Strategic Audit of

Whole Foods Market Corporation

Current Performance

Whole Foods Market experienced tremendous growth in sales during the fiscal

year of 2006. For the 52 week period in 2006, Whole Foods Market increased their sales

19% to approximately $5.6 billion, while on the other hand; comparable stores only grew

at a rate of 11%. In addition to their increased sales margin, Whole Foods Market

produced $453 million in cash flow and received $222 million in proceeds from stock

options. Also, they were able to improve their (EVA) from $38.6 million to $64 million

and they were capable of returning approximately $358 million in cash dividends to their

shareholders.

Strategic Posture

The mission, policies, objectives, and strategies of Whole Foods Market are

clearly stated in their 2006 Annual Report.

Mission. Whole Foods Market’s mission is to promote the vitality and well-being

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

Their primary goal is devoted to the promotion of organically grown foods, food safety

concern, and the sustainability of our entire ecosystem. Whole Foods Market is a

corporation within the Natural Foods Industry operating in the segment of natural and

organic food supermarkets.

Objectives. The corporate objectives of Whole Foods Market is to branch out in

becoming an international brand synonymous with not just natural and organic foods, but

also with being the best food retailer in every community in which they are located. “Our

motto- Whole Foods, Whole People, Whole Planet- emphasizes that our vision reaches

far beyond just being a food retailer.” Whole Foods Market believes that all shoppers, not

just natural and organic food shoppers, appreciate great produce, dairy, meat, seafood,

bakery and prepared foods. It is their business and functional objective to provide

supreme customer service in addition to the products they offer to give their customers a

complete satisfactory experience shopping their stores.

Strategy and Policy. Whole Foods Market is a mission-driven company. They

believe in providing exceptional quality products. Their motto is a restatement of their

mission “Whole Foods, Whole People, Whole Planet.” Their success is fulfilling their

vision and measured by customer satisfaction, team member excellence and happiness,

return on capital investment, improvement in the state of the environment, and local and

larger community support. Their ability to instill a clear sense of interdependence among

various stakeholders is contingent upon their efforts to communicate more often, more

openly, and more compassionately. Better communication equals better understanding

and more trust.

Mission Consistency. Whole Foods Market is an amazing company, from the

founder all the way down to the customers. Relevant to their mission statement, WFI is

not just an ordinary food chain; they are looked at as an extraordinary food chain. Their

beliefs and values stay consistent with their mission statement throughout every intricate

part of their company. They sell the highest quality natural and organic products

available; they believe that their customers is the most important and vital stakeholder in

the company; they support team member excellence and happiness; they create wealth

through profits and growth; they support communities and encourage local involvement;

and they also promote environmental stewardship.

WFI’s mission statement isn’t just a set of guidelines; it is a way of life for them.

John Mackey, co-founder of WFI, is working to create a better lifestyle for people and

their environment. He is helping to create a healthier and better lifestyle for all people by

being committed to customers and our environment.

Board of DirectorsThe Board of Directors of Whole Foods Market is comprised of both internal and

external members that contribute a wealth of experience and knowledge.

Board Members. John P. Mackey, 52, co-founder of the Company, who has

served as Chairman of the Board and Chief Executive Officer since 1980 and also served

as President from June 2001 to October 2004. David W. Dupree, 52, has served as

director of the company since August 1996. He brings outside business and

entrepreneurial experience through his position as Managing Director of The Halifax

Group, a limited partnership founded in 1999 whose purpose is to pursue small and mid-

cap investment opportunities and his involvement on the board of Insight Health Services

Corp. Dr. John B. Elstrott, 57, has served as a director of the company since February

1995. He brings outside knowledge and experience through his position as a Clinical

Professor of Entrepreneurship and the founding director of the Levy-Rosenblum Institute

for Entrepreneurship at Tulane University’s Freeman School of Business, which was

started in 1991. He has been on the faculty at Tulane since 1982. Mr. Elstrott also serves

on the board of Spectrum Organic Products, Inc. Gabrielle E. Greene, 45, has served as

director of the company since September 2003. Since January 2002, she has held the title

of Chief Financial Officer of the Villanueva Companies, a private holding company with

diverse investment interests. From August 2000 until January 2002, she has served as

CFO of Crown Services, a construction services company. From January 1998 until

August 2000, Ms. Greene was a partner in BE/Greenwich Street Capital, a private equity

firm. Hassan Hass, 58, has served as director of the company since June 2005. Mr.

Hassan brings experience from the whole foods industry as well as managerial skills from

his involvement as General Partner of Greenmont Capital, an investment firm. Mr.

