Ashley Freeman
Megan Chorpenning
Kevin Hobt
Justin Jeffries
Whole Foods Market Inc.
Whole Foods Market Inc. was founded in Austin, Texas, in 1980 by John Mackey. The
model he had for the store was really the first supermarket concept in natural and organic foods
retailing. Whole Foods operates in the specialty food stores industry. They have been ranked
the #1 natural foods chain by far, and have achieved this throw a number of acquisitions. Whole
Foods operates about 295 stores in 38 US states, as well as in the United Kingdom and Canada.
Whole Foods is different from other traditional grocers in that it places a large emphasis on
perishable products. 40% of sales come. The store currently offers more than 2,400 items in
four lines of private label products including their own premium Whole Foods line.
The specialty foods industry is made up of about 25,000 stores with combined annual
revenue of $15 billion. The other major company in the industry other than Whole Foods
Market is Trader Joe’s, while Wild Oats Market was also a major player until Whole Foods
acquired them for nearly $565 million. This industry is fragmented and the 50 largest companies
account for less than 50 percent of sales and a clear market leader has yet to emerge. In a
fragmented industry like this every company is a potential acquisition and as Whole Foods
continues to grow they are acquiring more and more smaller independent retailers.
In this industry consumer spending and tastes are the largest drivers of demand. When
the economy is good and people are spending money these types of stores flourish, but as Whole
Foods saw in the recent economic downturn consumers look to other low cost stores such as
1 Wal-Mart and Kroger for cheaper products. The profitability of individual companies depends
how effectively they can merchandise their products and their ability to generate store traffic.
For this reason many stores in this industry select locations in strip malls and near large retailers
which increase the in-store traffic and public awareness. The main customer for Whole Foods is
a young, affluent adult that cooks meals from scratch at least 3 days a week, so when considering
new store locations developers consider education and income levels for the surrounding area.
Larger companies in this industry have advantages in purchasing, distribution, and
marketing because of their economies of scale and larger spending budgets. Smaller companies
can still compete effectively by offering specialized products, providing superior service, or by
serving a local market. The main competitors to this industry include traditional grocery stores,
mass merchandisers, and warehouse clubs. Many Whole Foods store contain large cafes that
serve restaurant quality food that’s cheaper and quicker so they are essentially also competing
with any venue serving food, including restaurants.
Specialty food stores offer similar products to traditional grocery stores, but many stock
unique, foreign, and hard to find products within each category. Some of the more popular
unique foods these stores stock are specialty coffee and tea, specialty oils, a variety of cheeses,
and chocolate. Some stores specialize in ethnic foods and rely heavily on imported products
from around the world. A lot of these products have stemmed controversy over the past few
years and laws and regulations have been established to ensure that they are being exchanged for
the correct prices. Fair Trade foods are becoming more and more popular throughout stores
around the country. Many of the large exporters of products such as coffee, chocolate, bananas,
and tea were mistreating their workers and paying them only a fraction of how much they
actually sell the product for. Many companies around the world are trying to stop this inhumane
2 treatment of hard honest workers by only buying Fair Trade products. This ensures that the
people who are harvesting and refining the products are getting the same or better wages than the
actual exporters of the merchandise. This benefits not only those people but also buyers of Fair
Trade products because it shows they want to run a socially responsible business and that they
care about their supplier relationships for more than just getting the best prices.
Organic foods have essentially created a whole new industry throughout the past decade.
These are products that are grown without the use of commercial pesticides or any other
chemicals. They are naturally grown and companies have to become organically certified by the
FDA before they can claim their food as “organically grown”. This movement originated from
the health dilemmas our country is currently facing, people are seeking products that are
naturally beneficial and don’t need any drug or chemical enhancement. In addition, organic
foods positively impact the environment because without the use of pesticides farms do not
created hazardous runoff that could taint the water sources for miles, thus affecting the wildfire
in surrounding areas. Stores such as Whole Foods have made huge profits by stocking hundreds
of different organics products that people are willing to pay a premium for.
Another area that Whole Foods and other small specialty stores are getting into is
Nutraceuticals. These are dietary supplements that have similar health benefits are
pharmaceutical products. Examples include vitamin B6, B12 pills, Omega 3 &6 fish oil
capsules, and vitamin E tablets. Whole Foods has a huge selection of these Nutraceuticals and
many people have turned towards these to get their daily dose of nutrients. Since these pills can
fetch a large profit more and more stores are seeing them as a desirable endeavor.
