Whole Foods Market
Case Analysis
Submitted to:
Dr. Roger Hinson
Submitted by:
Group 10
Savana Abbott
Spencer Hebert
Bilal Javed
Evan Lane
Ryan McCann
Brandon Nichols
Matthew Pierce
ACEG 4433
Agricultural Business Planning,
Management, and Policy
Philip Taylor
Louisiana State University
March 30, 2012
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Table of Contents
Case Analysis ...................................................................................................................................................................................... 1
Whole Foods Market ....................................................................................................................................................................... 1
Executive Summary ......................................................................................................................................................................... 3
Central Problem ............................................................................................................................................................................... 4
Goals ................................................................................................................................................................................................ 4
Constraints ....................................................................................................................................................................................... 6
Industry Analysis ............................................................................................................................................................................. 8
Works Cited ................................................................................................................................................................................... 21
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Executive Summary
This report provides an analysis and evaluation of Whole Foods Market’s efforts to maintain
dominance in the market place through sustained growth and increased profits while simultaneously
upholding the social mission. In an effort to attain the ultimate solution, we address several key areas
throughout the analysis including: the central problem, goals, constraints, industry analysis, alternatives, and
an implementation plan. The four goals outlined in the case are to maintain dominance, uphold the social
mission, raise customer satisfaction, and continue growth. The constraints facing Whole Foods are
competition from other firms, higher prices due to higher quality, and finding appropriate sourcing for
increasing demand while remaining profitable. In the industry analysis, we discuss Whole Foods rivalry
amongst its competitors, the threat of market entry, the threat of substitute products of services, as well as
the bargaining power of both buyers and suppliers. In response to the central problem of maintaining
dominance through growth, while trying to uphold the social mission, we identify several alternatives. These
alternative solutions include: focusing on the original concept of the organic market, expansion through the
opening of new stores, and expanding the product lines within the realms of appropriate food items. After
evaluating each alternative, it became clear that the best solution is to implement a growth plan focused on
the opening of new stores. We developed a plan to open twenty new stores in nine different states over the
next two years, in addition to Whole Foods existing expansion plans. Expanding through opening new stores
is widely advantageous for Whole Foods. It will allow them to capture new market space and serve
numerous new customers. In addition, Whole Foods will benefit from economies of scale as additional
stores will allow for reductions in procurement, distribution and management costs. Although there is the
possibility that some may perceive this expansion strategy as a sign that Whole Foods is straying from the
core of their social mission, the majority will recognize that this expansion will enable Whole Foods to
further develop their values of “selling the highest quality natural and organic products available,” while
allowing them to “satisfy and delight” and even greater number of customers.
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Central Problem
The majority of companies that experience rapid growth often find it difficult to stay true to the
principles, values, and business intentions originally outlined in their mission statement. Whole Foods is no
different; “Since going public in 1992, Whole Foods’ stock [has] returned more that 2,700%” to investors.
As a result, investors influence in decision making has caused management to put more emphasis on
growing profits and market share and less emphasis on their original mission as stated in the “Declaration of
Interdependence.” Whole Foods reputation as an eco-friendly, high quality natural foods retailer is slowly
diminishing as they continue to expand their business operations. Whole Foods must determine how to
maintain dominance in the marketplace through sustained growth and increased profits while striving to
fulfill its social mission if they hope to remain successful in the future.
Goals
Maintain dominance
John Mackey founded Whole Foods in 1980 with a $25,000 investment from his father. The store
was 10,500 square feet, just a fraction of the 55,000 square feet that the stores take up today. Throughout the
1980’s, Mackey expanded Whole Foods to 10 stores. During the 1990’s and early 2000’s, Whole Foods
acquired already existing natural food chains such as Wellsprings Grocery, Bread & Circus, Mrs. Gooch’s
Natural Foods Markets, Bread of Life, and Amrion, among others. These acquisitions allowed Whole Foods
to become the largest natural foods retail chain in the country by 2006. However, the acquisition that gave
Whole Foods its dominant position in the organic market was the gaining of Wild Oats in 2007. One of the
main goals of Whole Foods is to maintain the dominance that John Mackey brought to the company over the
last 30 years.