Hassan founded Fresh & Wild, Ltd., an organic food retailer in the United Kingdom and

served as President and Executive Chairman of Fresh & Wild until 2004 when the

company was acquired by Whole Foods Market. Mr. Hass brings international

experience to the board. Morris J. Siegel, 56, has served as director of the Company since

September 2003. He brings entrepreneurial business knowledge and skills through his

current investment firm named Capitol Peaks. He was the co-founder of Celestial

Seasonings, Inc. serving as Chairman and CEO from 1970 until 2002. Celestial

Seasonings merged with The Hain Food Group forming The Hain Celestial Group of

which he served as Vice Chairman from 2000 until retiring in 2002. He currently serves

on the board of CNS Pharmaceutical Company. Dr. Ralph Z. Sorenson, 72, has served as

a director of the company since December 1994. Dr. Sorenson is Managing Partner of the

Sorenson Limited Partnership, a venture investment partnership and President Emeritus

of Babson College and Professor Emeritus and former Dean of the University of

Colorado College of Business Administration. He also serves as a director of Eaton

Vance Corp. 1

Company Stock. Whole Foods Market stock is publicly traded. There is only

common stock options available for stockholders. The total share volume is 5,987,975

and there are 140,580,000 commons shares outstanding. Only 1,331,302 shares are

owned by the Board of Directors. This amount is less than 1%. Mr. Mackey directly owns

1,153,230 of Common Stock and 60,000 shares indirectly by virtue of a Trust. Mr.

Dupree currently owns 22,892 shares of Whole Foods common stock. Dr Elstrott

currently owns 27,800 shares of common stock. Ms. Greene currently owns 2,046 shares

of Common Stock. Mr. Hassan currently owns 30,002 shares of Common Stock. Mr.

Siegel currently owns 3,000 shares of Common Stock. Dr. Sorenson currently owns

32,332 shares of Common Stock. 2

Strategic Management Involvement. The board of directors is involved in all

aspects of strategic management. They have an e-mail address where shareholders can

send them suggestions and ideas. They have open communication with the personnel of

Whole Foods Market in order to keep information flowing throughout the entire

corporation through a forum called “Shareholder Communications with the Board.”3

Top Management

1 Information obtained from www.wholefoods.com – corporate governance

2 Information of Stock obtained from the following web page, and the title of Form 4 where it shows what

stock is owned by whom: http://www.nasdaq.com/asp/quotes_sec.asp?

symbol=WFMI&selected=WFMI&page=filings

3 Information obtained from www.wholefoods.com

Top Management for Whole Foods Market is called the Executive Officers.

Members of this group are John Mackey, A.C. Gallo, Walter Robb, Glenda Chamberlin,

James P. Sud, and Lee Valkenaar.

Executive Officers. John P. Mackey, co-founder of the Company, has served as

Chairman of the Board and Chief Executive Officer since 1980. Mr. Mackey also served

as President of the Company from July 2001 through September 2004. A.C. Gallo has

served as Co-President of the Company since September 2004 and as Chief Operating

Officer since December 2003. Mr. Gallo has held various positions with the Company

and with Bread & Circus, Inc., which was acquired by the Company in October 1992,

including Vice President and President of the North Atlantic Region, and Executive Vice

President of Operations. Walter Robb has served as Co-President of the Company since

September 2004 and as Chief Operating Officer since December 2003. Since joining the

Company in 1991, Mr. Robb has also served as Store Team Leader, President of the

Northern Pacific Region, and Executive Vice President of Operations. Glenda

Chamberlain has served as Executive Vice President and Chief Financial Officer of the

Company since December 1988. James P. Sud has served as Executive Vice President of

Growth and Business Development since February 2001. Mr. Sud joined the Company in

May 1997 and served as Vice President and Chief Operating Officer until February 2001.

Mr. Sud served as a director of the Company from 1980 to 1997. Lee Valkenaar has

served as Executive Vice President of Global Support since September 2004. Mr.

Valkenaar has held various positions with the Company since 1987, including Store

Team Leader, Vice President and President of the Southwest Region, and President of the

Mid-Atlantic Region.

Involvement. Top Management has been responsible for the corporation’s

performance over the past few years. Four of the six members of top management have

been there for three or less years. These members are: A.C. Gallo, Walter Robb, James P.

Sud, and Lee Valkenaar. All Executive Officers that makes up top management have

been promoted internally.

When asked the question “What is top management level of involvement in the

strategic management process”, it can honestly be said that a huge portion of the success

of Whole Foods has to do with top management. In the situation with CEO John Mackey

and Lauren Ornelas, director of Viva! USA which is a group devoted to improving the

living conditions of farm animals, after having gone back and forth in dispute with each

other John Mackey did almost the unthinkable and decided to make sense of her beliefs

instead of dismissing her completely.

Going the extra mile, he educated himself by reading dozens of books about

Japanese management in the 1970s to figure out how Whole Foods should be organized,

for example, or becoming a student of labor unions when he was confronted by

unionization efforts in the 1990s. Over three months, he gave himself a solo tutorial on

modern factory farming. "I read a dozen books about how animals are raised in this

country," he says, "going all the way back to Peter Singer's Animal Liberation in 1975.

The more I read, the more I was interested in it. I said, Damn, these people are right. This

is terrible."

