CASE ANALYSIS

• Company Background• Industry analysis : PEST• SWOT $ TOWS analysis• Questions Q1 : chief elements strategies Q2: financial analysis Q3: competitive analysis Q4: recommendations Current trends Islamic perspective Conclusion

Presentation Outline

• Whole Foods Market is a chain of grocery stores that sell natural and organic foods and products.

• In 1978,Whole Foods Market was founded in Austin, Texas, by John Mackey and Renee Lawson Hardy, owners of Safer Way Natural Foods.

• In 1984, Whole Foods Market began its expansion out of Austin to Houston, Dallas and New Orleans.

• In 1992 Whole foods became a public company.

• The company started its third decade with additional acquisitions. The first was Natural Abilities in 2000.

Company Background

• In 2002, the company opened its first international store in Canada, in Toronto, Ontario.

• In 2005, Whole Foods opened its 80,000-square-foot (7,400 m2) flagship store in downtown Austin.

• In 2007, they had 276 stores in 36 states in US and in Canada and UK.

• Whole Foods Market made it to the Fortune’s “100 Best Companies To Work For” for 11 consecutive years since 1998. This can be attributed to its highly supportive HR department.

Cont…

MissionRemained a uniquely mission- driven company- highly selective about what we sell, dedicated to our core values

and stringent quality standards and committed to sustainable agriculture.Vision

To become an international brand synonymous not just with natural and organic food with being the best food retailer in

every community in which whole stores were located.

Mission and vision

• The Company’s motto is “Whole Foods, Whole People, Whole Planet”

• This is in line with its core values:– Selling the highest quality natural and organic products available– Satisfying and delighting our customers– Supporting team member happiness and excellence– Creating wealth through profits & growth– Caring about our communities & our environment– Creating ongoing win-win partnerships with our suppliers– Promoting the health of our stakeholders through healthy eating

education

Company’s Motto

$62 billion sales in 2007 Supplier power dominates the industry Organic and general grocery markets have almost merged Competitive organic differentiation is inevitable Further segmentation beyond organic and non-organic is

needed Ex: Health-organic & Social-organic

Competitors include Trader Joe’s, Kroger, Wild Oats etc.

Industry analysis

PEST analysis

Category Issue Opportunity/ Threat

Political All organic products must meet the requirements of the USDA Organic Rule

Opportunity

Economic 2008 Economic crisis Threat

Social Healthy and environmentally conscious population

Opportunity

Technology Innovative products and raising standards to ensure quality is met.

opportunity

Situtational analysis

SWOT and TOWS

Internal environmental analysis

SWOT AnalysisStrengths Weaknesses

•Business leader in organic and natural foods.•High- quality natural and organic goods.• large variety product selection•Innovative and interactive store design.•Reputation.•Knowledgeable and well trained employee.•Ranked among the most socially responsible businesses• High-traffic shopping locations (urban metropolitan area)

•High premium prices•Lack of supplier for organic beef & chicken

Opportunities Threats

• Double digit growth in sales of natural goods.•Increasing demand for organic goods.•Private label brand- Potential To Sell these Products In Traditional Supermarkets

•Increased Competition•Economic downturn•High expansion costs (new stores).

TOWS analysis

External Opportunities (O)

Internal Strengths

(S)

S1 O2Having the strength as business leader, Whole Foods Market can expand internationally in other markets because of increasing demand for organic foods.

S2 O1High-quality natural and organic goods create loyal and satisfied customers as they perceive and indulge with their desires being met. Therefore, Whole Foods Market`s double digit growth in sales will expand more and more due to its ability to achieve quality products and hence increase the purchasing power of consumers.

TOWS analysis

External Threats (T)

Internal Strengths

(S)

S3 T2During economic downturn, customers still have to buy food because it was necessary product. During this condition, WFM can create competitive advantage by doing price tactics such as buy 2 and get 1 free, coupons, brand loyalty, discounts for their wide variety selection of their products.