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Upholding social mission
Whole Foods’ first value in their social mission is to “sell the highest quality natural and organic
products available”. The second core value is to “satisfy and delight the customers”. These values are the
fundamental mission of Whole Foods. The company must continue to put emphasis on these values, even
while trying to grow and increase profits. Without selling a quality product, the company would lose the
principals on which it was founded. Even more important than losing their founding principles is customer
dissatisfaction. Without loyal, satisfied customers Whole Foods would not be the business it is today. The
company must continue to uphold its social mission in order to maintain its dominance.
Raise customer satisfaction
Customer satisfaction is the key to any business surviving and growing. There must be some way in
which the company is satisfying the customer’s needs or the business will fail. Whole Foods has satisfied
customers by offering them a quality product and by giving back to the community they belong to. Whole
Foods offered to pay employees for up to 20 hours each year for community service and even gave
assistance to local farmers by having food farmer’s markets in parking lots of Whole Food stores and
provided loans to local farmers. These actions gained favor of the local community and increased
satisfaction among their customers in local areas.
Continuing growth
Another goal of Whole Foods is to sustain growth. Founder John Mackey constructed a solid
foundation for future growth. The company has grown substantially over the last 20 years as organic foods
have increased in popularity. The nation as a whole is becoming more health conscious, which provides
Whole Foods with the demand the company needs to thrive. Whole Foods should continue expansion up to
the point at which the company is constrained by the ability to provide high quality, fresh produce to each
store.
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Constraints
The organic, socially conscious innovator faces numerous constraints both in the market as well as
internally. These include outside competition, higher prices, and meeting a larger demand to fill their
consumers.
Outside Competition
Outside competition and other firms entering the market have proved to be a difficult task for Whole
Foods to deal with. The primary areas where they face stiff competition are: lower cost alternative markets,
conventional supermarkets, and small sellers like farmers markets. The main competitor that it faced was
Trader Joe’s, an alternative market that offered more specialized and exotic products. In order to be highly
competitive, Joe’s took on a smaller and more specific product line as opposed to an expansive store like
Whole Foods. Joe’s only dealt with low price suppliers and eventually carried almost exclusively private
label products. Joe’s was able to detract from Whole Foods because of the low prices that it offered that
Whole Foods simply could not match. As if Joe’s competing away the market was not bad enough, other
supermarkets also began offering organic options as well as other popular buzzwords such as “locally
grown.” Additionally, a farmer’s market craze kicked in despite Whole Foods growth. Consumers viewed
farmers markets as an even fresher alternative to Whole Foods because they were buying directly from the
source rather than a distribution center.
Higher Prices
The next constraint that Whole Foods faced was the higher prices due to the higher quality. It
effectively earned its nickname as “Whole Paycheck” due to the higher quality and more expensive
distributors they had to go through to satisfy their mission. In order to try and deter this image they were
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being given, Whole Foods started a campaigning strategy in the New York Times for 12 weeks claiming
“More of the good stuff. For less than you think.” Another strategy they adopted was introducing some of
their own private label brands. Yet, even with these measures in place they still showed diminishing growth
as the market was being captured by lower-priced competitors.
Larger Demand
A third constraint for Whole Foods is finding appropriate sourcing for the higher demand while
remaining profitable. Whole Foods prides itself on not only delivering the highest quality organic products
around, but also by supporting local and smaller farms by buying and selling their products. Due to high
demand, however; this is not as feasible as it once was. Thus, Whole Foods still must find a way to supply
all of their facilities with or without using the small farms.
Whole Foods still pulls inventory from small farms where possible, but in order to
legitimately stay competitive they, like a lot of grocers, have to pull a majority from the larger, industrial
farms. There is a misconception that organic growers are all small family farmers. The truth is, according to
a small family farmer in Connecticut, “almost all the organic food in this country comes out of California.