Mackey did two things. He changed his vegetarian diet to vegan (he no longer

eats food produced from animals, including dairy products). And he sent Ornelas an

email telling her she was right -- not just about ducks, but about chickens, pigs, and cows.

Mackey wrote that Whole Foods would immediately begin using its influence and buying

power to demand that the meat it sells comes from animals that have been treated with a

measure of dignity before being slaughtered. He invited Ornelas to help4.

Systematic Approach. Top Management has established quality enhanced

products at the most competitive price possible as being their systematic approach to

strategic management. They believe that by carrying natural and organic products they

are offering the best tasting and most nutritious food available. The quality of their foods

is measured by nutrition, freshness, appearance, and taste. In their search for foods that

meet their quality standards, Whole Foods realize that it is a never-ending process that

involves careful judgment of their buyers.

Along with the quality of their foods, top management has gone even further to

offer customers a rewarding experience as they shop in their store. The atmosphere of

Whole Foods is in the form of a celebration of food: bright, well-staffed, and seductive; a

mouth-watering festival of colors, smells, and textures; and homage to the appetite5.

These strategic approaches to management have led Whole Foods to a distinct

success as they provide and educate the environment about the natural and organic foods

they offer and how they support health and well-being.

Internal Communication. As top management continuously discover innovative

market ideas that will enhance the brand reputation of Whole Foods, they communicate

these ideas to the board of directors and lower-level managers. This communication is

evident in their growth trends. A typical Whole Foods store that did $15 million in

business in 1999 did $21.4 million in 2003 -- $6 million in added sales that it mostly took

4 http://www.fastcompany.com/magazine/84/wholefoods.html5 http://www.fastcompany.com/magazine/84/wholefoods.html

away from the likes of Safeway, Kroger, Albertson's, and Food Lion6. Top management

tries hard to ensure that every manager and employee is treated ethically. Each store had

a book in the office that listed the pay of every employee for the previous year. The book

was available to anyone -- and was especially valuable if you were promoted or if you

relocated, and wanted to see how your pay compared with your colleagues'. The pay

book, surprisingly little used, set a tone of what Mackey called "no secrets management."

Strategic Decisions. When a decision is made at Whole Foods it is either by vote

or consultation with the people who are involved. This is something top management

strives not to override. The decisions that are made by consultations usually involve

senior top management. This is where John Mackey consults with the people he trust to

make a decision for the best of the company. The decisions that are made by vote

(consensus) usually include the leadership team and/or individual store teams. Each

individual store has a set of teams that can lead all the way to the national corporate

headquarters. The teams make decisions for hiring new employees. Every new employee

must be voted onto the staff after a tryout; it takes a two-thirds yes vote from the team to

stay7.

Executive Compensation. Stock options play a big role in executive

compensation. Approximately 35% of the compensation that Executive Officers receive

in the long-run comes from stock options. These options are broken down into long term

incentive plans, exercised options, exercisable options, and unexercisable options. Stock

options for executive compensation in total amounts to $2.4 million dollars.8 The

Company recognized a share-based compensation charge totaling approximately $17.4

6 http://www.fastcompany.com/magazine/84/wholefoods.html7 http://www.fastcompany.com/magazine/84/wholefoods.html8 http://host.businessweek.com/businessweek/research/stocks/options/options.asp?symbol=WFMI.O

million. The calculation of this charge required that management make estimates and

assumptions concerning future team member turnover.

Coping With Future Challenges. Based on the information stated in this portion

of the strategic audit, Whole Foods top management will be able to sufficiently cope with

future challenges. They have a solid strategy that will continue to assist them along the

way. Because they are so different, and sometimes referred to as “weird” their systematic

approaches apparently works for them and their customer base.

References

Whole Foods Market Inc.

07

Strategic AuditExternal Environment: Opportunities and Threats (SWOT) Team Erie: April Van Rivers, Justin Miller, Tammi Thompson, Michelle Perez-Macias

Running Head: STRATEGIC AUDIT

Strategic Audit: Whole Foods Market Inc.

April Van Rivers

Justin Miller

Tammie Thompson

Michelle Perez-Macias

Florida Gulf Coast University

Societal Environment

Whole Foods present and future threats are growing at a rapid speed and the SEC

is now starting to look at its operations as far as purchasing its leading competitors. The

SEC doesn’t want Whole Foods to monopolize the industry. An opportunity for Whole

Foods is organic farming can take a strong leadership role in the restoration of life's value

and meaning. Whole Foods competitors are its threats. The top competitors are Wild

Oats and GNC.

Economic. With an economy that is becoming conscious of their environment, whole

foods market is doing the right thing: Farming Organically in a Complex World

Environmentally, organic farmers has a much gentler impact on the earth than their

conventional counterparts. The organic farmer pays a price for that in higher labor but the

rewards are commensurate if you believe in the land and want to take care of it.

