole Foods Market’s vision of a sustainable future means our children and grandchildren will be living in a world that values human creativity, diversity, and individual choice. Businesses will harness human material resources without devaluing the integrity of the individual or the planet’s ecosystems. Companies, governments, and institutions will be held accountable for their actions. People will better understand that all actions have repercussions and that planning and foresight coupled with hard work and flexibility can overcome almost any problem encountered. It will be a world that values education and a free exchange of ideas by an informed citizenry; where people are encouraged to discover, nurture, and share their life’s passions.” o The company strives to take care of their customers, realizing they are the
“lifeblood of our business” and the two are “interdependent on each other.” o Whole Foods’ primary objective goes beyond 100% customer satisfaction with the goal to “delight” customers in every interaction.
Identified environmental impacts o Whole Foods targets their locations specifically by an area’s demographics where 40% or more of the residents have a college degree as they are more likely to be aware of nutritional issues. Store sites are chosen based on metrics that include income levels, education, and population density. o Whole Foods products differ by geographic regions and local farm specialties. o Whole Foods’ store setup is 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 resulting in 88% of existing stores located in the top 50 statistical metropolitan areas. o Uncertainty in the operating economy. o The expenditure income is low and natural foods are deemed expensive. o Recognized adults were eating out less.
Identified strengths and weaknesses in their operating environment o Unique value proposition o Declines in quality o Certified Organic Grocer o Leveraged in size for better costs o Vast product selection o High quality standards
Whole Foods Teaching Note 3 o Redesigned for prepared foods o Low operating margins o Average weekly sales per store declining
Selected strategies that build on external and internal information and remain consistent with the mission and major goals of the organization – o Differentiation on quality , excellence, and innovation o Whole Foods is working toward fulfilling their vision within the context of their industry. o Striving to conduct business in a manner consistent with their mission and vision o By offering minimally processed, high quality food, engaging in ethical business practices and providing a motivational, respectful work environment, the Company believes they are on the path to a sustainable future. o Whole Foods incorporates the best practices of each location back onto 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. o 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, coloring, and preservatives. o Whole Foods encourages a team based environment allowing each store to make independent decisions regarding its operations. o Whole Foods tries to instill a sense of purpose among its employees.
Success in implementing the strategies o #1 Natural Foods Grocery Store
If Whole Foods were to need a new business model, they would need to ensure that the following were identified and planned:
Determining who its new customers would be
Define and create new differentiation in its product offerings
How to create value for the customers
How to acquire and keep customers
How to produce goods or services
How to lower costs
How to deliver goods and services to the market
Create organization of activities
Create and configure internal resources
How to achieve and sustain a high level of profitability
How to grow the business over time
Whole Foods Teaching Note
2. What opportunities and threats can be identified through examining Whole Foods in the context of the competitive forces model and a competitor analysis?
Whole Food’s opportunities and threats are as follows:
Threats o The resulting recession has created more conservative and practical buying behavior. It will be difficult to estimate demand until the economy is on solid footing. o The grocery industry is faced with increased accountability regarding regulations imposed by Department of Agriculture and the Food and Drug administration which will influence Whole Foods’ approach to ties with local community produce, etc. and may limit their natural offerings. o Whole Foods’ offerings may be less compared to large discount retailers who have greater purchasing power. o Pricing Wars with eroding profits in the industry
Opportunities o The company can create markets in global settings. o The company can create the grocery shopping experience for ethnic populations o With more individuals desiring a healthy and natural food approach, the company can create partnerships with other food entities who supply food products such as schools, governments, and restaurants. o The company can also tap into other societal changes among educated buyers, i.e. online research and mobile applications for food purchasing o To grow sales within their stores
Understanding the industry using Porter’s five forces competitive model Whole Foods will be better able to identify potential avenues for success and ultimately profitability.
» Potential Entrants Large discount retailers, with great purchasing power have the ability to squeeze out potential upstarts in the natural foods grocery business. Firms like Whole Foods with an established integrative relationship with natural food suppliers will make it difficult for new entries. Also, increased competition will lend itself toward lower margins with industry participants and reduce opportunity for profit by new entrants.
»
Substitute Products Substitutions for natural foods will increase as discount retailers tout their offerings. Also, the ordinary consumer, due to limits in disposable income
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Whole Foods Teaching Note and volatility of eating habit are likely to always look for and be confronted with alternatives to eating healthy. Further, as individuals use eating as entertainment, eating healthy natural foods may fall by the wayside. All the more reason Whole
Foods should link with other entities that provide food products.