And five or six big California farms dominate the whole industry." Like the regular, commercialized, nonorganic food industry, large farms comprise a lot of the market share. It is true that a lot of small, organic,
family farms exist, but their share in the industry, or in Whole Foods specifically, is not nearly as large as it
is made out to be. In closing, a multinational chain cannot fully uphold a “buy local” philosophy without
defeating itself. (Maloney)
When asked about its competitors, John Mackey said that the company no longer competed just
against small organic markets but the large supercenter stores. Whole Foods’ stores had become so large and
grown so much that they now had the demand equal to that of these larger stores. In order to meet this
demand Whole Foods had to change its distribution. This upset some customers, but allowed the company to
satisfy the growing demand. The question remains that if the demand continues to rise for Whole Foods’
products will they be able to reach that demand without changing the mission of the company?
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Probably one of the most difficult problems Whole Foods faces is maintaining the Quality Standards
that customers expect and buy into while still continuing to grow and bring in more customers. One instance
of this is the distribution of commodities to consumers that may not be in season. In order to overcome this
problem and not lose potential customers, Whole Foods opted to fly in items from growers year round who
abide by their Quality Standards. The most controversy that they face is in expanding their product line. As
customer demands for different products that were unconventional in the Whole Foods line such as beer,
wine, specialty cheeses, or sugary snacks began to grow, Whole Foods had to answer. When bringing these
in the “high mission valence” got upset and protested that Whole Foods was decreasing its Quality
Standards. While these products technically never violated the standards, they claimed the products violated
the original spirit of the company. As Whole Foods may have cut its losses with this smaller group, it kicked
the door open for a much larger group of consumers to buy into their products.
Industry Analysis
Rivalry amongst existing competitors
Just in a matter of six years, Whole Foods became the nation’s largest natural foods retailer and
fastest growing company; evolving and establishing dominance. The Organic Trade Association detailed a
statistic regarding the United States’ sales of organic food and beverage. Just in 1990 sales amounted to $1
billion and by 2010; the sales equaled $26.7 billion. A year’s growth from 2009 to 2012 was 7.7%.
(Association, 2011) The trend of growth for the natural and organic food industry is upward trending. In
2012, mass market retailers (mainstream supermarkets, club/warehouse stores, and mass merchandisers)
made up 54% of organic food sales with 39% of sales going to natural retailers. (Association, 2011) The
surge in demand for natural and organic products is growing worldwide further expanding the industry.
Whole Foods’ central focus is profitability.
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Rivalry within the industry is getting stronger for Whole Foods as grocers want to attain more of the
organic market. Kroger, Safeway, and Supervalu are amongst Whole Foods’ competitors who are general
grocers and have high market shares. Their main organic grocer competitor is Trader Joe’s. Trader Joe’s
mission is to focus on providing great value to customers by having competitive prices on all their products.
They attempt to create an exotic shopping experience for the customer. The selection of privately labeled
products is large and they have a fast inventory turnover rate. Trader Joe’s weaknesses are that it is limited
in store size and location, and there isn’t a clear distinguishing factor between their conventional products
and organic foods. Whole Foods uses a differentiation strategy and makes it one of their missions to have
organic differentiation. They have a strong brand which displays effective communication with the market.
Whole Foods stores are located in target market areas and have more square footage in comparison to Trader
Joe’s.
Threat of Entry
Economies of scale reduce long run average costs which create lower prices for consumers and give
a company the ability to grow. Significant economies of scale for Whole Foods are high, with their ability
to produce large volumes with low costs. Wal-Mart, who is a competitor in the sense of organic products;
drives down prices which causes fluctuations in the economies of scale.
The threat of entry by new entrants is low and the exit barriers are strong. Entry to the market is
either supermarkets being rebranded or health stores transitioning into supermarkets. Whole Foods strategy
to dominating this industry was expanding through new store openings with an aggressive approach in its
founding years. Whole Foods decreased their expected retaliation by gaining volume through taking from
incumbents through mergers and acquisitions. Since capital requirements are high, exit barriers are strong.