Organic products cost more than conventional products because the price more

accurately reflects the actual cost of food production. Society as a whole bears the health

and environmental costs of toxic chemical use in agriculture, such as the cleanup of soil

and water contamination, while organic farmers must bear the cost of the increased labor

iand intensive management required as a substitute for chemicals and the use of

genetically modified seeds.

i

Strategic Audit: Whole Foods Market Inc.Team Erie: April Van Rivers

Justin MillerTammie Thompson

Michelle Perez-Macias

Part VII : Implementation (missing) Part VIII: Evaluation and Control

Technological. People are looking for something better. They're looking for

meaning and value in their lives." In today's world, farming organically seems to be a

step back from our technologically advanced society. "Food is part of the foundation of

culture and community — we need to pay more attention to it.

Evaluation

Whole foods Information System is called People soft. Their communication structure is

set up as a matrix. Through this system, people in all levels of the business can

communicate with each other. Ultimately, the IS system is decentralized with operational

responsibility at the regional level. Stores have a stand alone Point of Sale system called

RBX, which is used to scan product sales and maintain current prices. Each region has

an Information System coordinator reporting to the CIO. Regional managers are

responsible for the day-to-day support of the business. At the main office, there are five

groups that report to the CIO. These groups are the Strategy and Planning group, the

National Infrastructure Team, the Supply Chain Automation Team, the Business Systems

Team, and the Retain System Team. (1)

Political-legal. On May 23rd, the SEC intervened, now Whole Foods will have to

wait another month to finish its acquisition of Boulder-based competitor Wild Oats

because federal regulators are taking an unexpectedly lengthy look at the deal.

Each region has a CIX, which is a product master database. Even though the system is

the same, it is composed differently in each region to fit the region’s needs. Depending

on the region, the tracking codes and amounts vary. The CIO and his team are always on

the search for ways to do things better. They consistently compare themselves to their

leading competitors (Wild Oats at this time), and use their growth strategy to meet the

corporation’s goals. They continuously use benchmarking as a tool to enhance their

profitability and market share. (2)

Controls

Whole foods has managed to get their employees involved in its strategic plan by striving

to build positive and healthy relationships among team members (Declaration of

Interdependence). Whole foods believes that the best way to encourage participation and

involvement at all levels of its business, every team member has to be involved. They

have Self directed Teams that meet regularly to discuss issues, solve problems and

appreciate each other's contributions. They have increased communication through team

member forums and advisory groups, and open book, open door, and open people

practices. They have labor gain sharing and other team member incentive programs, team

member stock options and stock purchase plans. They offer continuous learning

Sociocultural. Clean, nutritious food untainted by toxic chemicals and grown in

healthy soil teeming with beneficial life is what more and more people want these days.

As a result, while total US food sales have increased between two to four percent a year

for the last seven years; organic products have grown on average more than twenty

percent a year, making it the fastest growing segment of agriculture.

opportunities about company values, food, nutrition and job skills, and promotes mostly

from within. Overall, Whole foods has a commitment to make their employee’s jobs

more fun by combining work and play and through friendly competitions to improve their

stores.

Whole foods truly believes that their team members play a critical role in helping build

the store into a profitable and beneficial part of its community. They empower their

employees to make their own decisions, creating a respectful workplace where people are

treated fairly and are highly motivated to succeed. With their open communication

policy, they have created better communication and a better understanding of the

business as a whole, and have instilled trust amongst their stakeholders. (3)

1 http://misbridge.mccombs.utexas.edu/knowledge/cases/wholefoods/background.asp

2 http://misbridge.mccombs.utexas.edu/knowledge/cases/wholefoods/MISBridgeCase-

Wholefoods.pdf

3 http://www.wholefoods.com/company/declaration.html

In essence, the purpose of organic farming is to work as a partner with nature to

promote natural and compassionate husbandry of plants and animals while conserving

soil and water resources. As mandated by the USDA National Organic Standards, soil

and plants are not treated with toxic chemicals or persistent pesticides. No toxic fertilizers

or sewage sludge is used to promote growth, nor are genetically engineered seeds

allowed. Animals are fed organic feeds and their natural behaviors must be

accommodated to make their lives as comfortable and stress-free as possible. The use of

synthetic growth hormones and antibiotics are forbidden.

Forces in other regions of the world (Are they different). Though still

a small industry compared to conventional agriculture, increasing interest by consumers

and the resulting growth in organics bodes well for the future of human health and the

planet as a whole and confirms that organic farming will continue to grow and have a

positive impact on our world.

The world's #1 natural foods chain, the company operates about 185 stores in 31

US states; the District of Columbia; and in Canada and the UK. The stores emphasize

perishable products, which account for about two-thirds of sales. Whole Foods Market

offers more than 1,500 items in four lines of private-label products (such as the premium

Whole Foods and a line of organic products for children, Whole Kids).

Task Environment

There seems to be limited amount of forces in the health food industry that drives

competition. In the last 15 years, Whole Foods Market has swept across the country

buying out the little community stores and not to mention, WFM is in the process of

acquiring Wild Oats; Wild Oats is deemed to be WFM’s strongest competitor, but it

looks as if WFM is going to buy out another strong competitor and increase their market

share substantially.