»
Bargaining Power of Suppliers Due to the limited number of legitimate natural food suppliers, firms like Whole Foods will be subject to their demands as long as they maintain and hold true to real “natural” foods.
» Bargaining Power of Buyers Today’s more educated buyer behaviors will require even more education in the natural food market as firms like Whole Foods expand into further products and segments. Natural food buyers are also quite health conscious and, therefore, will place health related demands upon those like Whole
Foods. Whole Foods will need to be the “The Food Educator” and “Health Provider as consumers seek further answers beyond the medical professionals and rather seek their own personal approach to health.
»
Rivalry Among Existing Firms Existing firms going after the natural foods market have room for expansion including Whole Foods. Therefore, such increased competition will give way to price wars, particularly with discount retailers in the mix. All firms will be going head to head for the untouched consumer and all will be increasing their service levels to do so. Those with already specialized approaches such as Whole Foods may have a better opportunity to establish and maintain the value proposition.
The following table summarizes Whole Foods’ major competitors.
Strengths
Weaknesses
Safeway
-lifestyle stores
- grocery reputation
-remodeled stores
-limited to west coast
Supercenter
Retailers i.e.
Walmart
-#1 grocer, retail, company
-assortment
-purchasing power
-no geographic limitations
-sales approach
-reputation for passing off less than natural foods
Discount
Retailers i.e.
Target, Sam’s
Club, Costco
-assortment
-purchasing power
- no geographic limitations
-low cost structure
-sales approach
Trader Joe’s
-premium natural and organic food market
-assortment
-high quality
-low cost structure
-215 stores
-Limited to west and east coasts
-no service department
-limited store size
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Whole Foods Teaching Note
Additional competition has arisen from grocery stores, such as Stop ‘N shop and Shaw’s which now incorporate natural foods sections in their conventional stores. Many larger grocery chains have more flexibility in their product offerings and are more likely to promote products through sales, a strategy Whole Foods rarely practices.
3. What has created the durability of Whole Foods’ market presence? What has given them their competitive advantage?
Whole Foods has sustained competitive advantage through sound resources, competencies and capabilities. The following chart and information outlines Whole
Foods’ distinctions and strengths:
Financial
Resources
As of 2009, Whole Foods had over $8 billion in sales accompanied with declines in long term debt by 21%.
Cash and short term investments increased by $451 million
Organizational
Resources
Physical
Resources
Whole Foods remains uniquely mission and vision driven with a pursuit to achieve identified objectives. Whole
Foods is working toward fulfilling their vision within the context of their industry by striving to lead by example, conduct business in a manner consistent with their mission and vision while providing the new grocery shopping experience
Whole Foods operates subsidiaries in coffee roasting, seafood processing, and field inspection. In addition to supermarkets, Whole Foods has eight distribution centers, seven regional bake houses, and four commissaries. The company specifically has over 289 stores in the US,
Canada, and the UK
None noted in the case. Technological
Resources
Human
Resources
Whole Foods has more than 53,500 team members who engage in ethical business practices and promote a motivational, respectful work environment. Each store employs between 72 and 391 team members. Store team leaders are compensated by an EVA bonus and eligible to receive stock options
Innovation
Resources
Whole Foods offers minimally processed, high quality food by incorporating best practices in expansions from dry goods to perishable produce, including meats, fish, and prepared foods. Whole Foods carries only natural and organic products with the best taste, most nutritious in its purest state—unadulterated by artificial additives, sweeteners, colorings, and preservatives. Whole Foods continually improves customer offerings, catering to its
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Whole Foods Teaching Note 7
Reputational
Resources specific locations. The natural food experience includes in store chefs to help with recipes, wine tasting, and food sampling along with “Take Action Food Centers” where customers can access information on the issues that affect their food such as legislation and environmental factors.
These stores offer extra services such as home delivery, cooking classes, massages, and valet parking.
Whole Foods is listed on the S&P 500 and ranked 284 th in the Fortune 500 and noted as the world’s leading natural and organic foods supermarket. The company holds certification as American’s first national certified organic grocer and has been named for 13 consecutive years as one of the “100 Best Companies to Work For.”
Whole Foods also gains recognition with charitable contributions (5% after tax profits go to not for profit charities) and the awareness that they bring to the treatment of animals. Whole Foods also launched a nationwide effort to trigger awareness and action to remedy the problems facing the US food system.