High investment in inventories, distribution, and property are at stake. It is unlikely for local growers to
become a dominate force and enter the market independently since most are not willing to invest in getting
certification with the government. It is easier for major corporations to enter the market since they can
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finance the type of goods the customers are looking for. Network externalities are strong whereas there is no
impact yet of government protection of incumbents on profitability.
Threat of substitute products or service
Whole Foods social mission is to “promote the vitality and well-being of all individuals by supplying
the highest quality, most wholesome foods available.” The customer is to utilize Whole Foods as a one stop
store. Whole Foods faced three types of competitors-conventional supermarkets, small sellers like farmers’
markets, and low cost alternative markets. Trader Joe’s was a primary competitor in the low cost alternative
market. Both Whole Foods and Trader Joe’s attracted health nuts, intellectuals, and foodies. Trader Joe’s
did not limit their products to only being organic foods. They carried less products and the selection
changed from week to week. Product variability was a result of the company’s goal to stock products that
could be bought and sold at competitive prices. Low prices were Trader Joe’s primary focus. Conventional
stores like Wal-Mart, who already advertised low prices, began offering natural foods. SuperTarget and
Kroger Inc. received organic certification from the USDA and now began labeling products “organic” to
better appeal to customers. This posed a threat to Whole Foods which was viewed as pricey or an expensive
place to shop. Whole Foods created its own private label brand, “365 Organic Everyday Value” to compete
with new products. In this case the switching costs to substitutes are low within the store front as compared
to other grocers. Mackey discerned Whole Foods from other stores by stating, “[Customers] don’t really
want to buy [health foods] at Safeway…They want to make a statement about who they are by where they
shop.” Although this ties into brand and customer loyalty, Whole Foods still faced smaller competitors. A
customer could stop at a produce stand or farmers market to get the true essence of buying local and organic
while knowing directly where the product came from. Wal-Mart’s emphasis on “Everyday Low Prices”
leaves room for the customer to shop around for the cheapest price. They’ll go store to store to get specials.
Bargaining power of buyers
Power relationships with a company’s buyers are negotiated through the individual buyer who can
affect probability with low purchase prices. The buyer can directly influence what a company supplies.
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Factors that influence a buyer are not limited to but include costs, customer service, and the store
environment. Whole Foods wants the customer to be able to stop and buy everything they need. They want
their customers delighted and satisfied. The demand for food won’t decrease and consumers will have a
demand for value pricing. Buyers of Whole Foods’ products are living a lifestyle that promotes health living
and ethics that are consciousness of the environment. Organics and products have been socially accepted.
Willingness to buy is relatively moderate to high in the natural foods and organic industry making customers
less price sensitive. As substitutes and alternatives are introduced by competitors, there is a demand for
value pricing and differentiation.
Buyers in large volumes have more power. When Whole Foods attempted to expand its product
selection to reach a larger group of customers, buyers felt the spirit of the store was violated. Whole Foods
had begun stocking specialty cheeses, sugary snacks, beer, wine, chocolate, and other products. The
products met the Quality Standards and enticed the buyer but further antagonized critics. The employees
believed Whole Foods was becoming too big and the all-natural mission was part of a social and political
agenda. This further implements Whole Foods’ central issue of maintaining dominance through growth
while trying to uphold the social mission.
The price elasticity of demand of buyer’s product is low. In terms of Whole Foods, backward
integration is low. Buyers have many alternative products that they can purchase at other grocery stores,
local markets, and produce stands.
Bargaining Power of Suppliers
The supplier industry is more concentrated and is a dominate power in this industry. Whole Foods
has a strong network of suppliers. Stores are expanding the quantity and type of products they carry like
organic product lines and private label store brands. The supply chain is more integrated than the past.
