Whole Foods Market Capstone Project

 

Whole Foods Market

Whole Foods Market Capstone Project  NaTasha L. Mays Sunday, June 10, 2012 Strayer University BUS599010VA016-1124-001 Dr. Mary Hair Collins

 

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Abstract This paper is a holistic analysis of Whole Whole Foods Markets. All aspects of the company will be discussed in an effort to illustrate the working parts of a business coming together in an effort to  build a success successful ful and profitabl profitablee company. Lastly Lastly a discussion discussion reviewing reviewing strateg strategic ic goals, goals, financial  performance,  perfor mance, strengths strengths and weaknesses weaknesses,, pricing strate strategies, gies, threats, threats, motivational motivational methods and last last  but not least least ethical ethical behaviors behaviors in in business. business.

 

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Whole Foods Market is an organic whole foods supermarket chain headquartered in Austin, Texas. Whole Foods Supermarket came to being in 1978 at the hands of John Mackey and Rene Lawson. It began as SaferWay, SaferWay, a natural foods store. In 1980 John Mackey Mackey acquired two new partners Mark Skiles and Craig Weller. Mackey merged SaferWay with with Skile’s and Weller’s Nat Natural ural Grocery store and formed Whole Foods market. Whole Foods mission statement addresses the quality of their food but also the standards throughout their company. Whole Foods mission statement aims to make make customers and employees aware of the present capabilities, customer focus, activities, and business makeup. Any and all actions are driven by Whole Foods mission and core values. Whole Foods Market has seven different core values to guide the business. •

Selling the highest quality natural and organic products available

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Satisfying and delighting our customers

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Supporting team member happiness and excellence

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Creating wealth through profits and growth

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Caring about out communities and our environment

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Creating ongoing win-win partnerships with our suppliers

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Promoting the health of our stakeholders through healthy eating education

The mission statement summarizes the core values, it reads, Whole Food Market is a dynamic leader in the quality food business. We are a mission-driven company that aims to set the standards of excellence for food retailers. retailers. We are building a business in which high standards  permeate  permea te all aspects aspects of our company. company. Quality Quality is a state state of mind mind at Whole Whole Foods Market (Whole Foods Market 2010). The vision statement takes the mission statement a bit further by addressing

 

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the purpose and value of the organization. The vision statement reads, our motto Whole Foods, Whole People, Whole Planet emphasizes that our vision reaches far beyond just being a food retailer. Our success in fulfilling our vision is 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 (Whole Foods M Market arket 2010). The mission and vision statements are roadmaps as to what the company focus will be and how it will arrive at the desired outcome whereas the core values are the building blocks. Whole Foods Market has performed well in the organic food segment of the market. Whole Foods performance in relation to the mission and core values encompass more than the desire to increase revenue. Their motto is Whole Foods, Whole People, Whole Whole Planet, with this in mind Whole Foods goes beyond profit margins and delves into the purpose of the business and the enthusiasm with which it conducts its business. The fiscal performance is tied directly to the intriguing passion and purpose of Whole Foods. The excellent fiscal numbers are attained by keeping customers happy and and empowering and appreciating employees. Whole Foods Market Market Inc. (NasdaqGS:WFM (NasdaqGS: WFM - News) News) commenced fiscal 2012 with a bang, posting better-than-expected firstquarter 2012 results on the back of strong sales as shoppers flocked to the grocery chain. The company has been gaining market share compared with other supermarket chains (Zacks, 2012) As illustrated in table 1 the consolidated statement of cash flows for Whole Foods Market shows the increase in revenue/cash flow quarter after quarter. The upward momentum continued into the second quarter with reported sales for the quarter increasing 14% to $2.7 billion. Employees at Whole Foods Market are enthusiastic about healthy living and utilizing food and natural products to enhance the lifestyle. This directly contributes to living out the mission of  Whole Foods, Whole People, Whole Planet, keeping employees happy and in turn they produce

 

