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
February 15, 2012
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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.
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
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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.
Constraints Facing Whole Foods
The organic, socially conscious innovator faces numerous constraints both in the market as well as
internally. These include outside competition, higher prices, maintaining a positive social perception while
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dealing with distribution issues, and maintaining the quality consumers and employees alike expect while
still continuing to grow.
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.
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
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 competed away by lower-priced competitors.
A third constraint for Whole Foods is maintaining a positive social image while dealing with
distribution issues. As profit sharing, decision making, and managing became more decentralized, logistics
and distribution were becoming more centralized. Whole Foods started moving away from the local
distribution systems and facilities and instead started consolidating them into regional and national centers.
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One of the bigger problems it needed to overcome was keeping the food “whole” while still avoiding the
costly issue of spoilage. To overcome this they temporarily used regional distribution centers while making
their own specialized and innovative facilities in order to continue with their Quality Standards while
becoming more centralized. To further this operation Whole Foods chose to sign with United National Foods
which in turn caused an internal rift. To keep employees from losing their faith in the company or stakeholders to see them as a harsh corporate entity, Whole Foods would permit individual chains to choose up
10% of their products without having to get national approval. It seemed that almost every positive step
Whole Foods would take would be countered in some way. While its social mission was one of its greater
assets, it also was becoming increasingly difficult to stay within the bounds.
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.
Whole Foods social mission is what differentiated them from all of the others, yet it also seems to be
the one thing that is inhibiting its potentially endless expansion. In a sense its greatest strength has become
its greatest weakness. That being considered, Whole Foods still expertly walks the tight-rope of upholding
its Social Mission while continuing to be a major player in the grocery market.
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Alternatives
One of the first constraints covered discusses the high prices Whole Foods has on its products. To
look for alternatives Whole Foods may need to delve into a marketing concept competitors have employed, a
rewards system. The system will reward customers for frequently shopping at Whole Foods through
discounts on products, buy one get one free offers, and being informed about sales before the general public
is informed. Customers are not the only one with the advantages because Whole Foods can use this program
to entice customers to become regular patrons rather than the occasional window shopper. In turn, the
negative side to offering customers these types of rewards can be that customers have the potential to abuse
the program, sale items having a low turnover rate, and them only seeing high volumes of customers when
sales are in place.
Since Whole Foods’ inception, competition has been a constant constraint. An alternative to this
constraint from a dominance angle would be to buyout the competition rather than compete against it.
Whole Foods demonstrated this tactic by taking over such companies as Wild Oats. Negative aspects of
removing competition involve issues like violating the anti-trust laws. The Federal Trade Commission
regulates these laws and thereby modifies such deals so that companies like Whole Foods do not become as
power houses and monopolize the industry. Customers would have no advantages in this alternative because
it would essentially force them to become patrons rather than by choice. By forcing customers to become
patrons it would have a negative effect on Whole Foods image in and out of the market.
Another alternative to competition would be to formulate a different marketing strategy to display
that Whole Foods is better than the competition. Focusing on the competition would not be the strategy;
rather focusing on the Whole Foods image would be the center of the campaign. Putting together
testimonials from patrons and letting them show how Whole Foods is a better place to shop is the right kind
of marketing strategy. The above strategy is better than Whole Foods slandering other companies and
potentially driving customers away.
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The third constraint is the quality of the products that Whole Foods has at its stores. One alternative
to handling the quality issues would be to buy into farms, and be the actual producer rather than buying
products from other companies. By buying into the production of products Whole Foods can guarantee and
control the quality of its products. Whole foods would be practicing vertical integration and could then add
producer to its company’s assets. A disadvantage of integrating vertically like this would be the start up
investment, and finding locations which it can buy that meet organic specifications. By doing this Whole
Foods can set itself up for a financial problem which can then lead to declining stock prices. Another
alternative to controlling the quality of its products would be to have customers surveyed. This would lead
to direct feedback on any issues patrons may have. Customers would receive surveys in the mail on
products they have recently purchased at the store, and this would be done by monitoring the registers and
pooling the customers purchase data then proceeding to pick people randomly. By receiving direct feedback
from the customers Whole Foods would be able to adjust the quality of products which may be receiving
negative feedback. A negative aspect of this would be customers not completing the surveys, customers not
being truthful, and suppliers not adjusting their quality after reports have been sent to them.