Whole Foods does not limit themselves to just regional suppliers but also local ones. More suppliers/
farmers are signing contracts with corporations. Since companies own their own distribution centers, they
can buy directly from manufactures and purchase higher volumes of goods leaving room for few substitutes
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for suppliers’ input. To maintain positive relationships and support transactions with specific suppliers,
there are relationship-specific investments. Shifting suppliers would be difficult for Whole Foods since they
are heavily invested within a network of suppliers. The products Whole Foods receives are differentiated. It
is not likely for suppliers to integrate forward into the industry due to certification and the money it would
cost.
Overall Analysis
Based on Porter’s Five Forces, the following threats on future profits for Whole Foods can be made:
rivalry amongst competitors is high, threat to entry is medium/low, pressure from products and support from
complements is medium, power of input suppliers is high, and power of buyers is moderate to high.
Alternatives
Alternative I
Whole Foods’ first alternative, among many, is to redirect its focus to organic purity. When Whole
Foods first began in 1980, it was primarily an organic-minded store. Earlier in CEO Jon Mackey’s career,
however, Safer Way, his first attempt at a natural food store, sold items such as refined sugar and eggs to
“cater to a broader clientele (Marquis 2).” Whole Foods was a success largely due to the inviting nature of
the stores and the image it produced as a health-focused market that provided customers with alternatives to
poor health conscious food choices. Once it began buying out similar natural stores, it took off and grew
exponentially, greatly increasing the awareness of “organic” and “natural” foods in the US. Since then,
however, Whole Foods has been criticized for drifting from that early image and moving towards a
monopolizing supermarket carrying everyday products, some of which shunned by organic purists. This
alternative, therefore, would greatly increase Whole Foods’ credibility as an organic market once more, but
as a business option, it comes with several relations to Whole Foods’ goals and constraints as an industry.
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Alternative I applies to the central issue by upholding Whole Foods’ social mission, but could be
detrimental to the dominance aspect of the dilemma. This alternative deals with the goals and constraints
Whole Foods faces in the following ways:
Whole Foods’ goals are: Maintain Dominance in the Organic Market, Uphold Social Mission, Raise
Customer Satisfaction, and Continue Growth
With regards to the first goal, Whole Foods has already established itself as a profitable company. It
is knowledgeable in how to maintain a successful company and is likely able to sustain itself should if
refocus on a more strict organic selection. This is beneficial, considering it would be giving up a large share
of the market in giving up its more processed items. Even with the drop in share, Whole Foods has the
sustainability to remain a profitable and dominant company.
The second goal Whole Foods has is to uphold its social mission. This alternative is the perfect
solution, as focusing on an organic stock of goods will most definitely support Whole Foods’ drive to
provide natural foods to its customers. The negative in this case, again, is the drop in market share Whole
Foods will face. Even though Whole Foods will likely remain a top competitor in the organic market, it is
possible that it will have to strive a little harder to remain the top of its class. Similar companies offer lower
prices, such as Trader Joe’s, but Whole Foods’ ambiance as an upscale market will assist in its mission to
hold a majority of the shares in organics.
The third goal in this analysis is to raise customer satisfaction. At first blush, many will argue that
dropping a large part of its store stock such as beer and chocolate will greatly reduce the satisfaction of its
customers. While this is true to an extent, the organic market in the US has grown immensely due, in no
small part, to the expansion of Whole Foods and similar companies. As a matter of fact, the organic cropland
grown nationally increased by 111% (Marquis 4) in the early 1990s and the retail sales of organic foods
increased a good 20% each subsequent year (Marquis 4). In this light, many customers would greatly
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appreciate the focus on organics as sales would likely increase slightly. When popularity peaked in 2009,
nearly two-thirds of the nation was consuming organics weekly (Marquis 4). Having a dominant placement
in such a large portion of the nation’s food consumption is an easy way to focus and raise customer
satisfaction as desired.
The final goal for Whole Foods is to continue growing. Simply put, Whole Foods is not content with
remaining the company it is now and seeks to continue to pursue the biggest and best of market share,
technology, and specialized niche market shopping. This can easily be done, so long as Whole Foods seeks
to expand in the organic market. Once Whole Foods refocuses on organics, it will lose its place as a
supermarket location and no longer be able to compete on that level with stores such as Kroger and WalMart. As long as that viewpoint is maintained in its business plan, Whole Foods is bound to prosper and
grow. It is a unique shopping experience, still, with a larger focus on organics, as its origins dictated in the
early stages of organic markets in the US.