Specialty food stores have to find other ways to advertise and market because of their
smaller size. Many stores do not use traditional marketing techniques to spread store awareness,
3 instead many stores including Whole Foods use a method called grassroots marketing. Many
stores have limited marketing budgets so they rely heavily on word-of-mouth marketing to
generate community awareness. Stores hold product tastings, sampling, cooking classes, and
sponsor local events to develop community support and become more visible among the people.
Recently stores like whole foods have started using the internet and social media to spread the
word about their business. Whole Foods runs their own interactive website where one can sign
up for an email subscription, get tasty recipes, and find out what’s on sale in their own store at
any time! Customers can also follow Whole Foods on Facebook, Twitter, and their own blog.
All of these media outlets are cheaper and more effective ways of marketing and allow
customers more interaction with the company and its products.
Whole Foods Market, Inc. operates within the retail industry, primarily grocery and
supermarkets. The supermarkets are a chain of natural and organic food centers, with a total of
273 stores in the United States. Whole Foods stores offer a wide variety of products including
seafood, grocery, meats, bakery, wine, cheese, beer, nutritional supplements, vitamins, body
care, and educational and household products. Whole Foods knows its customer demographic
very well and does a great job at keeping its position as the largest chain in the natural and
organic foods sector with 284 stores as of September 2009. Whole Foods Market, Inc. is
positioned in the specialty foods retail industry as a higher class natural and organic foods
supermarket.
Whole Food’s strategy lies within their core philosophies and vales that the company
follows on a daily basis. Their website emphasizes the mission statement of “selling the highest
quality natural and organic products.” Whole Foods relies on several values such as locally
grown products and a green mission, which emphasize some of their core philosophies.
4 Basically, the company’s internal resource is derived from the integrity and behavior among the
team members that work for Whole Foods. WFM is comprised of teams in the corporate,
regional, and retail locations. No matter what position one may be affiliated with, they are part of
a team. These teams make the company a success because their team members can never be
replicated. If a competitor reproduces Whole Foods products and services, they will still need to
acquire the internal skills and competencies that all employees of WFM share together as a
unified team. The team members at WFM are empowered by their coworkers by sharing and
engaging in energy, intelligence, and creating environments where customers experience
superior service. For example, the teams that work at WFM strive in self-responsibility, selfdirected teams, and communicating using open information. Team member excellence and
happiness is at the core of WFM’s strategy, which has guided the company to achieve a
sustainable competitive advantage.
The internal resource of an organized team membership at WFM is the way that the
company is able to successfully accomplish a VRIO Framework leading to a competitive
advantage. The VRIO Framework can be applied to WFM using the following strategy: Whole
Foods is valuable because they are a first mover in this industry and they neutralize external
threats by intimidating any firms who try to compete. Additionally, Whole Foods exploits rarity
internally as a corporation because no one else is currently operating the way that they do such as
almost all of their business practices being green. Next, Whole Food’s competitive advantage
can be sustained because competitor’s face high costs of imitation since WFM’s internal
resources are difficult to understand and replicate, ultimately leading to causal ambiguity.
Moreover, the main reason that Whole Foods is able to establish a successful VRIO Framework
comes down to the organization and teamwork practiced on a daily basis.
5 Nonetheless, there are other strategic elements to the company that place WFM before all
other organic retailers and competitors. Obviously, selling the highest quality natural and organic
products allow customers to appreciate the freshness, safety, taste, and ingredients in the
products that they are purchasing. This way, they continue to come back to WFM and shop
again. As a clever marketing scheme, WFM does not advertise very much, but relies on the
strategy of appealing to the customers’ five senses. Instead of traditional advertising, Whole
Foods relies on their customers to spread the word to their friends and family about just how
amazing a shopping experience can be at a WFM retail store. Unlike a trip to a traditional
grocery store like Giant Eagle, a trip to Whole Foods is a place to have fun, taste cheese, and
explore all the amazing products that one cannot find anywhere else.