In the past couple of years, WFM entered the UK with the acquisition of seven

Fresh & wild stores. WFM’s market share in Europe is not as strong as it is here in the

states, but it’s not impossible to see WFM take a large share of the market in Europe

within the next decade or so.

a) Threat of new entrants: Lowb) Bargaining power of buyers: Lowc) Threat of substitute products or services: Mediumd) Bargaining power of suppliers: Lowe) Rivalry among competing firms: Mediumf) Relative power of unions, governments, special interest groups…:

Medium

The most important key factor affecting the company right now is their

customers. According to their Declaration of Interdependence, “their customers are the

most important stakeholder in our business. Therefore, we go to extraordinary lengths to

satisfy and delight our customers. We want to meet or exceed their expectations on every

shopping trip. We know that by doing so we turn customers into advocates for whole

foods. We guarantee our customers 100% product satisfaction or their money will be

refunded.” Their customers have provided them with unbelievable loyalty and profits

and in return, WFM is going above and beyond to satisfy their customers by developing

more stores and increasing the quality of their foods and the environment around them.

One of the most unbelievable and genius ideas WFM has had was to mainly buy

out not just their competition, but also their suppliers. Just to name a few, they now

acquired Wellspring Grocery, Bread & circus, Fresh Fields, Allegro Coffee, Harry’s

Farmers Market, and Select Fish. With these acquisitions, they supply themselves with

most of their own products; they always have the freshest vegetables, fish, and bread on

hand and that’s what sets them apart from competitors and enables them to do the what

they believe is the best for the environments, employees and the most importantly, the

customers.

The only main threat is our government. The government is investigating WFM’s

acquisition of Wild Oats right now because believe that if this goes through, WFM could

be considered a monopoly with is illegal here in the states.

External Factors (1) Weight (2)

Rating (3)

Weighted Score (4)

Comments (5)

Opportunities:Strong leadership role in the restoration of life's value and meaning.

.3 5.0 1.5

Reaching all parts of the world

.2 4.5 .9

Becoming top leading organic producer

.3 5.0 1.5

Threats:competitors .1 3.7 .37

Governmental takeover .1 3.0 3Total 1

References

http://www.wholefoodsmarket.com/issues/organic/farming.html

http://www.hoovers.com/free/company-information

http://retail.seekingalpha.com/article/27713

Corporate Culture

Beliefs, Expectations, and Values. Whole Foods core values reflect what is truly

important to us as an organization. These are not values that change from time to time,

situation to situation or person to person, but rather they are the underpinning of our

company culture. Many people feel Whole Foods is an exciting company of which to be a

part and a very special place to work. These core values are the primary reasons for this

feeling, and they transcend our size and our growth rate. By maintaining these core

values, regardless of how large a company Whole Foods becomes, we can preserve what

has always been special about our company. These core values are the soul of our

company.

Supporting Team Member Excellence and Happiness.

Empowering Work Environments

Our success is dependent upon the collective energy and intelligence of all of our Team

Members. We strive to create a work environment where motivated Team Members can

flourish and succeed to their highest potential. We appreciate effort and reward results.

Self-Responsibility

We take responsibility for our own success and failures. We celebrate success and see

failures as opportunities for growth. We recognize that we are responsible for our own

happiness and success.

Self-Directed Teams

The fundamental work unit of the company is the self- directed Team. Teams meet

regularly to discuss issues, solve problems and appreciate each others' contributions.

Every Team Member belongs to a Team.

Open & Timely Information

We believe knowledge is power and we support our Team Members' right to access

information that impacts their jobs. Our books are open to our Team Members, including

our annual individual compensation report. We also recognize everyone's right to be

listened to and heard regardless of their point of view.

Incremental Progress

Our company continually improves through unleashing the collective creativity and

intelligence of all of our Team Members. We recognize that everyone has a contribution

to make. We keep getting better at what we do.

Shared Fate

We recognize there is a community of interest among all of our stakeholders. There are

no entitlements; we share together in our collective fate. To that end we have a salary cap

that limits the compensation (wages plus profit incentive bonuses) of any Team Member

to nineteen times the average total compensation of all full-time Team Members in the

company.

Information Systems (IS)

Technology. WFM uses a central financial management and accounting system from

Peoplesoft. This system is available to all accounting personnel in the stores, warehouses

and regional offices. The system consolidates the company’s financial reporting, and

makes all vendor payments. Currently, Peoplesoft is the only enterprise-wide system used

at WFM.

Stores have a stand-alone Point of Sale system called RBX. This system is used to

scan and record product sales and also maintains the item master with the latest product

prices. The POS system allows store managers to monitor what has been sold. However,

there is no central inventory system at the store level for tracking which items have been

purchased. Buyers order new products largely by visual inspection (or physical count).

Most orders are placed by phone and faxed, though some stores have MSI machines,

which are handheld instruments that relay orders through a modem. Stores load sales and

purchase information through a custom made application onto Peoplesoft. Peoplesoft

does not keep track of item-wise inventory at a store level. As a result, physical inventory

levels are not tracked at the store level.

