A niche product to a national competitorA niche product to a national competitor
By: Tom AndersonBy: Tom AndersonKyle McDanielKyle McDanielDan McLindonDan McLindonRay MoormanRay MoormanJeremy SmileyJeremy Smiley
Key QuestionKey Question
Can Whole Foods remain competitive in the Can Whole Foods remain competitive in the face of major changes in the external face of major changes in the external
environment?environment?
Supporting Questions:Supporting Questions:What is the history of Whole Foods?What is the history of Whole Foods?What is changing in the external environment?What is changing in the external environment?What are the changes in demand?What are the changes in demand?How is supply changing in the retail food How is supply changing in the retail food industry?industry?How is the competitive landscape changing?How is the competitive landscape changing?What is Whole Foods Strategy?What is Whole Foods Strategy? Marketing Marketing GrowthGrowth OperationalOperational
Supporting Questions:Supporting Questions:What internal factors are affecting Whole What internal factors are affecting Whole Foods?Foods?What are the strengths, weaknesses, What are the strengths, weaknesses, opportunities, and threats for Whole Foods?opportunities, and threats for Whole Foods?What are the future challenges of Whole Foods?What are the future challenges of Whole Foods?How should Whole Foods proceed?How should Whole Foods proceed?
Overview of Whole FoodsOverview of Whole FoodsFoundedFounded 19801980
VisionVision Create an international brand , create a Create an international brand , create a more healthy diet for consumers , pace more healthy diet for consumers , pace setter in the industry, be the best in food setter in the industry, be the best in food retailretail
Brand ValuesBrand Values Natural & Organic FoodsNatural & Organic Foods
Competitive PositionCompetitive Position Premium Products at a Premium Premium Products at a Premium PricePrice
Source of DifferentiationSource of Differentiation Best Quality, least processed, Best Quality, least processed, most flavorful, naturally preserved,most flavorful, naturally preserved,zero hormones and pesticideszero hormones and pesticides
Status in 2008Status in 2008 275 stores, 3 countries, $6.6bn in 275 stores, 3 countries, $6.6bn in revenuerevenue
Corporate ObjectiveCorporate Objective 400 stores, $12bn in revenue400 stores, $12bn in revenue
What is changing in the external What is changing in the external environment?environment?
PEST Analysis for Whole FoodsPEST Analysis for Whole FoodsCategoryCategory IssueIssue Threats/Threats/
OpportunitiesOpportunitiesRanking (1-5)Ranking (1-5)
PoliticalPolitical 4 tier class 4 tier class system i.e. system i.e. Organic Organic DefinitionsDefinitions
OpportunityOpportunity 1 or 21 or 2
EconomicEconomic 2008 Economy 2008 Economy SoursSours
ThreatThreat 55
SocialSocial More health & More health & environmentally environmentally conscious conscious population.population.
OpportunityOpportunity 4 or 54 or 5
TechnologicalTechnological
What are the changes in demand? What are the changes in demand?
Overview of the DemandOverview of the DemandTotal Food RetailTotal Food Retail $850bn$850bn
Natural & Organic RetailNatural & Organic Retail $62bn (7.3%) – niche market$62bn (7.3%) – niche market
Growth RateGrowth Rate Growth slowed since 2000 (7-9%)Growth slowed since 2000 (7-9%)Organic $17bn (1/3 of natural foods)Organic $17bn (1/3 of natural foods)
Key Items PurchasedKey Items Purchased Fresh fruit &vegetables – 73% Fresh fruit &vegetables – 73% (largest category)(largest category)Big growth is processed itemsBig growth is processed items
3 Key Barriers for Consumers3 Key Barriers for Consumers Prices of organic foods – likely to Prices of organic foods – likely to decline as competition/supply decline as competition/supply increasesincreasesLack of availability – more supply in Lack of availability – more supply in the futurethe futureBrand loyalty to natural & organic Brand loyalty to natural & organic foodsfoods
How is supply changing in the food How is supply changing in the food retailing industry? retailing industry?
