Whole Foods SWOT Analysis
Strengths
Weaknesses
1) Broad Product Offering
- Whole Foods has a product selection with a
strong emphasis on perishable foods
designed to appeal to both natural and
organic foods and gourmet shoppers.
- Product selection in all of its stores include
seafood, grocery, meat and poultry, bakery,
prepared foods and catering, specialty (beer,
wine and cheese), coffee and tea, nutritional
supplements, vitamins, body care and
educational products such as books, floral,
pet products and household products.
2) Focused growth strategy
- Whole Foods Market focuses on expansion,
primarily through new store openings in
existing trade areas as well as new areas,
including international locations.
- During the fiscal 2010 and 2009, the
company opened 16 and 15 new stores
respectively across the US and Canada.
Besides, the company is also expanding in
the UK and Scotland. Further, company
signed leases for 20 stores scheduled to
open through FY2012.
- The company's strategy to grow through
identical store sales growth, acquisitions,
and new store openings has enabled it to
grow at a compounded annual growth rate
(CAGR) of 27% during 1991-2010.
3) Strong focus on right sizing of stores
- Whole Foods Market is focused on the right
sized store for each location. While Whole
Foods Market's larger-format stores have a
strong presence in dense urban areas, the
company's smaller stores have the potential
to generate great returns as well. The
company's decision to scale back the
average size of its new stores is an
important factor behind improving the
company's chain-wide productivity and
enhancing its return metrics.
1) Product recalls affect brand image
- Whole Foods Market has recalled several
products owing to contamination. There
were many cases in the past few years
where Whole Foods had to recall products
they were selling (including their own
private label brand 356) due to potential
contamination with salmonella pr E. coli.
- Such recurrent product recalls negatively
affect the brand image of the company,
which in turn leads to low customer loyalty
and brand equity.
2) Weak international operations
- The company has weak international
operations with just six stores in Canada,
and five stores in the UK. Though the
company intends to open new stores in the
UK and Canada, its operations in these
markets are not large enough to derive
economies of scale in purchasing and
distribution, resulting in relatively high
product prices. Their competition has a
leaner supply structure, hence lower prices
for the same products.
3) Increasing rental expenses
- Whole Foods Market has obligations under
certain capital leases for rental of
equipment and certain operating leases for
rental of facilities and equipment.
Therefore, the change in rental expenses
charged under operating leases, affects the
company’s business.
- Rental expense charged to operations under
operating leases for financial years 2010,
2009 and 2008 totaled approximately
$303.5 million, $281.9 million and $257.5
million, respectively. Increasing rental
expenses, affect companies profitability.
Opportunities
Threats
1) Increasing demand for organic products
- The demand for natural and organic foods
has increased over the years due to rising
awareness about the importance of natural
foods in the diets.
- According to industry estimates, the sales of
organic food increased three fold since 2000
to reach $25 billion in 2010. Organic sales
rose 5% in 2010, at a higher rate than the
overall food industry in the US which grew
at only 2%.
- This trend is going to continue in the future.
2) Increasing popularity of private labels will
improve margins
- Private label products in the US are
witnessing strong growth in sales. In 2010,
private label products accounted for nearly
20% of the dollar share and more than 20%
of the unit share in stores in the US.
- Consumers are moving away from the
expensive name brands toward more
affordable private label brands.
- Upper income consumers are more willing
to buy private label brands which lead us to
believe that brand loyalty is on decline.
- According to industry estimates, about 60%
of the consumers purchased more private
label brands in North America in the third
quarter of 2010.
- Whole Foods Market's store brands feature
approximately 2,200 SKUs led by its private
labels, 365 Everyday Value and 365 Organic
brands.
- The company's total private label sales
accounted for approximately 11% of its
retail sales in FY2010 and FY2009.
3) Trends support increased demand for food
products
- Eating at home and eating healthy are
important trends that are likely to increase
the demand for grocery. The economic
downturn, the perception that homeprepared foods are much healthier a view
held by 92% of grocery shoppers.
- According to a recent survey, 86% of the
budget-conscious women in the US
prepared their meals at home in 2010.
- Approximately 71% purchased convenience
1) Intense competition may have an adverse effect
on profitability
- Food retailing is a large, intensely
competitive industry. Whole Foods Market's
competes with local, regional, national and
international conventional and specialty
supermarkets, natural foods stores,
warehouse membership clubs, smaller
specialty stores, farmers' markets, and
restaurants.
- Most of these stores carry similar products,
which means that loss of sales and profits
are highly dependent on price and quality of
products and loyalty of consumers.
2) Stringent regulations impose additional liability
- As the company operates in the natural and
organic foods market, its stores and
products are subject to several laws and
regulations relating to health, sanitation and
food labeling.
- Several federal agencies and departments
including the Food and Drug Administration
(FDA), the Federal Trade Commission (FTC),
the Consumer Product Safety Commission
(CPSC), the United States Department of
Agriculture (USDA) and the Environmental
Protection Agency (EPA) set critical
standards for the manufacture, processing,
formulation, packaging, labeling and
advertising of products.
- Failure to comply with these standards could
result in penalties and seizure of marketing
and sales licenses. These regulations also
result in additional compliance costs, which
could reflect in reduced margins.
-
produce (prepared salads, chopped fruits
and vegetables, etc.) and approximately 81%
purchased convenient forms of fresh poultry
and meats regularly.
Whole Foods has recorded a steady growth
mainly due to consumer’s perception of
healthy foods, eating population with not a
lot of time to cook as well as variety of
meals provided at their stores. As the
economy improves, the number of
consumers with bigger discretionary income
to spend is going to help the WF growth in
years to come.