TOWS analysis

External Opportunities (O)

Internal Weaknesses

(W)

W1 O2Even though the price of the organic product is higher compared to the non-organics products, its demand is still growing because consumer become more educated and concerned about health. Therefore they are willing to invest more for their health.

W2 O2Due to lack of suppliers for beef and chicken, the increase demand for organic foods can lead to suppliers joining the organic industries and produce the needed organic beef and chicken which creates markets for the farmers.

TOWS analysis

External Threats (T)

Internal Weaknesses

(W)

W1 T1Whole Foods Market even though have high prices, they should face the increased competition by ensuring that they compete differently since their main strategy is not cost but providing good customer service and quality organic products that will enable them to achieve a sustainable competitive advantage.

• Firm structure and systems: Whole foods market has stores all over 36 states, with

great locations such as urban metropolitan areas and high traffic shopping.

Their stores are open format with the largest store’s size to be 60,000 sq. ft.

With 54,000 employees and led by CEO John Mackey, whole food market has established itself to be the leader in natural and organic foods

Whole food market is a public traded company.

Internal environment

factors

• Firm culture: Employees are categorized as teams and led by team

leader. They are empowered to make decisions at store levels

in order to ensure a customer-centric culture. The reward system for whole food market is under

gain sharing program, stock options and bonuses.

• Firm resources Marketing techniques is under PR as they spend less

on advertising hence cutting costs. They are well financed through equity investment. Through acquisitions, they owned small, owner stores

as well as wild oats( second competitor of organic company) and produce procurement canters.

Their human resource is well educated and highly motivated as well as enthusiastic which ensure customer service is well achieved.

• Firm leadership CEO, John Mackey continuously ensures that whole

food market is progressing well and allows a decentralized decision making approach where employees are empowered to make decisions in form of teams at store levels.

They are focused on a customer-centric approach to achieve customer loyalty and retention.

Identify and explain the chief elements of

strategy that Whole Food Market is

pursuing?

Question 1

Marketing

• Product: High Quality ; Wide Product Mix and Expansion Potential – (life cycle of the product: Growth Stage); Perishables goods;

• Price: premium quality at premium price;• Place: Best location; Customized layout; Nice

presentation - ambient lighting, natural displays, and educational demonstrations; Create an inviting and interactive store atmosphere;

• Promotion: Rely on word-of-mouth recommendation and in-store marketing program;

Operation

• Use Team based strategy of operation• Best Merchandising Skills • Relatively Bigger Store Size • Buying responsibility at the national and regional

levels for better negotiation;• careful selection of food suppliers who are in

keeping with the highest standards of food production

• Owning two procurement centers; nine regional distribution centers; nine regional bake houses; etc…

Chief Elements of Strategy

Chief Elements of Strategy

Human Resource

• Decentralization Approach- many decisions are made at individual store level

• Employee Empowerment – operate each department effectively and efficiently

• Compensation and Incentive

CSR

• The purpose of the organization is not only retailing, but also supporting the health, well being, and healing of both people and planet

• Created Whole Planet Foundation and Animal Compassion Foundation

• Donate at least 5% of their after tax profit every year

• Established Local Producer Loan Program – give low-interest rate loans to small-scale food producer and growers

Corporate Strategy (Growth) Expand through combination of new store openings and acquisition of existing

chains

Business strategy Focused product differentiation strategy

Whole Food Market Current Strategy

How well is Whole Foods Market performing from a financial Perspective? Do some number-crunching

using given data to support your answer. Use financial ratios as a basis for doing

your assessment of the company's financial

statements and financial condition.

Question 2

• Since becoming a public company in 1991 WF market had been profitable in every year except in 2000. There was a net loss of $8.5 million.

• Company’s net income had risen at a rate of 17.6% from fiscal year 2003 to 2007.

• Net income fell in 2007 by 21 million from 2006.• In 2006 gross profit increased by 34.9% from 2005 and in 2007 it

had been increased by 34. 8% from 2006.• Store contribution has been increased by 26% in 2006 and 8.8% in

2007.It is an indication that their store expense had increased during 2006 and 2007 due to acquisition and development of new stores.

