BUSI 400 - Group Case 1

BUSI 400 – D09 1

Group Case Analysis 1

Whole Foods - Group 5

Liberty University

3 December 2012

BUSI 400 – D09 2

Executive Summary

Supermarket expert Phil Lempert once said of Whole Foods, “They’re not selling food.

They’re selling life” (Serazio, 2011). The current grocery industry leader in organic and

natural products, Whole Foods is a fascinating case study on the line between serving the

lifestyle needs of a customer base while maintaining profitability. Throughout the past

three decades, Whole Foods has grown organically through small acquisitions of

companies that share the values of the now-retail giant. Because of their empowerment of

their workforce, associates set the industry standard for customer service and product

knowledge. The employees passionately care about the values that Whole Foods stands

for, and because of that customers see Whole Foods as one of the most socially

responsible corporations. The downturn in the global economy has had an effect on

Whole Foods. A merger with a competitor in the organic and nature foods market faced

severe antitrust litigation and price narrowing between regular and organic foods placed

more natural and organic foods in more locations. The corporation is left with a series of

decisions on whether or not to play ball against competitors like Wal-Mart and Kroger or

continue to provide extreme value at a higher cost than other grocers.

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Existing Mission, Objectives, and Strategies

Existing Mission Statement

Whole Foods’ existing mission statement reads, “to promote the vitality and well-being

of all individuals by supplying the highest quality, most wholesome food available.”

Objectives

As a chain of upscale, premium grocery stores, Whole Foods has seen one third of its

existing square feet come into the company as a result of acquisitions. The company fully

believes that their stores make a significant difference in the lives of those who shop

there – the average Whole Foods shopper drives 20 miles to visit compared to the

average grocery consumer who drives an average of 2 miles to their grocery store – and

in the lives of those who call Whole Foods their career.

The Whole Foods brand has straddled a difficult line throughout its existence. As

a leading voice in the natural and organic food supermarket industry, Whole Foods

attracts a very liberal customer base. On the back end of the company, Whole Foods and

its CEO John Mackey are dedicated towards driving down prices and increasing profit as

much as possible – an idea counter-culturally different than what most of their shoppers

would do if they were given the keys to the company.

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Therefore, the company’s objectives are to maintain the profitability Whole Foods

has enjoyed throughout its’ existence while satisfying both the dietary and lifestyle needs

of a highly-involved customer base.

Strategies

After the financial crisis of 2008, Whole Foods pivoted and made a few adjustments to

their current strategies. First, Whole Foods cut in half the planned new store openings.

Next, they cut discretionary spending by 50% and suspended its cash dividend. These

fiscal changes allowed the company a financial flexibility similar to their status before

the recession. Finally, they devised a three point approach to entering into a more price-

conscious grocery marketplace by increasing the range of their lower priced items,

strengthening their image as a value retailer, and launching their own in-store brand,

Whole Trade.

New Mission Statement

Whole Foods seeks to make the world a better place both inside and outside our stores

through providing immense value – value in our well-being, value in the time we spend

fostering relationships, and value in our high-quality, wholesome food.

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SWOT Analysis

Strengths

1. In a 2009 study by the Wall Street Journal, Whole Foods was rated as the most

socially responsible corporation. In a post-recession economic climate, consumers

look for reasons not to shop with particular brands. Whole Foods has committed

themselves to making the world a better place both inside and outside their stores.

Shoppers will continually hold Whole Foods in high regard as an employer of

choice and a purveyor of high-quality food.

2. Whole Foods is known to shy away from carrying mainstream brands and instead

finding niche, specialty brands to showcase to their customers. Therefore, Whole

Foods is seen as a retailer involved in creating a better lifestyle for its shoppers

and also is a trend setter. For instance, Whole Foods anecdotally has carried up to

50 different brands of olive oil in their stores at a time.

3. One of the biggest problems retailers have is hiring and retaining top talent.

Whole Foods’ associates are knowledgeable and can provide helpful information

to their shoppers. This competitive advantage makes the Whole Foods experience

something that a shopper wants to experience time and time again. The company

is able to retain their talent through paying above market average wages,

providing great health benefits, and fringe benefits such as free gym

memberships.

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Weaknesses

1. The grocer provides higher quality goods. These diverse, unique goods bring

about higher prices for Whole Foods’ shoppers. In a post-recession business

climate, Whole Foods is competing now against price-conscious customers more

than ever before. A perception that Whole Foods is expensive – anecdotally

known as “Whole Paycheck” in reference to the higher cost of their food –

weakens their position.

