Executive
Summary
Whole Foods Market, Inc.
– 25 Years Of Double Digit Revenue Growth
– $4.7B Organic Supermarket Industry Leader
Whole Foods Current Strategy
– Expand Through New Store Openings
– Achieve $12 Billion In Sales By 2010
Executive
Summary
Competitive Strategy Analysis
– Supplier Power Dominates This Industry
– Current Strategy Lacks Aggressiveness
Recommended Strategy
– Establish Partnerships With Traditional
Supermarkets
– Achieve National Brand Equity
Overview
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Porter’s Five Forces Analysis
SWOT Analysis of Whole Foods
Recommended Strategy
Questions/Discussion
Market
Definition
Market History
– Natural And Organic
Food Industry Began
About 30 Years Ago
– Whole Foods Market Is
A “Founding Firm”
– USDA Established The
“Organic Rule” In 2002
Market
Definition
• All Products Sold As
“Organic” Must Now
Meet The
Requirements Of The
USDA Organic Rule
• Approximately $13
Billion In Sales In 2005
Internal
Rivalry
Threat To Profits: High
Sources Of Internal
Rivalry:
– Many Sellers In The
Market
– Differing Cost Structures
– Strong Exit Barriers
Internal
Rivalry
Differing Cost Structures
– Consider A Wal-Mart Supercenter:
• > 100,000 Square Feet
• Average Supermarket Only 35,000 Square Feet
– Significant Economies Of Scale Difference And Wal-Mart
Continually Drives Down Prices
Strong Exit Barriers
– High Investment In Property, Distribution And Inventories
Entry
Threat to Profits: Medium
Originally, Health Food
Stores Were Small,
Expensive,
And Unpredictable.
Some Health Stores Grew Into Supermarkets:
– Sun Harvest
– Whole Foods Market
Some Existing Supermarkets Re-Branded
– Wegmanns
– HEB: Central Market
Segment
Entry Types
Re-branded Supermarkets
• H.E.B. (Texas) Created “Central Market”
• Wegmans (New York) Upgraded Locations
New Supermarket Entrants
• Growing Health Food Stores (GNC)
• New Firms
Entrant
Comparison
Barrier
New Entrant
Re-Branded
Strong
Moderate
N/A
N/A
Moderate
Moderate
Access to Key Inputs
Strong
Weak
Experience Curve
Strong
Weak
Network Externalities
Strong
Moderate
Competition Expectations
Strong
Moderate
Economies of Sales
Government Protection
Brand Loyalty
Overall Threat:
Low
High
Most Likely
Segment Entrants
Based On The Barriers To Entry Analysis, The Most
Likely Entrants Into The Organic Segment Of The
Supermarket Industry Are Established Firms
Who’s Next?
Substitutes
And Complements
Substitutes
– Threat To Profits:
Medium
– Health Food Stores
– Traditional
Supermarkets
– Supercenters
Complements
– Health Industry
– Health Insurance
Companies
– Health Care Specialists
– Fitness Centers
– Wellness Programs
Supplier Power
Threat to Profits: High
• Local Growers, Independent And Family
Farmers, Large Corporate Farms, Co-ops
And Food Brokers
• Organic Supply Chain Underdeveloped
• Growing Number Of Organic Food Grocers
Buyer Power
Threat To Profits: Medium To High
Buyers Have Options!
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Price
Convenience
Varying Levels Of Health Sensitivity
Mixed Consumer Messages
Porter’s Five
Forces Summary
Porter’s Five Forces
Internal Rivalry
Threat to Future Profits
High
Entry
Medium
Substitutes/Complements
Medium
Supplier Power
Buyer Power
High
Medium to High
Strengths
Whole Foods, Whole People, Whole Planet
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Corporate Culture
Customer Experience
Perishables
Hip Image
Double Digit Growth
Largest Selection
Strengths
Whole Foods:
Reputation:
Healthy, Local Food
Whole People:
Branding For Affluent
And Health Conscious
Positive Employee Environment
Whole Planet:
Environmentalist Reputation
Encourages Brand Loyalty, Holds
Off Commoditization
Strengths
Whole Financing!
Strong Cash Flow And Stock Position Provide Capital
For Growth In The Most Highly Desired Locations
t
– 4.7 Billion Dollar Revenues
– Revenue Growth:
• 21.6 Percent From 2004 To 2005
• 15.8 Percent From 2005 To 2006
– Returning Invested Capital (ROIC): 37%
– Capitalization Increased To 6.8 Billion:
6th On The List Of All Grocery Chains
Weaknesses
• “Whole Paycheck”
• Whole Planet? Weak International Operations
• Low Employee Efficiency
– Revenue per Employee = $138K versus Industry
Average of $309K
Opportunities
Market Leadership in High Demand Segment
– 2002 USDA Organic Rule – True Differentiation
– Organic and Natural Food Industry Focus on
Consumer Education
– Media Coverage
• Health benefits of organic foods
• Suspicious of “contaminants” (e.g. hormones,
antibiotics, etc.)
Opportunities
Private Label Brands
– “Whole-X”, Where X = Kids, Ranch, Fields,
Catch, Creamery, Diary, Treat
– Growth Of These Brands Is High Due To Lower
Price Versus Contemporary Organic Brands
– Potential To Sell These Products In Traditional
Supermarkets
Threats
Increased Competition
– Re-branding Existing Supermarkets
– Wal-Mart
Changes in Government Regulations
Changes in Economic Conditions
– Impact of Consumer Spending
Corporate
Strategy
Whole Foods’ Current Strategy
– Expand Through New Store Openings
– ‘Build’ Versus ‘Buy’ New Stores
• Customized Stores To Local Preferences
• Open To Acquisition Opportunities
– Grow Store Space At A “Controllable” Rate Of
14%
• Preserve Corporate Culture
– Achieve $12B In Sales By 2010
Medium Term
Strategy
Coordinated Campaigns To Enter New Markets
– Prior To Store Opening, Establish Relationships
With:
• Traditional Supermarkets Willing To Sell “Whole-X”
Products
• Local Organic Suppliers And Growers
– Aggressive Advertising Upon Store Launch:
• Emphasize “Whole Foods, Whole People, Whole
Planet”
Long Term
Strategy
Build National Brand Equity
– Extend Partner Relationships Into Current
Markets
– Increase Advertising Budget From 0.4% To The
Industry Average Of 1.5%
• Focus On Building Brand Identity With Organics
• When Consumers Think “Organic”, They Think “Whole
Foods”
• Shed The “Whole Paycheck” Image
Questions &
Discussion