WFM has seven company-owned distribution centers. Three of them run an

application called EXE which tracks inventory at the distribution center. The other four

run their own legacy software applications for inventory--a result of acquisition.

Five of the eight regional centers also have a system called CIX, which is a product

master database for the region. It provides a regional view of the RBX product master.

The data variables, however, are different in each of the regions. For example, one region

uses 18 digits for unique tracking of UPC codes. The others may use the standard of 13 or

14 digits. The MA and SO regions do not use CIX and use their own application. Book

value currently prohibits replacement.

IS Organization. The IS organization led by Mike Clifford, CIO, has a matrix

structure. Each region has an IS coordinator who reports to the business unit as well as to

the CIO. At the head office, WFM has five groups reporting to the CIO:

• Strategy & Planning group

• National Infrastructure Team

• Supply Chain Automation Team

• Business Systems Team

• Retail System Team

The director of each of the five head office groups has a business partner with whom

they work (e.g., the Supply Chain Automation Team works with the Vice President of

Purchasing). There are around 80 people working at a national level in IS. The regional

IS coordinators typically have 6-8 people reporting to them. Requests for new technology

support stem from the businesses. IS planning is done on a quarterly basis where

directors plan projects with their business partners. The regional coordinators are

responsible for the day-to-day support of the businesses. The IS structure, like the rest of

WFM, is decentralized with operational responsibility residing at the regional level. Past

efforts at centralization have not been very effective due to WFM’s entrepreneurial

culture.

Large implementations in the recent past. The company had decided a few years

ago to install an ERP system. They had chosen Peoplesoft as the platform and had

utilized the services of a large big five consulting firm. However, they faced major

implementation issues with Peoplesoft. The project took longer to implement than

originally envisaged. This left a very bad feeling within WFM about large-scale

implementations as being not only time-intensive but also very costly. The company

actually disengaged the consulting firm prior to completion.

B2B initiative. was not convinced. Adopting any system always comes at a cost and would

the cost justify the benefits of a new system? According to Mike, B2B could potentially reduce

purchasing costs by 2% on average but what would be the cost of implementing such a

system. To further study B2B applications for WFM, Mike called on Jeff Zon, Director of IS.

Jeff plunged into a study of B2B implementation at WFM. Jeff knew that any B2B effort would

need to have the following implications for WFM:

• Build capabilities within WFM IT. In the past, all programming and infrastructure projects

were implemented by a patchwork of consulting organizations.

• Develop a shopping list of B2B products, which could then be evaluated for their

suitability for WFM.

As Jeff studied the fascinating world of B2B, he knew he had to answer key strategic

questions:

• Should they build a B2B system or purchase a shrink wrap (packaged) solution?

• Should they hire a consultant or conduct the study internally?

• Should they implement on a company wide basis or begin with a small pilot program and

progressively implement site by site?

• Should they look at implementing all suppliers to a store or a subset of suppliers?

• Organizational structure...?

Build vs. Buy. After a few weeks of research, Jeff concluded that there were 2 broad ways for

implementing B2B--WFM could either become a member of a B2B exchange or develop their

own B2B system tied to its own suppliers. The second approach seemed to be more applicable

as there were no credible B2B exchanges in the grocery industry.

In building their own B2B system, WFM had basically 3 options:

• Shrink-wrap Software

• Electronic Data Interchange (EDI)

• Custom Application

Shrink-wrap Software. Jeff was aware of several vendors selling B2B software. A few

them were Ipnet and Bak-Tek. Both these vendors offered an ASP model where they would also

host the application. Using shrink-wrap software would cut down the development effort.

However, most of the software also required that the suppliers have certain installations on

their IS. The fee structure was quite economical to WFM--it involved a small upfront (or

onetime) license fee and a monthly usage fee. Total cost of ownership was expected to be

under $100,000 (indicative). Most applications also collected a monthly fee from the suppliers.

The investment involved in this option was not very large and it also had the advantage of

offering a ready-made solution from vendors experienced in the field. WFM could chose

vendors who had a proven track record in the industry and who would be able to deliver a time

tested robust solution.

Electronic Data Interchange (EDI). EDI involved exchanging information between

suppliers and WFM in standard EDI formats, over secure Value Added Networks

(VANs). The installation of EDI for WFM would be quite easy through established EDI

vendors. There was also a perception that EDI was more secure as it operated over

proprietary networks. EDI, however, also required smaller suppliers to have EDI-

compatible information systems, which would ensure that they could communicate order

information between WFM and themselves. In addition EDI had the following

characteristics:

• It cost about 25 cents for 1000 characters--each order would be around 1000

characters.

• Both WFM and the supplier would be charged by the EDI service provider.

• Suppliers would need to be connected to the VAN to receive EDI messages.