• Income before tax had been increased in 2006 by 43% but decrease by 10% in 2007.

Financial Situation

• Net income had been increased by 49% in 2006 but decrease by 10% in 2007.Due to payment of interest on debt taken to finance the new stores and acquisition of new stored had been rose the net income decreased by 10% in 2007.

• Sales growth increased by 17% in 2003 , 22% in 2004 , 21% in 2005 and 19% in 2006 on the other hand wild oats sales growth increased by 54% in 2003, 81% in 2004, 72% in 2005 and 53% in 2006. the growth of wild oats made whole food market to take the decision for acquisition of Wild oats in 2008 to stop the competition .

• The industry average for the past five years is about .30. In general gross profit stayed the same over the past five years Because general and administrative and direct store expense has been relatively stable for the past five years.

• Planning for expansion and moving towards local supplier gives Whole Food economic of scale and better bargaining power which maximize net income as a percent of total sales at 3.57%.

Cont…

COMMON SIZE ANALYSIS INCOME STATEMENT FOR WHOLE FOODS MARKET

2007 2006

Sales 100 100.0

COGS & Acquiring costs 65.2 65.1

Gross Profit 34.8 34.9

Direct Store Expenses 26 25.4

Store Contribution 8.8 9.5

General & Admin Expenses 3.3 3.3

Preopening & Relocating 1.1 0.7

Operating Income 4.4 5.5

Interest Expenses -0.089 0.0

Investment & Other Income 0.24 0.4

Income Before Tax 4.6 5.9

Provision For Taxation 1.8 2.4

Net Income 2.8 3.5

Common size analysis

Financial ratios

Profitability Ratios 2006 2007 Difference

Gross profit margin 34.95% 34.84% Decreased 0.09 %

Operating profit margin

5.69% 4.51% Decreased 1.18%

Net profit margin 3.63% 2.77% Decreased 0.86%

Return on assets 10% 6% Decreased 4%

Return on equity 15% 13% Decreased 3%

Earnings per share 1.46 1.31 Decreased 0.86%

Profitability ratios

Leverage Ratios 2006 2007 Difference

Long term Debt to capital ratio

8% 40% Decreased 32%

Debt to Equity Ratio 0.45 1.20 Increased 0.75

Leverage ratios

Activity Ratios 2006 2007 Difference

Inventory Turnover Ratio

17.91 14.91 Decreased 3

Days of Inventory 20.39 24.48 Increased 4.09

Average Collection Period

5.35 5.83 Increased 0.48

Activity ratios

Liquidity Ratios 2006 2007 Difference

Current Ratio 1.22 0.85 Decreased 0.37

Quick Ratio 0.82 0.48 Decreased 0.34

Working Capital $ 114211 $ (116530) (2319)

Liquidity ratios

2006 2007 Difference

Dividend payout ratio 1.67% 0.66% Decreased 1.01%

Other important financial ratio

Summary of financial ratios

• Whole Foods Market’s profitability has gone down in 2007, with Gross Profit Margin going down 0.11% to 34.84% from the previous yr, Operating Profit Margin down to 4.51% and Net Profit Margin to 2.77%, which resulted in low after-tax profits for the company.

• The activity of Whole Foods Market has also become of concern in 2007, with the inventory turnover decreasing to 14.91 from 17.91 in the previous yr, consequently affecting the days of inventory which increased to 24.48 days and the average collection period also increasing a bit to 5.83 from 5.35 previously.

• The long-term debt to capital ratio has jumped from 8% to a shocking 40% in 2007, clearly indicating the large percentage of capital investment that is financed by creditors, further weakening the balance sheet strength of the company.

• The Plan for expansion and as well as for moving towards the local suppliers will give Whole Food economies of scale and better bargaining power which can maximize the net income as a percent of total sales up to 3.57%.

• The inventory turnover was good until 2006 but this value was slightly declining in 2007 and the company should take care of it.