2. Most stores do not carry many major brands, instead focusing on niche brands to

provide a unique experience to their shoppers. However, a first-time shopper at a

Whole Foods could be confused by a diverse brand lineup and struggle to find the

time it would take to discern the correct brands for their lifestyle.

3. The industry makes less than a penny of profit on every dollar spent on retail

stores. There are price-conscious shoppers who will only purchase items at Whole

Foods that they cannot purchase at other stores, only to buy the majority of their

food at a lower-cost store, like Wal-Mart. Investing in the retail store experience

to provide a competitive differentiation is expensive, hard to justify on a large

scale, and makes it difficult to provide a premium experience across the brand’s

footprint.

Opportunities

1. Whole Foods can expand even more into prepared food. The stores already have a

reputation as a hybrid grocery store and restaurant. 28% of shoppers are unsure of

what their next meal will be up to two hours before the meal, providing a great

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opportunity for Whole Foods to find high-profit solutions. By transitioning to

more of a hybrid restaurant and grocery store, it gives shoppers more reasons to

come back to Whole Foods more often, and provides a competitive

differentiation.

2. As the economy continues to struggle, Whole Foods has an opportunity to

increase the range and scope of their low-cost items. A strategy for the company

is to grow its Whole Trade in-store brand, and doing so provides high-qualtiy

products for shoppers who are already are willing to try new brands with a high-

margin solution for the retailer. On top of all this evidence, with associates who

are knowledgeable and can make sincere recommendations, Whole Foods has the

potential to roll out a powerful in-store brand.

3. Maintaining their differentiation – what makes Whole Foods different from the

competition – will be critical. As more stores transition and adapt to the changes

Whole Foods has made to the industry, by providing more organic and natural

goods and specialty brands, Whole Foods must innovate and create the next great

idea in grocery stores. Customers are willing to try out new, innovative ideas

given Whole Foods’ previous credibility.

Threats

1. The global economy’s recession has consumers more price conscious than ever.

As the pricing gap between regular food products and organic food products

narrow, price-conscious shoppers may shy away from Whole Foods and consider

retailers like Wal-Mart or Kroger. Additionally, shoppers may only pick-and-

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choose specific items to purchase at Whole Foods and find the other goods at a

lower cost elsewhere.

2. 92% of Whole Foods’ 53,000 employees are full-time team members. As a result

of President Obama’s reelection in November of 2012, the pending health care

reform could have a drastic effect on the health premiums and medical plans

available for their employees. Skyrocketing health care costs and new legislation

will create a volatile climate inside the health insurance industry sure to drive up

costs for all employers.

3. With over 100,000 grocery stores in the US, the competitors to Whole Foods are

diverse and hard to fully understand. As the company expands to more markets

both domestically and internationally, each new competitor Whole Foods matches

up against requires the company to pivot and reestablish itself.

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Competitive Profile Matrix

Whole FoodsCritical Success Factors Weight Rating Weighted Score

Market Share 0.20 4 0.80Location of Facilities 0.09 3 0.27Brand Awareness 0.11 4 0.44Expansion 0.12 4 0.48Management 0.08 4 0.32Customer Loyalty 0.18 2 0.36Price Competitiveness 0.22 2 0.44

Total 1 3.11

Trader Joe’sCritical Success Factors Weight Rating Weighted Score


Total 1 3.08

Sunflower Farmers MarketCritical Success Factors Weight Rating Weighted Score


Total 1 2.10

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External Factor Evaluation Matrix

Key External Factors Weight Rating Weighted Score

OpportunitiesExpanding store brand items 0.15 4 0.60Acquisition of smaller competitors 0.16 4 0.64Increase in health awareness 0.07 3 0.21Increase in brand loyalty through rewards 0.12 3 0.36 cardIncrease awareness through community 0.06 2 0.12 events

Threats“Big box” stores increasing organic 0.13 1 0.13 optionsLower spread per trip per customer 0.10 2 0.20Increase in lower cost food alternatives 0.08 3 0.24Decreasing desire for niche products 0.07 2 0.14Local farmer’s markets 0.06 2 0.12

Total 1 2.76

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Internal Factor Evaluation Matrix