Porter’s Five ForcesPorter’s Five Forces
Heating Up
Cool To Warm
Porter’s Five Forces – Whole Foods MarketPorter’s Five Forces – Whole Foods Market
Whole Foods AnswerWhole Foods AnswerForces Whole Foods Answer to the Competition The Result
Threat of Substitute Products
Acquisitions, taking on debt, reducing available cash. Hoping to get into new markets. Plans for
new stores, varied floor plans
Slowing growth since 2000
Bargaining Power of Suppliers
Use local suppliers. But only 1% of farmland being used as organic farms. The big retailers are in a
better position to deal with suppliers.
Struggling to find beef and chicken suppliers.
Intensity of Competition
Growing and marketing organic foods runs 25 to 75% higher than conventional. Conventional retailers setting the price and gaining market
share.
Spend less (%) than the competition.
Bargaining Power of Buyers
For the most part, conventional retailers determine what we pay. At will.
Threat of New Entrants
Entrants are already there! Their intensity of the pursuit of the natural/organic market is the
question.Already there.
How is the competitive landscape How is the competitive landscape changing? changing?
Changes in the Competitive LandscapeChanges in the Competitive LandscapeShould they really welcome competition?Should they really welcome competition?
Local, regional, independent, national, and specialty Local, regional, independent, national, and specialty stores are all competitors.stores are all competitors.CEO say it is a gateway for customers to try CEO say it is a gateway for customers to try natural/organic foods or opportunity for the natural/organic foods or opportunity for the competition?competition?
Take a look at Store Sales GrowthTake a look at Store Sales Growth
Sales growth has been cut in half since 2004!Sales growth has been cut in half since 2004!
20042004 20052005 20062006 20072007 20082008
14.9%14.9% 12.8%12.8% 11.0%11.0% 7.1%7.1% ??????
Changes in the Competitive LandscapeChanges in the Competitive Landscape
We may be seeing a revolution in the food retailing We may be seeing a revolution in the food retailing business.business.Supercenters – Marketplaces – Wholesale ClubsSupercenters – Marketplaces – Wholesale Clubs
Will the competition force Whole Foods to rethink Will the competition force Whole Foods to rethink their strategy?their strategy?
20062006 US Grocery SalesUS Grocery Sales # of Stores# of Stores Revenue in Revenue in Billions $Billions $
Conventional Conventional RetailersRetailers 25%25% 58125812 $377$377
Whole FoodsWhole Foods 0.7%0.7% 188188 $5.6$5.6
What is Whole Foods Strategy?What is Whole Foods Strategy?
MarketingMarketingGrowthGrowthOperationalOperational
Marketing StrategyMarketing StrategyProductProduct High Quality Natural and Organic Food and High Quality Natural and Organic Food and
nonfood itemsnonfood items Offerings vary based on store size and tastes of Offerings vary based on store size and tastes of
local clientelelocal clientele Exotic offerings and product varietyExotic offerings and product variety
Ex) Japanese eggplant, 40 cheeses, 20 coffeesEx) Japanese eggplant, 40 cheeses, 20 coffees Private label productsPrivate label products Emphasis on perishables (fruits/veg., bakery Emphasis on perishables (fruits/veg., bakery
goods, meat, seafood) – 67 % of salesgoods, meat, seafood) – 67 % of sales
Marketing StrategyMarketing Strategy
PricePrice Goal is competitive price at highest qualityGoal is competitive price at highest quality Organic foods are 25 – 75% more costly to Organic foods are 25 – 75% more costly to
grow and marketgrow and market Price and Quality are competing forcesPrice and Quality are competing forces
Whole Foods chooses to focus on Quality, Whole Foods chooses to focus on Quality, therefore prices are higher than conventional therefore prices are higher than conventional grocersgrocers
Marketing StrategyMarketing Strategy
PlacePlace No standard store design. Layout No standard store design. Layout
customized for site and product mix.customized for site and product mix. Colorful, inviting, funColorful, inviting, fun
Gathering place to learn, interact, eat, and Gathering place to learn, interact, eat, and grocery shopgrocery shop
PresentationPresentationHighly regarded food displays, cleanliness, Highly regarded food displays, cleanliness, wide aisleswide aisles
Marketing StrategyMarketing Strategy
PromotionPromotion Primarily rely on word-of-mouth Primarily rely on word-of-mouth
recommendationsrecommendations 0.5% of revenue spent on advertising0.5% of revenue spent on advertising Most marketing spend is for in-store Most marketing spend is for in-store
signage and eventssignage and events Store personnel is knowledgeable and Store personnel is knowledgeable and
personable personable
Growth StrategyGrowth Strategy
New stores and acquisitions of small New stores and acquisitions of small owner-managed chains in desirable owner-managed chains in desirable marketsmarkets
Ideal store size is 45,000 – 60,000 sq. Ideal store size is 45,000 – 60,000 sq. ft.ft.