Whole Foods maintains capabilities in:
Having an established mission, vision, goals, and objectives supplied by ethical team members
Innovation through incorporation of best practices to supply the most nutrition and continuous improvements in products and services
Whole Foods is noted for the following distinctive competencies:
Natural and organic grocery store experience
Natural and organic only products
Certified organic grocer
Whole Foods’ durability in the industry is due to its ability to provide authentic natural foods providing a barrier to imitation by competitors. Whole Foods’ capabilities in the natural food market have also limited the capabilities of its competitors creating a less than dynamic industry that have given room for differentiated companies to surge ahead from the competitive pack.
4. What functional level strategies has Whole Foods employed? Have these strategies been successful?
Whole Foods has used all the functional level strategies which include:
Efficiency
Quality
Innovation
Whole Foods Teaching Note 8
Customer Responsiveness
Whole Foods has incorporated best practices of each location back into the chain. 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 focuses on quality and service as a means of standing out from the competition. Under 3 rd party scrutiny, Whole Foods goes the extra mile to provide quality through the following general quality standards:
Foods that are free of preservatives and other additives
Foods that are fresh, wholesome, and safe to eat
Promote organically grown foods
Foods and products that promote a healthy life
Additional higher standards apply to meat and poultry products are as follows:
No antibiotics or added growth hormones
An affidavit from each producer that outlines the whole process of production and how the animals are treated
An annual inspection of all producers by Whole Foods Market
Successful completion of a third part audit to attest to these findings.
The Whole Foods approach to innovation is found through its search for best practices and continually improves customer offerings, catering to its specific locations. The natural food experience includes in store chefs to help with recipes, wine tasting, and food sampling along with “Take Action Food Centers” where customers can access information on the issues that affect their food such as legislation and environmental factors. These stores offer extra services such as home delivery, cooking classes, massages, and valet parking.
Whole Foods has prided themselves in giving customers value for their money which is the key to achieving superior responsiveness to customers. Customer responsiveness has been achieved through the following activities:
Tailoring product offerings by geographic location and customer base
Added pre-prepared meals to meet customer demands
The natural food experience which includes in store chefs to help with recipes, wine tasting, and food sampling along with “Take Action Food Centers” where customers can access information on the issues that affect their food such as legislation and environmental factors. These stores offer extra services such as home delivery, cooking classes, massages, and valet parking.
Each of these functional level strategies has served Whole Foods well. Without this approach, Whole Foods would lack the much needed value proposition that has made them historically successful and provided their sustainable competitive advantage. These are the distinctions that Whole Foods has when compared with their competitors.
Whole Foods Teaching Note
5. How has Whole Foods positioned themselves in the marketplace and what impact has this had on their strategic direction?
A firm’s commitment to proper positioning in the marketplace better equips them to abide by their mission, vision, and goals just as Whole Foods has done. Whole Foods has positioned and differentiated themselves in the market through quality and innovation. In doing so, they have chosen a health conscious, college-educated, upscale, new age consumer to which to focus their products and services. Providing pre-prepared meals shows their ability to determine the needs of their consumers. They have chosen to meet the needs of their consumers through distinctive competencies that include:
Providing natural and organic grocery store experience
Providing natural and organic products only
Ensuring their customers through organic grocer certifications
These functional level strategies provided the foundation for the differentiation position by Whole Foods which helps them to create value for the consumer and ultimately profitability for the stakeholders.
6. What is the reasoning behind Whole Foods’ generic level strategy?
The differentiation strategy used by Whole Foods is driven by the firms desire to create a unique concept that consumers perceive as different or distinct in some way. The strategy has provided Whole Foods a way of satisfying customers’ needs in a way that its competitors cannot and allows them to charge a premium price for their natural and organic foods.
7. What factors should Whole Foods consider in order to stimulate market growth? What strategy are they likely to choose based upon these factors?
Whole Foods should consider the following factors in accelerating market growth:
Does our offerings provide a relative advantage—the degree to which a new product is perceived as better at satisfying customer needs than the product it supersedes
Are our offerings perceived as being consistent with the current needs or existing value of potential adopters—the degree to which consumers see the products as helpful to them
Are our offerings perceived as difficult to understand and use—if the consumer is confused by what Whole Foods provides then they will be hesitant to purchase
Can out offerings be experimented with?—Trialability—Can the consumers experiment with a hands on trial basis to limit the risk of purchase.
Based upon this information, Whole Foods should continue with their push toward growth through differentiation. However, they will need to develop ways in which customers will have more trialability which is essential to increasing in store sales. Also, many potential consumers remain uneducated on the offerings of Whole Foods. This would be a service area that Whole Foods could provide which would increase the
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Whole Foods Teaching Note customer base. With these additions to the already differentiated strategy, Whole Foods will further bring new customers and nutritious, natural, and organic foods together.
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