A few of WFM’s suppliers were already using EDI. These suppliers insisted that

WFM become a part of their VAN in order to transact with them. So far, WFM had

resisted joining their VANs. The EDI option would generally cost more than the shrink

wrap solution. However, the EDI solution would provide a very high level of security.

Security was important to WFM not only for itself but also to provide comfort to its

suppliers. With the number of Internet frauds increasing daily, this solution would

definitely be attractive to any security conscious organization. A lot of large

organizations did not mind paying the extra cost of EDI in exchange for the security

benefits.

Custom Application. Jeff figured that building an XML and email based B2B system

would be quite simple for WFM. It would involve employing a developer and purchasing

some hardware and software. A simple email-based system could be developed where a

purchase order could be generated by WFM and sent to the supplier via e-mail. The

supplier, upon receipt of the email would accept the purchase order and then fill out an

invoice form (which could be a standard form attached to the email) and return it to

WFM. This standard invoice form would then be integrated with WFM’s financial

system. In this method, the entire supplier needed was email access, which was fairly

common even among smaller suppliers. The other advantage of building in-house is that

it would build B2B capabilities and also allow the IS team to experiment with several

different new products while building the system. A homegrown solution would probably

cost less than $ 100,000 (indicative) as well. There remained several pitfalls, however, to

this approach. The first was the question of how robust of an application could the IS

team develop? While developing a homegrown solution would not be difficult, could it

compare with that of other vendors who have already developed and tested robust

systems over time? In a way, this approach was also like "re-inventing the wheel."

Second, would this method be cheaper than existing off-the-shelf solutions? Third, how

much security could WFM achieve in such an application given that information was

being transmitted over email.

Internal Factor Analysis Summary (IFAS Table):

Internal factors Weight RatingStrengths:Empowering Work .30 5.0

EnvironmentsShared Fate .15 3.0sustainable future .20 3.9Experienced top Management

.30 4.2

Weaknesses:sell stock directly to the public

.05 2.0

Situation Analysis- SFAS Matrix

Strategic Factors Weight RatingTheyighted

ScoreShort

Intermediate

Long

Comments

S1-Empowering Work Environments

.10 5 .50 x x Shared independence and commitment

S2-Sustainable Future .15 2.8 .42 x x Key to success

S3-Customer Satisfaction .15 5 .75 xW1-High Prices .10 2.2 .22 x x May deter

potential customers

W2- Market Risk .10 2.0 .44 x Sell of stock decreasing

O1-Strong leadership role in the restoration of life's value and meaning.

.10 5 .50 x Spread goodwill and knowledge

O2-Int’l awareness .10 4.0 .40 x x Key to ultimate success

T1- Competitors.10 3.0 .30 x x Generic/substitute

products, and imitators

T2- Governmental takeover .10 1.8 .27 x Could be considered a monopoly

36Strategic Audit

Total Scores 1.00 3.80

Review of Mission and Objectives. Whole Foods Market is a dynamic leader in

the quality of natural and organic food business. They are a mission-driven company that

aims to set the standards of excellence for food retailers. They are building a business in

which high standards permeate all aspects of their company. Quality is a state of mind

and a form of action at Whole Foods Market.9

In light of the key strategic factors, their mission and objectives are deemed

appropriate. Starting with their aim to empower their employees, their success is

dependent upon the collective energy and intelligence of all their Team Members. They

strive to create a work environment where motivated Team Members can flourish and

succeed to their highest potential.10

9 Whole Foods Market10 Whole Foods Market

37Strategic Audit

When speaking of a sustainable future, Whole Foods not only offer natural and

organic foods but they also educate people and provide support to farmers. This is an area

that is being done strategically well for the sustainability of the environment and Whole

Foods.

Whole Foods extend extraordinary lengths to satisfy and delight their customers.

They want to meet or exceed their expectations on every shopping trip. They know that

by doing so they turn customers into advocates for their business.11 This is how Whole

Foods have managed to stay ahead of competitors. Advocates do more than shop; they

talk about Whole Foods to their friends and others and persuasively create an interest.

Whole Foods Vision Statement reflects the hopes and intentions of many people.

They do not believe it always accurately portrays the way things currently are at Whole

Foods Market so much as the way they would like things to be. It is their dissatisfaction

with the current reality, when compared with what is possible, that spurs them toward

excellence and toward creating a better person, company, and world.

The mission and objectives of Whole Foods Market is precise and should not be

changed. We believe that it is their mission and their actions toward achieving this that

has kept them on a competitive edge. With their long-term goal being to expand out

internationally and educate for a more sustainable future, their current mission and

objectives will help them to get their. We recommend that in addition to the current

objectives that Whole Foods put more focus into their opportunities and capitalize from

them. Whole Foods have an advantage because they are willing to educate for health and

11 Whole Foods Market

38Strategic Audit

well-being – which is becoming a nationwide concern. While they are already educating

they can also make it an objective to host or sponsor seminars for children that will help

them acquire a healthy lifestyle at a young age.