Operational StrategyOperational StrategyTeam-based management of store operationsTeam-based management of store operations Many personnel, merchandising, and operating Many personnel, merchandising, and operating
decisions made at store leveldecisions made at store level
Buying responsibility at the national and Buying responsibility at the national and regional levels for volume discountsregional levels for volume discountsOwn and operate many distribution centers: Own and operate many distribution centers: 2 for produce, 9 bake houses, 5 commissary 2 for produce, 9 bake houses, 5 commissary kitchens for prepared food, and a central kitchens for prepared food, and a central coffee roastercoffee roaster
What internal factors are affecting What internal factors are affecting Whole Foods?Whole Foods?
Internal AnalysisInternal AnalysisAffordability is a key Weakness – WF must Affordability is a key Weakness – WF must build value with every customer interaction. build value with every customer interaction. Email recipes, establish newsletter, personalized Email recipes, establish newsletter, personalized
services once customer is in the store, free services once customer is in the store, free organic cooking classes, partner with local organic cooking classes, partner with local farmers in advertisingfarmers in advertising
Internal AnalysisInternal AnalysisValue Chain AnalysisValue Chain Analysis Logistics seem to be streamlinedLogistics seem to be streamlined Operations – opportunity to be more efficient, appeal to Operations – opportunity to be more efficient, appeal to
more customers/increase average spendingmore customers/increase average spendingFocus more on perishables (fruit and vegetables) – Focus more on perishables (fruit and vegetables) – reduce waste and spoilage in biggest section of the storereduce waste and spoilage in biggest section of the storeEliminate non-essential services – valet parking, Eliminate non-essential services – valet parking, massagesmassagesDevelop budget that allows chefs to teach organic Develop budget that allows chefs to teach organic cooking classes to customers at no cost.cooking classes to customers at no cost.Continue to invest in customer service associates. Their Continue to invest in customer service associates. Their interactions can help build brand loyalty. interactions can help build brand loyalty.
Internal AnalysisInternal AnalysisValue Chain Analysis (continued)Value Chain Analysis (continued) Marketing – severely under-funded, develop new Marketing – severely under-funded, develop new
marketing campaign in current markets to reach more marketing campaign in current markets to reach more middle/upper income families. Focus on middle/upper income families. Focus on pesticide/hormone free and benefits to the earth – pesticide/hormone free and benefits to the earth – capitalize on green/healthy trends.capitalize on green/healthy trends.
Management/Administration – board should remove Management/Administration – board should remove John Mackey and replace him with a leader with John Mackey and replace him with a leader with experience in grocery or organics. Proven inability to experience in grocery or organics. Proven inability to lead at this level. Doesn’t have the vision to make the lead at this level. Doesn’t have the vision to make the changes necessary right now.changes necessary right now.
What are the strengths, What are the strengths, weaknesses, opportunities, and weaknesses, opportunities, and
threats for Whole Foods?threats for Whole Foods?