Whole Foods faces several constraints as it strives to balance itself between its central issue. These
constraints are: Outside Competition, High Prices, and Meeting Large Demand.
Alternative I addresses the first constraint cautiously. Outside competition has dwindled in recent
years. Whole Foods bought out a majority of competitive companies, including Wild Oats in 2007. Whole
Foods has made its claim on the organic market, but there are still competitors looking to survive under their
own power. Currently, large supermarkets such as Wal-Mart are close competitors for Whole Foods, but
should Alternative I be put into practice, those larger companies will no longer be rivals and competitors, but
Whole Foods will acquire new competitors on the smaller, niche organic market scale.
High prices are what Whole Foods is famous for, but they are also a large constraint on the company.
Whole Foods, once referred to as “Whole Paycheck,” is known for charging higher prices for its goods and
services. Whole Foods’ founder and CEO stated that Whole Foods “strives to make shopping engaging, fun,
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and interactive (Marquis 5).” Whole Foods charges extra for the experience, not necessarily the food it sells.
Whole Foods’ shopping environments are decoratively designed to attract customers into another proverbial
world filled with shelves of convenient and organic foodstuffs. These high prices reflect the quality of
Whole Foods’ products, but rivals like Trader Joe’s, who base their business plans on low prices, cause
issues for Whole Foods by undercutting their prices. Customers seeking a better deal, especially in a
declining economy, will trend towards lower prices. Atmosphere and ambiance is a luxury good that
customers will likely forego to save money. Alternative I would not affect the prices of the store’s products
much, unless Whole Foods lowered prices to compete with Trader Joe’s and similar competitors.
Meeting large demand is the final constraint Whole Foods faces. Due to the increased consumption
of organic foods, Whole Foods must find ways to keep up with rising demand. If Whole Foods resorts to the
first alternative, it could easily meet this rising demand for more organics. Since two-thirds of the US
consumed organic foods each week, Whole Foods would have no trouble meeting the demand of consumers.
Along with the demand, similar food companies are going to be fighting to appeal to customers and gain
market share. Whole Foods will still have to compete in its market to sustain profitability since it can no
longer compete on a larger scale if this alternative is implemented, but it will find it easier to focus its
product line on a much smaller, vastly growing industry.
Alternative II
Whole Foods second alternative is to continue with their current operations and strategy while
expanding their business through the creation of new stores, not mergers or acquisitions. This alternative
poses a solution to the central problem facing Whole Foods by enabling sustained growth, which in turn,
leads to opportunities for increased profits. They can also maintain their dominance in the specialty food
store market by growing in areas they do not have a strong presence in. Regardless of all the negative
criticism the company has been getting involving their image; Whole Foods has actually done a good job
with satisfying the majority of customers and have operated within their standards. So upholding their social
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mission is not affected by keeping their current strategy because it seems to be successful. Building their
own new stores will create many positives for the company. The continuing growth will help build a larger
consumer base. Unlike mergers, the new stores being built can be planned to fit the company’s needs. When
acquiring other competitors’ stores through acquisitions, the stores may not meet the standards that Whole
Foods needs to operate a successful store. Also the problem of customer loyalty can be avoided by opening
your own stores. When acquiring a competitor into your business, many of the consumers may have been
very loyal to the prior store. These customers may not like the idea of Whole Foods store and can cause
negative feedback in the area. As the case study states, when Whole foods acquired one of its competitors in
the Northeast, the company had a strong relationship with its consumers in the area and they continued to
reference the store as its old name. Although building new stores may be slower than growth through
mergers and acquisitions, it will provide Whole Foods with complete control over expansion and will
eliminate many of the problems associated with mergers. Using this approach, Whole Foods can also grow
their own market and choose exactly where to place their stores.