• The current working capital turnover is negative because of the loan and debts they acquired in opening up new stores in 2007.

• The profitability ratio reveals that an increase in Return On Sales increases profitability and efficiency of operating activities.

• Net income was increased by 49% in 2006 but then it decreased by 10% in 2007, this was because of payment of interest on debt taken for financing the new stores and also acquisition of new stores.

• Talking of stockholders, the earnings per share have also decreased to 1.31 in 2007 from 1.46 in 2006.

How well is Whole Foods Market performing from a strategic

perspective? Does whole foods enjoy a competitive advantage

over its rivals? Does the company have a winning

strategy? Explain.

Question 3

• Whole food market’s is operating under a differentiation strategy as the firm seeks quality leadership in their products and provide 30,000 variety of products.

• The strategic alliances they formed by acquiring wild oats and other small, owner managed chains helped them achieve additional bargaining power of suppliers as well as expansion criteria.

• They have created a company culture which connects with their team members as they pass that connection to the shoppers.

• Their quality standards adhere to be free from artificial preservatives, colors, flavors and sweeteners, which makes their organic food the true natural qualities.

Performance from Strategic

• With hardworking employees, and many store outlets across the whole country, whole foods markets has managed to provide a good customer base as employees are empowered and take initiative on their own in ensuring customers needs are fulfilled.

• The status of WFM has led it to be the industry leader in organics hence showing that strategically their performance is excellent and have distinctive core competencies.

THREAT OF NEW ENTRANTS• Threat to profits is medium• Strong economies of scale

• Threat is low• Hard to enter for new and small company

THREAT OF SUBSTITUTE PRODUCTS• Threat to profits is medium

• Health food stores• Traditional supermarket

RIVALRY AMONG SELLERS• Threat to profits is high • Many sellers in market• Different cost structure

• Strong exit barriers

BARGAINING POWER OF SUPPLIERS

• Threat to profits is high• Too many farmers

BARGAINING POWER OF BUYERS

• Threat to profits is medium

• Many choices• Convenience

• Different levels of product lines

PORTER’S FIVE FORCES MODEL

• Whole foods market are enjoying a competitive advantage as under porter’s model, they have bargaining power of sellers due to existence of many suppliers and farmers

• substitute products in the market such as non-organic foods is not seen as a threat since customers invest in healthier foods.

• Barriers of entry is high as only leading companies can manage to enter the industry.

Key success factor Importance weight

Whole Food

Wild Oats

Fresh Market

Traders Joe’

Strength rating score Strength

rating score Strength rating score Strength

rating score

1. Cost Efficiency .2 5 1 6 1.2 7 1.4 8 1.6

2.Quality .2 9 1.8 8 1.6 8 1.6 8 1.6

3.Merchandize Mix .15 9 1.35 8 1.2 7 1.05 8 1.2

4.Store ambiance .1 7 .7 6 .6 9 .9 9 .9

5.Customer service .1 8 .8 6 .6 8 .8 8 .8

6. Brand Image .05 9 .45 7 .35 6 .3 8 .4

7. Availability of stores .05 9 .45 7 .35 6 .3 8 .4

8.Growth .05 10 .5 5 .25 6 .3 7 .35

9.Market Share .05 9 .45 8 .4 7 .35 8 .4

10.CSR .05 10 .5 7 .35 6 .3 6 .3

Total score 8 6.9 7.3 7.95

Strategic group mapping

Strategic Group Mapping of Retail Food Industry

Pric

e/ Q

ualit

y /

Imag

e Lo

w

Med

ium

Hig

h

Large product mix limited product mix

Product Line / Merchandise Mix

Whole Food

Traders Joe Fresh

Market Wild Oats

• High Quality and 100% organic food• Certified by USDA • Free from all artificial fertilizer, preservative and genetic

engineering.• Fresh, wholesome and safe to eat.

Quality

• Wide range of product variety like Japanese egg plant,40 cheese , 20 coffee.

• Fresh sea food.• Natural and organic meat• Organic wine

Merchandise Mix

• Aggressive in acquisition of small stores and establishing new stores in convenient location.