Key Internal Factors Weight Rating Weighted Score

Strengths18 new stores opened in 2011 0.05 3 0.15EBITDA up 17% from 2010 to $835(M) 0.07 4 0.28Excellent employee morale 0.10 3 0.30Revenue up YTY $2,910(M) in 2011 0.05 3 0.15Comparable store sales growth up 8.5% 0.02 3 0.06Sales increased 12.2% to $10.11(B) 0.15 3 0.45 from 2010Income available for shareholders up 0.05 4 0.20 42.5% from 2010Diluted earnings per share up 35.0% 0.02 3 0.06 from 2010

WeaknessesInventory value down 92.3% from 93.9% 0.10 2 0.20 YTYOne extensive store remodel 0.15 2 0.30Insurance liabilities rose $8.3(M) YTY 0.02 1 0.02Low interest payments on short-term 0.02 1 0.02 cash investmentsGeneral/administrative expenses up 0.04 1 0.04 $38.5(M) YTYGlobal economic issues depress 0.05 2 0.10 discretionary spendingStock price volatility: 2011 range was 0.03 2 0.06 $34.57 to 72.10Excessive leaseholds: 20 leases in 2011 0.05 1 0.05 of non-operating usePending antitrust legal issues 0.03 2 0.06

Total 1 2.50

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Alternative Strategies, Giving Advantages and Alternatives for Each

Increase On-Site Premade Food Options

Whole Foods has some of the most loyal customers in the retail industry. Those

who shop at Whole Foods travel on average up to ten times as far to shop at Whole Foods

as compared to the shoppers at other grocery stores. Therefore, Whole Foods is seen as

an innovative, thought-leading company who provides great products. To capitalize on

this momentum and a wide geography of their customer base, Whole Foods can continue

to create more premade food options for consumption on-site or to-go.

According to Serazio, consumers of organic products are not brand-conscious and

are invested in organic as a way of life (2011). Presently, organic and natural restaurants

are not as prevalent as their grocery store item counterparts are in the markets where

Whole Foods is in business. By expanding their premade food options, Whole Foods

appeases the market by providing an upscale location to eat out without the restaurant

price tag. This strategy could turn a brand loyal Whole Foods customer who shops the

store twice a month to either turn their bi-weekly trips into more of a destination. Instead

of seeing grocery shopping as a chore, they could combine their dinner and enjoy a night

out. Or, that same customer could view Whole Foods as an option to take business

lunches or when they want to eat out of the house.

To accomplish this strategy, Whole Foods would need to make a minimal

investment ensuring that each store had sufficient space for shoppers to partake in a meal.

While it may result in a loss of square footage for products, the perception for a shopper

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seeing a table and chairs will result in a more relaxed, calming atmosphere. Customers

will understand that Whole Foods wishes for them to relax and enjoy their shopping

experience (Underhill, 2009).

Rediscovering Their Roots and Reestablishing Competitive Advantage

Five years ago, Whole Foods was depicted as a company insistent that they are

fundamentally different when compared to the likes of McDonald’s or Wal-Mart. The

higher wages employees received empowered them to make decisions that benefitted

both employee and employer. Executives capped their pay at fourteen—not forty—times

the pay of store employees (Harris, 2006). These practices aligned with our post-

recession business climate and were five years ahead of their time.

Whole Foods has adapted to the market. Consumers began to cherry pick their

grocery shopping – coming to Whole Foods for the specialty items and relying on price-

conscious Wal-Mart or Kroger for the rest of their grocery list. To respond, Whole Foods

introduced its own brand of value items to boost margins and allure shoppers to gather all

of their items.

The addition of value items inevitably means the store is scaling back their

specialty items, which means that Whole Foods is getting away from their core

competencies. In 2006, the brand painted a vision of being a mega-chain retailer whose

growth through acquisitions allowed them to be different than Wal-Mart (Harris).

Instead, it feels as if the corporation is simply aiming to be like Wal-Mart, not different.

Establishing once again that the experience is what differentiates Whole Foods,

not the price, is what could bring Whole Foods back to prominence after a messy, legal

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battle to acquire Wild Oats Markets has eroded the brand’s focus. There will always be

price-conscious Wal-Marts and online retailers who will undercut on price.

One easy way for Whole Foods to continue to rediscover its roots and break out

of a post-recession mindset is through social media. Currently, the company does not

focus on advertising and does not advocate a large sum of their budget towards branding

their company. However, the brand is built around human connections between their

associates and the store environment. Managers have say over up to 10% of the SKUs

stores stock in order to provide a local flare to each store. Scaling a social media solution,

like Twitter or Facebook, to connect with fans will allow Whole Foods to not only stay

front-of-mind but also to assert the brand’s promise to promote vitality and well-being.