The dominance that Whole Foods holds is mainly in the organics and natural foods market. The
company has acquired many of its competitors resulting from its dominance and has made it a goal to remain
on top of the market. An advantage that this alternative strategy presents to this goal is that Whole Foods
will increase its size and number of stores becoming more dominant in the areas in which they do not
currently operate. If Whole Foods locates new stores where organic markets are in high demand and the
competition is low, not only will they gain market share, but they will control it as well. Of course a
disadvantage to this goal would be that Whole Foods opens a store in an unsuccessful location. Any place
where the competition from other stores will affect the share of the market will decrease their dominance.
Other than opening a store in a bad location, this alternative does not hold any major disadvantages of Whole
Foods maintain dominance, because as long as the company continues to grow and expand, its place in the
market is sure to grow as well.
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Expanding while using their current strategy and mission will also help Whole Foods uphold its
social mission. Showing that their mission is still followed in the new stores that it plans to open represents
commitment and drive for the company. Some new stores may even show a renewed focus on such things
included in their mission. A negative aspect of this alternative on their social mission can take place if the
new stores opened do not focus on Whole Foods strategy. Opening and expanded the number of stores will
not create a positive effect if they do not stand for the same things that the company does. Whole Foods will
need to keep an eye on the new stores and see that they are performing in line with the social status of the
company.
Customer satisfaction is also an important goal to Whole Foods. Using this alternative will help to
get the company’s stores into more areas where consumers demand their items. The new stores can
potentially include all the same great products that the Whole Foods name carries, as well as a number of
items that are local and natural from the specific area. They may also ask the customers what types of items
they want to see in stock as long as they meet the standards of the company, as they have done in many of
their other stores. Disadvantages could occur from this strategy plan if the stores do not meet the consumers
demand. Also if the customers’ satisfaction is not fulfilled in current Whole Foods stores then new stores
that operate in the same manner will not benefit from growth.
Whole Foods goal of continuing growth is obviously obtained through this alternative action. Growth
in the company leads to more market share and higher profits. The main advantages of using this action are
the actual growth of the number of stores owned by the company and the ability to locate them where they
see fit. Mergers may help in acquiring an area where Whole Foods has no presence, but putting new stores in
a place can also lead to new market space where the competition may be limited.
The constraints faced are also affected by this alternative. Outside competition can become smaller if
Whole Foods continues to grow. Under this plan growth is the main point and gives the company the
advantage of dominating a greater percentage of the market. However, this could prove to be problematic if
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the outside competition grows at a faster rate than Whole Foods. Higher prices also pose a threat to the
company. Competitors whose prices are lower is a major disadvantage to Whole Foods, however with this
alternative the higher prices can see Whole Foods have greater profits with an increased number of stores.
The company also faces large demands. It has claimed to compete against large supercenters as well as small
organic markets. So to meet the larger demand the company continues to grow. Opening these new stores
may even cause a further increase in demand, which in turn will lead to additional growth and profitability.
The disadvantage to this is that demands grow too large and the company cannot meet the customer’s needs.
Also if the company must change its core values and standards to meet this demand then it has failed to
uphold its current plan.
Alternative III
Conclusion
The alternative that we believe to be the best is the second alternative: to focus more on building new
facilities as opposed to taking over existing ones through mergers and acquisitions, all while continuing with
current operations. This strategy will favor its social image by not appearing as a monopolistic or overly
corporate entity, while still permitting for growth. A fundamental reason we believe that Whole Foods must
continue with its operations is to obtain the necessary funds to expand further. The simplest reason why we
believe this is because Whole Foods’ current operations are providing industry leading results in all areas:
organic food sales, customer satisfaction, and also employee satisfaction.
The plan to be undertaken is to open up a total of twenty new stores in nine different states by the
start of January 2014, in addition to Whole Foods existing plans for new store openings. The new stores will
be opened in Alabama, Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Maine, and Nebraska. In order
to undertake this feat, it is necessary for all departments to collaborate together, especially the marketing,
finance, and sales departments. From now until the start of January 2013, when building and openings
should commence, they will plan and prepare a marketing mix, building plans, and a budget for expansion.