The fourth and final constraint is social perception. Whole Foods must improve this aspect if they
want to overcome the competition. One alternative Whole Foods can offer is classes or seminars on the
company. Classes can cover what products are carried at the stores, the standards of quality that are
employed, and how organic produce is different than standard produce. Seminars can be held at colleges
where whole foods sales are lacking and any other markets which need revitalizing. Disadvantages to
employing seminars and classes are that competitors may copy the strategy which will take the niche of this
strategy away. Certain markets that this strategy is implemented in may not resonate well and be a loss to
the company. A final alternative to social perception would be to offer incentives for people to visit the
stores. Incentives such as samples, cooking classes, and special offers for first time customers can help the
community see Whole Foods in a new light. By offering such incentives, non-customers may become first
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time customers which will in turn help build the patrons in that area. A disadvantage to offering such
incentives is abuse of the system and customers over exerting their privilege.
Porter’s Analysis
Threat of Entry and rivalry amongst existing competitors
Whole Foods is the largest organic food conglomerate in the United States. They gained dominance
in the natural food industry through distinguishing themselves amongst competitors. Whole Foods
reinvented the image of health food stores. John Mackey opened the first Whole Foods Market in 1980 and
by 2000 he expanded his company with the acquisition of 40 stores and the construction of 50 new locations.
Mackey’s focus was store development. The square footage of stores were larger than competitors; thus,
sales per foot increased greatly. Whole Foods held the highest sales per foot for the natural foods industry.
They began to outperform competitors in volume of net income, return on common equity and inventory
turnover. Their entrance into the market sharply increased the demand for organic products. It was
necessary for clear standards to be set for organic foods. In 1990, the United States Department of
Agriculture (USDA) created a National Organics Standards Board. Growers, handlers, or processors of
organic were required to have USDA certification. Farmers and organic growers had to change their work
practices to meet standards. Such standards posed challenges on the organic market. Producers and retailers
felt the burden of new requirements and distributors as well. Produce that was organic had come from
regional distributors rather than national ones. Organic foods could not have any use of pesticides, sewage
sludge, and synthetic fertilizers. Without the use of pesticides, organic foods perish faster.
Just in a matter of six years, Whole Foods was the nation’s largest natural foods retailer and fastest
growing company. Upon the acquisition of Wild Oats, they furthered their competitive edge in the grocery
market. Companies in the grocery market included: Kroger, Safeway, Winn-Dixie, Wal-Mart, Great
Atlantic & Pac Tea, and Ingles. Whole Foods was now competing with mainstream groceries. Wal-Mart
and groceries began stocking natural and organic foods that once could only be found in health stores.
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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. 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.
Bargaining power of buyers
A buyer holds as much bargaining power as a supplier does. The buyer can directly influence what a
company supplies. 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.
Employees and customers who strongly resonate with the Whole Foods mission are known as “high
mission valence” employees and customers. When Whole Foods attempted to expand its product selection
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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 but lacked to entice the buyer. Buyers in large volume have more power. The Quality
Standards regulated ingredients that could be used in products sold and the term “natural” for the company.
Any product that had hydrogenated oils, sweeteners, trans fats, preservatives, flavorings, or artificial
colorings were prohibited. The employees believed Whole Foods was becoming too big and the all-natural
mission was part of a social and political agenda.
Whole Foods takes great care to implement a store atmosphere that educates and engages the
customer. Ways that Whole Foods ensures the customer is comfortable with purchases is through
storyboards hanging above produce bins, to display the cycle of the good, and pamphlets and signs. The
pamphlets and signs explain various concepts like sustainable, free range, and certified organic.
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