Case Study

CASE STUDY

WHOLE FOODS MARKET IN 2008: VISION, CORE VALUES AND STRATEGY

SUBMITTED BY: SABA ALAM

World Headquarters Whole Foods Market, Inc. 550 Bowie Street Austin, TX 78703-4644 512.477.4455 512.477.5566 voicemail 512.482.7000 fax FACTS & FIGURES More than 300 stores in North America and the United Kingdom. Team Members: 54,000 Distribution Centers: 9 Regional Bake houses: 9 Commissaries: 5 Website: http://www.wholefoodsmarket.com

Question # 1 What are the chief elements of the strategy that Whole Foods Market is pursuing? Whole Foods Market was founded in 1980 as a local supermarket and has now become world’s largest retail chain of natural and organic foods supermarkets. Whole Foods offers the highest quality, least processed, most flavorful and naturally preserved foods available. Whole foods market has its own private label brands of organics. Whole Foods Market aims to sell the highest quality natural and organic products, satisfy and delight its customers and team members, create wealth through profits and growth and care about communities and environment. Growth Strategy: Till 2002 their growth strategy was to expand via a combination of opening its new stores and acquiring small stores that were located in desirable locations. From 2002 the management decided to drive growth by opening 10 to 15 bigger stores in metropolitan areas. It bought their biggest rival wild oats and expanded their product offerings and reduced their prices which improved the sales immensely in three months. Store Sizes & Locations Strategy: Whole Food’s store sizes range between 40,000 square feet to 60,000 initially. They increased the store sizes and now their biggest store is of size 99,800 square feet located in London. Other store sizes are 71,000 sq feet, 77,000 sq feet, 65,000 sq feet, 55,000 sq feet etc. Their location strategy was to open stores in upscale areas of metropolitan centers. Their most stores were located in high traffic shopping locations, some were freestanding, some were in strip centers and some in high density mixed use projects. They have their own model to analyze markets. Store Layout & Merchandising Strategy: Whole Foods Market did not have a standard layout for stores. Each store’s layout is designed according to the particular site and building configuration. Their merchandising strategy was to create an inviting and interactive store atmosphere. They use bright colors for product displays, provide best quality of foods and customer service and maintain cleanliness everywhere. Store Operations: Whole Foods follows a team approach to store operations. It employs between 85 and 600 team members organized into minimum 13 teams. Each team is led by a leader. Whole Foods has given its team members full authority to make many decisions at the store level regarding merchandising, departmental operations and customer service. The team approach promotes strong corporate culture and motivation among employees.

Product Line: The products and brands offered vary from store to store because stores are of different sizes and have different clientele. Whole Foods have around 30,000 natural, organic and gourmet food products. The prices at Whole Foods are higher than conventional supermarkets. However as it manages to provide customers the premium quality they are willing to pay higher price for it. Marketing & Customer Service: 0.5 percent of its revenue is assigned for advertising. They prefer primarily on word-of-mouth recommendations. Each of its stores has a separate budget for marketing of particular store through fairs, classes, product sampling etc. The corporate marketing budget is allocated to region wide marketing efforts. Whole Foods has empowered its team members to do whatever they want to please the customers. Compensation & Incentives: The company has a gain sharing program which is based on the profits of each store. It also encourages stock ownership. Its salary limits the compensation of any team member to 19 times the average total compensation of all full-time team members in the company. It uses Economic Value Added to measure performance. Purchasing & Distribution: Most of the purchasing of Whole Foods is from local, regional and national wholesale suppliers and vendors. It owns two produce procurement centers that facilitated the procurement and distribution of majority of its products. It operates nine regional distribution centers, nine regional bake houses and five commissary kitchens.