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During this time period they will also investigate locations, indices, and trends as well as assemble
contractors. The action plan for expansion will be further discussed in the following section.
Implementation
Whole Foods expansion department will be responsible for undertaking the task of new store
development, while top management continues to oversee current operations. It is vital that the company not
slowdown in any department while the expansion commences, as the revenue that current locations generate
will provide much needed capital for sustained growth. Whole Foods will begin implementing this
expansion project immediately, since valuable market share is potentially diminishing with every day that
passes. The goal is to have twenty new stores up and running by the start of 2014, in addition to the new
stores Whole Foods already plans to open. Whole Foods has previously opened ninety stores over the span
of four years so opening twenty in just under two years is certainly feasible. The plan is to start with the
larger storefronts and work down to the smaller venues because the larger stores will require more capital
and by and large generate the most revenue.
Initially, Whole Foods will begin plans to open twenty new stores in nine states over the next two
years. The new stores will be located in the following cities:
 Alabama- Montgomery, Mobile
 Arkansas- Fort Smith, Fayetteville
 Georgia- Buckhead, Peachtree City
 Indiana- Fort Wayne, Evansville
 Iowa-Des Moines, Cedar Rapids, Davenport
 Kansas- Kansas City, Wichita, Topeka
 Kentucky- Bowling Green, Owensboro
 Maine- Lewiston, Bangor
 Nebraska- Lincoln, Bellevue
*http://www.census.gov/popest/
These cities were chosen based upon population estimates, median household income, average
education level, in addition to current store locations. The majority of Whole Foods stores are located in
relatively large cities and the above cities lack a Whole Foods Store, making them prime candidates for new
locations.
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With the most desirable locations in mind, Whole Foods must then determine the amount of capital
necessary to proceed with the expansion plans and tailor the individual store plans accordingly. Whole
Foods opened 18 new stores in 2011 at a total cost of $40.9 million. The majority of these stores are between
35,000 and 45,000 square ft. and cost an average of $2.5 million per store to open, with the variations in
price resulting from the differences in size, geographic location and the degree of work performed by the
landlord (WF 2011 Annual Report). From this Data, we can estimate that the opening of twenty additional
locations at an average cost of $2.5 million per store will require an additional $50 million of capital. Whole
Foods consistently reports having $300 million plus in cash and equivalents on its balance sheet at any given
time, which is more than enough money to fund the additional stores. Nevertheless should the situation
change, Whole Foods has several additional options available to raise funds for new expansion. The two
most viable alternatives to secure funds for expansion would be for Whole Foods to either acquire the funds
from a bank or to decrease their dividend payments.
Once the Funds have been allocated accordingly, Whole Foods must then begin working on the
building, marketing, sales, supply, and distribution plans for the additional stores. After these steps have
been properly implemented, Whole Foods must evaluate the effectiveness of these new operations in further
efforts to continue growth.
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Works Cited
Association, O. T. (2011, June). Industry Statistics and Projected Growth. Retrieved March 6, 2012, from
Organic Trade Association: http://www.ota.com/organic/mt/business.html
Martinez, Steve W. (2007, May). The U.S. Food Marketing System Recent Developments, 1997-2006.
Retrieved March 1, 2012.
Maloney, Field. "Is Whole Foods Wholesome?" 17 March 2006. Slate.com. 28 March 2012.
<http://www.slate.com/articles/arts/culturebox/2006/03/is_whole_foods_wholesome.html>.
Thomas, Brad. "Shopping For a Buy Among Grocery Stocks." 16 March 2012. Forbes.com. 27 March 2012.
<http://www.forbes.com/sites/investor/2012/03/16/shopping-for-a-buy-among-grocery-stocks/>.
Flanagan, Glenda (2011, November). "Whole Foods Market 2011 Annual Report." Retrieved March 20,
2012, from http://wholefoodsmarket.com/company/pdfs/ar11.pdf.
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