• Large and convenient store . Ideal size is 45000-60000 sq feet.Growth

• Strong alliance with the local supplier, distributor.• Self directed team.• Empowering work environment.• Intelligent, educated and motivated team member.

Strong Management Team

Winning Strategy of Whole Food Market

Recommendations for whole food management through the

recession period. Should the company cut back on opening so many new stores? Should it

vigorously contest the acquisition of Wild Oats? Are any other strategies needed?

Question 4

• Recommendations for Recession:– Use cost reduction strategies especially in the supply chain to help in

surviving the recession.– During recession reduce amount spent on CSR as this will allow for the

money to be spent in other areas.– They could brand their products and sell in other supermarkets.– Lower the price of products to allow people to continue buying.– Spend more on advertisement to create brand awareness. They spend

0.5% of its revenue.• Should it cut back on opening new stores?

– Yes it should but ensure that they acquire Wild Oats to reduce aggressive competition.

Recommendation

• Should they Contest Wild Oats acquisition?– Yes they should as it has several advantages especially during the

recession. These Include:• Allow whole foods to enter five new states and 15

metropolitan markets.• It will reduce administration costs.• Increased supplier bargaining power.• Boost overall utilization of company’s facilities.

– Acquisition of Wild Oats will help in the reduction of costs and expanding the market. This will be very beneficial during the recession.

Cont…

Current trends

• Online shopping : holiday meals, gifts boxes.• Browse recipes online• Whole deal value guide brochures• Pricing tactics used such as:

– Whole deal– Coupons– Three under 3$– Budget-friendly recipes

• Ship gift boxes free to military addresses overseas.• Green technology promotion, conserve energy by

using solar power and wind energy ( first to use wind energy credits)

• Emphasis on the 3 R’s ( Reduce, Reuse and Recycle )• Partnership with our health partners for diet programs

such as:– Eat right America ( 28 day program)– Engine 2 diet (28 day health opportunity)• Expand to other cities in UK by 2010.

Analysis of Whole Food Market with regards to

Maqasid Shariah (objectives of Shariah).

Islamic Perspective

Maqasid Shariah

Maqasid Shariah: These are five religiousconsiderations an individual has to make beforeundergoing any economic activity.1. Religion2. Life 3. Reason 4. Wealth5. Future Generations

• In relation to religion, Whole foods market is not an Islamic company but in many aspects has principles which match the Islamic religion.

• In relation to protection of life, amongst the major values of Whole Foods Market is: Promoting the health of our stakeholders through healthy eating education.

Cont…

• With regards to protection of reason, Whole foods Market provides advice on what people should eat and what not to and this builds reasoning.

• With regards to wealth distribution, Whole foods market is a fully fledged profit making institution and distributes part of its profit to the needy.

• In relation to protection of future generations, Whole Foods market promotes protecting the environment for the future generations.

Cont…

Islamic Perspective Conclusion

In conclusion If Whole Foods Market was to open a

branch in an Islamic economy or Islamic country, it would survive effectively as it abides to many

principals of the Islamic Shariah.

ALLAH (S.W) says:ن� د�و د� ع� ن د �ا ن إ�� ع� د� د�ن إ��� إ� � ن إ� ا� د�و د� ع� نوٱ ع� د� �ـ نن ع� ن ن! ن"ا إ# �ـ ن� ي$ ن& إ"ن ا� د�و د� ا� دنو ن" ن(� نن إ*� � ن ٱ ن+ا � د ن,ا �ـ ـ ن�  

O you who beleive, Eat of the good things that WE have provided for for you and be grateful to ALLAH, if it is HIM you worship.

Holy Quran (2:172).

General Conclusion

Overall recommendations

• Expand to Europe to gain larger market.• Increase marketing budget to gain more

customer awareness by advertising.• Invest in R & D such as machinery that helps

give customers nutritional information as well as dietary arrangements.

• Customer reward program such as gift vouchers and coupons.

Thank You