Furthermore, Whole Foods retail stores place a strong emphasis on their customers, by
innovating retail and delivering an inviting store environment. Customers choose to shop at
WFM because of the serene atmosphere inside the stores, in addition to the care that WFM gives
to the community and the environment. Whole Foods supports organic farmers and is always
recycling, reusing, and reducing waste when ever possible. As a result, this is important to many
individuals that are involved in global warming causes and going green nowadays. If Whole
Foods can allow customers to live a happier and healthier life, they must be doing something
right. For instance, Whole Foods would never compete with Walmart for the lowest prices.
WFM prices its products appropriately so that customers understand they are paying for the
value of pure, organic, fresh food and products. Think about a shopping experience at Walmart
vs. Whole Foods. Where would one rather go if they were looking for a new and exciting
experience? Whole foods! Walmart feels like a chore because a shopper is going there to look for
6 the cheapest iPod auxiliary cable on the market, while customers are going to WFM to have an
adventure.
Consequently, Whole Foods has already achieved a sustainable competitive advantage up
until this point as a result of their core philosophies, values, and team members that make
shopping at WFM a life changing experience. They are a first mover in the specialty foods
industry and the first to introduce these strategic concepts and initiatives that make them the
number one retailer of natural and organic food and life products.
After conducting an industry analysis, a few threats became apparent. Whole Food
Markets operate in an industry that has a high threat of suppliers. The company prides
themselves on selling only completely organic supplies and running a green business. Whole
Foods was the first nationally certified organic grocer in the industry. Their business is based
completely on selling organic products. Organic agriculture is defined as “a production method
that emphasizes the use of resources and conservation of soil and water to enhance
environmental quality” (Values and Action, Organic Food, 2010). The agriculture used by the
company has to endorse healthy eco-system and forbid use of genetically engineered seeds or
crops, sewage sludge, long-lasting pesticides, herbicides or fungicides. The livestock used for
Whole Foods’ products must be treated humanely and healthy by giving the animals organicallygrown feed, providing fresh air and outdoor access, and using no antibiotics or added growth
hormones. Food processing practices must exactly follow the organic process guidelines and
forbid irradiation, genetically modified ingredients, and synthetic preservatives in any part of the
Whole Foods Market process (Values and Action, Organic Food, 2010).
This being said,
suppliers of these types of products are not very common. Whole Foods has a great relationship
with their suppliers, but the suppliers do provide the company with their product. The suppliers
7 can “squeeze” Whole Foods with price points because there are not a lot of other agriculture
outlets that abide by the organic ruling. It is important to maintain a professional relationship that
benefits both sides.
Whole Foods also faces a threat of entry in the industry they operate. The barriers to enter
are extremely low because the grocery industry is very lucrative. With such a strong health
movement-taking place currently, more people are trying to shop healthier, so there is a high
demand for this product. Whole Foods does operate numerous stores across the country, but does
not have a store in smaller towns. They have to compete with the “Mom and Pop” health stores
that are in these towns. Whole Foods major competitor, Trader Joe’s, has approximately fourteen
more stores locations to date. They reach more areas than Whole Foods and if they keep
increasing as this rate, they will have more market share. Could this lead to a threat of rivalry?
Trader Joe’s and Whole Foods Market carry different types of food items, but in time there could
be no product differentiation. The two could engage into an intense price competition and Whole
Food’s could compete away their competitive advantage.
Whole Foods needs to neutralize these threats to hold onto their sustainable competitive
advantage. To diminish the threat of suppliers, the company needs to keep a strong relationship
with their agriculture partners to avoid price squeezing. Although the barriers to enter are low
and they face a high threat of entry, they can continue doing business better than their
competitors. Avoiding these threats will also stop the threat of rivalry from becoming an issue.
8 Works Citied
Hoover's. (2010, May 20). Whole Foods Market, Inc. Hoover's Company Records - InDepth Records. <http://www.hoovers.com>.
One Source. (2010, May 20). Whole Foods Market, Inc. One Source Company Records- In
Depth records. <http://www.onesource.com>.
Values and Action, Organic Food. (2010). Retrieved 5 31, 2010, from Whole Foods Market:
<http://www.wholefoodsmarket.com/values/organic.php>.
Whole Foods Market: Natural and Organic Grocery. Web. 20 May 2010.
<http://www.wholefoodsmarket.com/>.
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