Question # 2 Do you think John Mackey has a good strategic vision for Whole Foods? Why or why not? What do you like/dislike about the company’s motto “Whole Foods, Whole People, Whole Planet”? Do the motto and the principles underlying it really matter at this company or are they just nice words and cosmetic window dressing? Explain John Mackey’s vision for Whole Foods was to become an international brand synonymous not just with natural and organic foods but also with being the best food retailer in every community in which whole food stores were located. He wanted whole food’s market to set the standard for excellence in food retailing. His philosophy was that marketing high quality natural and organic foods to more and more customers in more and more communities would overtime gradually transform the diets of individuals in a manner that would help them live longer, healthier, more pleasurable lives.1 John Mackey’s vision charts the company’s future strategic course. It explains what the company wants to be, where it wants to go and what are the scopes of the company’s future. When we see the popularity of the company in natural and organic food market we may realize that John Mackey’s vision for Whole Foods is not unrealistic or unachievable. He does not want to stop at just natural and organic food but also wants to capture the food retail business itself and at the same time considering the health and happiness of the people. In my opinion if John Mackey follows the strategies made by the company and continue carrying out the wonderful business and pleasing the customers the chances of achieving the vision gets higher with time. The company’s motto “Whole Foods, Whole People and Whole Planet” covers the three most important factors of success of food retail business. It focuses the quality of products being offered, it focuses the employees of the company and it also covers the social responsibility of the company. However the company’s main motto does not mention the factor of customer satisfaction. It should mention the importance of customers for the company as customers should be the first priority of any company. The good thing about Whole Foods is that it follows its motto in running the business. These are not just the nice words written by the company to impress people. Whole Foods provide the best quality, least processed natural and organic food to its customers. In its each store they have made teams and its employees are very satisfied with the respectful workplace. It has fulfilled its commitment of team based management to its employees. Each store of Whole Foods has as many as 13 teams each led by a leader. This has given empowerment to employees increasing their satisfaction level. Whole Foods Market is also fulfilling its social responsibility by donating to educational organizations. It has also established a not for profit Whole Planet Foundation. It has stopped using disposable plastic bags and has started converting its distribution fleet vehicles to biodiesel fuel. It is also involved in promoting proper animal farming etc.

Question # 3 1

Arthur A. Thompson, The University of Alabama, 2008

How well is Whole Foods Market performing from a financial perspective? Do some number crunching using the data in Exhibits 9 and 10 to support your answer. Use the financial ratios present in table as a basis for doing your assessment of the company’s financial statement and financial condition. Whole Foods’ business generated cash flows from operations of $452.7 million in 2006 and $398.6 million in 2007. Most of the capital expenditures of the company go into funding the development or acquisition of new stores and acquisition of property and equipment for existing stores.

2006

2007

Gross Profit Margin

34.94%

34.84%

Return on sales

5.689%

4.512%

Return on stockholders’ equity

0.14516

0.1252

Net return on sales

0.0363

0.0277

Return on total assets

0.0998

0.0581

Earnings per share

$1.46

$1.30

Current ratio

1.224

0.8514

Quick ratio

0.824

0.4842

Working capital

114211

(116530)

Debt-to-asset ratio

0.0042

0.2290

Long term debt-to-equity ratio

0.00612

0.504

Long term debt-to-capital ratio

0.00609

0.335

17.90

14.907

26 days

20 days

Inventory Turnover Inventory Turnover per day

We can see from the above given comparison that the performance of Whole Foods Market has somewhat declined in 2007. However this decline is not major and threatening to the company’s performance. Sales return has decreased by 1% and the current ratio is also less than 2006.The reduction in working capital can be a problem to the company hence it should look

into that. The debt-to-equity ratio and the debt-to-capital ratio have increased which is not so beneficial for the company. As the gross profit margin is almost equal in both years the company is visibly performing well from financial perspective. The inventory turnover per day has also decreased in 2007.

Question # 4 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? Whole Foods Market is performing exceptionally well from strategic perspective. All its work and doings are in accordance with the strategies they have made, their motto and their core values. Whole Foods makes sure that it makes the right strategies and decisions at the right time and also do necessary efforts to implement these strategies. It has made strategies for all major aspects of their business for example it had a growth strategy and when the need came for change they changed their growth strategy in 2002. The company has made strategies for its stores, their location, and Whole Food’s product line, the design of the stores, the product quality, and marketing and for providing their customer most satisfactory service. It follows the strategy of team based management for store operations. It also offers compensation and rewards to its employees. It has also made strategies that are feasible for the purchasing and distribution of items. All these strategies are in accordance with the company’s requirement and thus the company maintains a competitive advantage over its rivals due to its sustainable implementation of strategies for achieving its goals and managing the company. It acquired one of it biggest rivals Wild Oats in 2007. The company’s strategy has helped it in gaining the high position in the market.