Recommend specific strategies and long term objectives

The past century has seen drastic changes in the makeup of the world –

demographic and social changes abound. These transformations have changed have

touched and forever changed the social environment we live in. Our habits, interests, and

life expectancy all have transformed.

A clear sign of this change is the increasingly customers preferences on organic

food consumption. The global organic food market drives $22.75 billion of business per

year, and the United States accounts for 45% of that total. As we learn more about the

world we live in and the way we treat our planet, many of us are in pursuit of a healthy

lifestyle.

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This makes the market increasingly lean to choose products that foster personal

wellness, improving the functioning of the body, prevent aging and go more “green,” or

natural. While consumers seek to maximize their dollar value while shopping, Whole

Foods now has the opportunity to explore new strategies, developing very specific foods

to niche markets that are willing to pay a little more than conventional food.

Specific strategies

Whole Foods can conduct a strategic campaign focused around merchandising. If the

brand does decide to expand their premade food options, it would additionally be an

excellent time to evaluate the placement of items throughout the store. By working with

local store managers and district leaders, Whole Foods can identify what products could

be best served in a different location and learn from the bright spots throughout the

organization (Heath & Heath, 2011).

Creating different promotions by communicating the benefits of every product would

assert Whole Foods’ market place knowledge of organic food. As companies begin to

invest in technology like digital signage, it allows Whole Foods to capture their

associates’ knowledge of different foods to create a database of market intelligence. A

quick and easy way to assert the company’s knowledge could be through recipe-sharing

in-store.

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Brand and launch a new service within Whole Foods. If the chain wishes to grow their

market share of premade food and offer a hybrid restaurant and grocery store, branding

the service under a new name would generate excitement and buzz surrounding the

brand. Additionally, Whole Foods could make a unique and unexpected endeavor into

advertising through television commercials and print mediums, along with a social media

presence.

Creating blogs and leveraging social media to explain the benefits and assert the quality

of every organic product is yet another example of thought leadership. A true way to

leverage the expertise of all of their associates is through social media. Providing a forum

for customers to ask questions about different products including recipes, different ways

to prepare items, and nutritional information and allowing the questions to be answered

either by a corporate social media team or directly by associates would be a continuance

of Whole Foods’ empowerment of their people.

Long Term Objectives

Continue to explore expansion into the European market. Presently, the brand holds a

handful of stores in the United Kingdom. Through careful planning and study of the

European market, engage in introducing the European customers to the Whole Foods

brand.

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Balance global integration and local needs through empowerment of their employees. As

the company expands internationally, there is more emphasis and pressure on local

district and store managers to stock the right items that fit the geography of the area in

which the store is.

Make continuous adjustments over time to optimize its global enterprise system,

including back-end information technology upgrades. Upgrading and investing in

technology solutions gives the outward appearance of staying with the trends but also

allows a deeper set of data to be harvested from shoppers.

Create a new branch of clothes, and different items made from recycling product and

organic cotton. Consumers who shop at Whole Foods wish to see products that match

their lifestyle choices, and diversifying their options with more durable goods could

potentially be a long-term solution.

Whole Foods must focus on opening small stores rather than big stores in the long-term.

Competing with Wal-Mart is not an advisable long-term strategy, and given Whole

Foods’ commitment to niche items, a smaller store concept could thrive in downtown

areas and suburbs.

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Works Cited

America's Healthiest Grocery Store - 2011 Annual Report. (2011, November 23).

Retrieved 2012, from Whole Foods Markets, Inc:

http://www.wholefoodsmarket.com/sites/default/files/media/Global/Company

%20Info/PDFs/ar11.pdf

Harris, M. T. (2006). Welcome to 'Whole-Mart'. Dissent (00123846), 53(1), 61-66.

Heath, C., & Heath, D. (2011). Switch, how to change things when change is hard. (1st

ed.). New York: Crown Business.

Serazio, M. (2011). Ethos groceries and countercultural appetites: consuming memory in

Whole Foods' brand utopia. Journal Of Popular Culture, 44(1), 158-177.

doi:10.1111/j.1540-5931.2010.00825.x

Underhill, P. (2009). Why we buy: The science of shopping. New York, NY: Simon and

Schuster, Inc.

http://www.wholefoodsmarket.com/sites/default/files/media/Global/Company%20Info/PDFs/ar11.pdf

http://www.wholefoodsmarket.com/sites/default/files/media/Global/Company%20Info/PDFs/ar11.pdf

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BUSI 400 - Group Case 1