SWOT AnalysisSWOT AnalysisSTRENGTHSSTRENGTHS
Experience in the IndustryExperience in the IndustryLarge, customized storesLarge, customized storesHuge selection/variety – over 30,000 Huge selection/variety – over 30,000
itemsitemsNationally Known Organic/Natural Foods Nationally Known Organic/Natural Foods
Seller Seller
WEAKNESSESWEAKNESSESPrice – up to 75% higherPrice – up to 75% higherLocations – only in affluent areasLocations – only in affluent areasAdvertising Budget very low (WOM Advertising Budget very low (WOM
approach)approach)Promotional Offers – no couponsPromotional Offers – no coupons
OPPORTUNITIESOPPORTUNITIESExpand private label selection – lower price for Expand private label selection – lower price for
customerscustomersAdvertise more, create coupons and promotions Advertise more, create coupons and promotions
to get people in the storeto get people in the storeHype right now is to eat healthier and protect Hype right now is to eat healthier and protect
the environmentthe environmentRewards program – frequent buyer cards (like Rewards program – frequent buyer cards (like
Kroger cards) Kroger cards) Back to Basics – buy more local products that Back to Basics – buy more local products that
people will pay more forpeople will pay more for
THREATSTHREATSConventional Supermarkets Conventional Supermarkets Bad EconomyBad EconomyLocal Farmers’ Markets/Independent Local Farmers’ Markets/Independent
Retail ChainsRetail Chains
What are the future challenges for What are the future challenges for Whole Foods?Whole Foods?
Future ChallengesFuture Challenges
Conventional Grocery Stores over saturate Conventional Grocery Stores over saturate Market & offer Organic & Natural FoodsMarket & offer Organic & Natural Foods Convince new customers to shop at WF Convince new customers to shop at WF
rather than more convenient storesrather than more convenient stores
Pricing – being able to compete against Pricing – being able to compete against the conventional grocery chainsthe conventional grocery chains
Getting more people in the storeGetting more people in the store
Recommendations for Recommendations for Whole Foods MarketWhole Foods Market
RecommendationsRecommendations
Lower Price to Compete with Grocery Lower Price to Compete with Grocery StoresStores Add a customer rewards program for frequent Add a customer rewards program for frequent
buyersbuyers Mail coupons to customers in a targeted Mail coupons to customers in a targeted
marketing effortmarketing effort
Expand Private Label SelectionExpand Private Label Selection Lowers mfg costs, could offer discounts to Lowers mfg costs, could offer discounts to
customer for using WF brand productscustomer for using WF brand products
RecommendationsRecommendations
Expand Private Label SelectionExpand Private Label Selection Lowers manufacturing costs, offer discounts Lowers manufacturing costs, offer discounts
to customer for using WF brand productsto customer for using WF brand products
RecommendationsRecommendations
Personalize Service at WFPersonalize Service at WF 3 days after purchase, email Thank You cards to 3 days after purchase, email Thank You cards to
customers after purchasescustomers after purchases 7 days after purchase, email 10% coupon to use on 7 days after purchase, email 10% coupon to use on
next purchasenext purchase Email recipesEmail recipes
Advertise, Advertise, AdvertiseAdvertise, Advertise, Advertise Mail fliers to local zip codes – show locally grown Mail fliers to local zip codes – show locally grown
foods, classes offered, items on sale, couponsfoods, classes offered, items on sale, coupons
RecommendationsRecommendations
CateringCatering Offer catering to local businesses & eventsOffer catering to local businesses & events
Stop re-branding Wild Oats storesStop re-branding Wild Oats stores Halt expansion until WF builds up more cashHalt expansion until WF builds up more cash Focus on profitable stores and use that Focus on profitable stores and use that
philosophy to improve unprofitable storesphilosophy to improve unprofitable stores Look at option of selling some Look at option of selling some
underperforming Wild Oats storesunderperforming Wild Oats stores
Questions?Questions?