Strategic Alternatives and Recommended Strategy. We believe that with more

careful implementation of present strategies Whole Foods can meet their current and

proposed objectives.

39Strategic Audit

TOWS Matrix

EFAS/IFAS

S –

Empowering Work Envir.

Shared Fate

Sustainable Future

Exp. Top Management

Quality Standards

Customer Service

Education

Retail Innovation

W –

Sell of Stock

High Prices

New hire confusion

Non-traditional policies

Transparency of strategy

O –

Nationwide Appeal

Educate value of well-being

Leading organic producer

status

Retail innovation and

capitalism

SO Strategies

Offer products that can only be

found at WFM

Make WFM an eponym for top

quality organic/natural food

WO Strategies

Offer the best products for the

buck

More nationwide expansion

Constant innovation and

capitalism that is hard to imitate

T –

New entrants

Substitute products

Culture imitators

ST Strategies

Acquire new quality standards

that are hard to substitute

Stay ahead technology and

agricultural concerns

WT Strategies

Competitive pricing

Constant innovation of strategy

and products

40Strategic Audit

Competitors

Governmental Powers

Diversify retailing efforts

Major Feasible Alternatives. The major feasible alternative strategies are:

staying ahead of technology and agricultural concerns, competitive pricing, global

expansion, and diversifying their retailing efforts. The pros for staying ahead of

technology and agricultural concerns are 1) being able to predict industrial changes 2)

fluctuation of operations 3) being able to remain constant with their high quality

standards 4) being able to keep suppliers and environmentalist satisfied. The cons of

staying ahead of technology and agricultural concerns are 1) could be a costly and

difficult to maintain 2) time consuming, WFM would need to hire additional workers.

The pros for competitive pricing are 1) WFM can offer products at a profitable

price 2) WFM would be able to remain in competition with competitors 3) WFM would

be able to offer top quality products at reasonable prices. The cons for competitive

pricing are 1) customers may be deterred if the price it too high 2) may cause bad

publicity from customer advocate 3) the price may not match the quality.

The pros for global expansion are 1) more stores, more profit 2) more global

awareness of WFM 3) more chances of WFM becoming a nationwide eponym for top

quality natural foods 4) could decrease competition 5) WFM can educate on a broader

spectrum. The cons of global expansion are 1) very costly and require a lot of capital 2)

41Strategic Audit

could have a diminishing effect on income statement and profits 3) may not appeal to

every country 4) will drive up S & A costs and reduce profits. 5) May take a while to

break-even.

The pros for diversifying their retailing efforts are 1) decreasing competition

without buying out competitors 2) offer more services for customer satisfaction 3)

becoming more known 4) appeal to more market segments. The cons for diversifying

their retailing efforts are 1) this could require more use of machines including

automobiles 2) environmentalist may not consider this to be favorable 3) may lead to a

purchase of more wind energy.

With the suggested alternative strategies falling within the societal, industry, and

company environment, we feel that Whole Foods will have no problem agreeing and

adapting to this change. These alternatives are in compliance with WFM current mission

and objectives. We feel that in the long-run these strategies can have a beneficial affect

on the company.

Recommended Strategy. For the corporate level of WFM we are recommending

global expansion and retail diversification. These two are chosen to implement the

growth strategy for WFM. Global expansion will give them more stores and exposure.

Retail diversification is very broad but will grow their business into a new segment.

While WFM is currently in one location they can implement this strategy into becoming

more transitional and offer mobile delivery services to customers or businesses.

42Strategic Audit

For the business level of WFM we recommend competitive pricing. This is

chosen to implement the competitive strategy. Currently WFM offers competitive

pricing; however, our recommendation is for a more innovational approach with

incentives for buying. We do not recommend a rewards program because WFM is made

up of creators and not imitators. We do recommend in-store incentives that will give

customers more reasons to shop at Whole Foods Market and pay the competitive prices.

For the functional level of WFM we recommend staying ahead of technology and

agricultural concerns. Nothing is worse for a business than finding out something that

was not in compliance by someone who is not affiliated with the corporation. For WFM

this would mean possibly hiring or expanding job descriptions for select employees to

have direct communication with suppliers. This is something that is already in place at

WFM but not to this degree. This would help in predicting operations and industrial

changes that could directly affect manufacturing processes at WFM. By doing this WFM

would be able to reinforce their corporate and business strategies.

Impact of Recommendations. Whole Foods Market is a company that expounds

a great quality, great food, and a rewarding shopping experience. Their employees are

empowered to know and do their job better than anyone else. Their top management are

very experienced in the natural/organic food industry and the Board of Directors are

diverse enough to give advice in just about every area. With a company that extends this

much knowledge and competence to from the top down, it is not a question of

competency. Whole Foods Market has the ability and know-how to adapt and implement

43Strategic Audit

these recommendations. Based on their previous accomplishments they will probably

exceed our recommendation with more innovativeness.

44Strategic Audit

References

Whole Foods Market Website http://www.wholefoodsmarket.com

September 26, 2006. Retrieved June 11, 2007