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excellent results by way of customer service and product belief. Employees are encouraged to  partake of of the healthy healthy lifestyle lifestyle by by being offered offered discounts discounts on products. products. Newly hired hired employees employees receive a 20% discount on all products offered in the the store. A second layer of encouragement and reward for employees who are living the whole healthy lifestyle is a discount of 30% on all  products sold. This demonstr demonstrates ates Whole Whole Foods commitment commitment to to its mission mission and and vision vision by engaging engaging the employees. The strategic goals of a company are most often derived from a mission statement. The mission statement is put into action with the creation of the strategic strategic goals. The strategic goals act as a roadmap, providing a clear course to reaching and achieving the desired outcomes set forth by company management. The general business strategy for Whole Whole Foods Market Market includes; differentiation of its organic products, growth by store expansion, respecting all forms of life, educating via public participation and an extending an invitation to join the Whole Foods Market vision. The strategic goals are directly directly linked to the core values as the values serve as building  blocks for for the missio mission, n, vision and and strategic strategic objectives. objectives. The association association between between the the core values values and the strategic goals can be illustrated by linking each or several core values to one strategic objective. There is a one to many relationship in this area, see Figure 1. The financial performance for Whole Foods Market for the a period covering the previous 5 years, beginning 2011 shows a steady increase in net revenues and operating income, see Figures 2 and 3. There is an intricate interdependence between financial performance, strategic goals and strategy. The strategies developed must encompass encompass the available resources required to sust sustain ain the specified strategy. Whole Foods has employed employed a focused growth strategy u using sing store expansions and acquisitions as the medium medium to facilitate growth. To execute this strategy financial re resources sources are required. Whole Foods focused on specific specific financial items in an effort to support the

 

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initiatives. The cost of new store development has been lowered, the amount of cash on hand is substantial and income is expected in an effort to keep debt low. (Billquist, 2011) The same financial foresight required for store expansions was used to acquire Wild Oats. There had to be cash on hand as well as income to replenish replenish and pay down debts. Whole Foods has also strategized to target a specific type of market which encompasses more affluent individuals who are better educated and are generally physically fit. This target market allows allows Whole Foods to  price their their products products a bit bit higher than others. others. With the higher higher pricing Whole Foods Foods has been able to emerge with higher profits in a struggling economy thus reporting excellent financial results. Finally Whole Foods has engaged in a differentiation strategy. The strategy directs Whole Foods to be highly selective about their their products. This type of strategy strategy directly increases company revenue because Whole Foods can stipulate higher prices for their products. It has proven to be successful with a reported company profit for the first quarter of fiscal 2012 of $118.3 million, or  65 cents per share, up 33 percent from $88.7 million, or 51 cents per share, in the same quarter last year. (Garr, 2012) Whole Foods is classified as the largest organic foods retail chain in the market with 317 stores. The organic food market has grown substantially in the past several years. With people  becoming more health health conscious conscious the state and health of the food they eat is a fundamenta fundamentall part of  healthly living. With the increase in demand for organically grown foods comes a need for an increase in suppliers. Thompson, Strickland and Gamble Gamble (2009) states the following: “organic farmland in the United States States totaled 4.1 million acres in 2005. While only 1 percent of  U.S. farmland was certified as organic in 2005, farmers were becoming increasingly interested in and attracted to organic farming, due to the increased process they could demand for organically grown fruits, vegetables and meats.” (C-4)

 

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Farmers have struggled to keep up with the demand for organic food. The fact that only 1 percent of farmland in the US is certified as organic presents a problem for keeping up with demand. The  popularity  popular ity of organic organic foods foods has also captured captured the attenti attention on of major major supermarket supermarket retailers, retailers, in addition low entrance barriers coupled with a fast growing market have substantially increased new entrants attempting to acquire a piece of the organic pie. Additional competition in the market allows consumers the ability to potentially substitute products with lower priced ones from competitors, this poses a substantial risk to Whole Whole Foods. Major supermarkets began to expand expand their offerings of organic foods because of this Whole Foods began to have issues finding chicken and beef suppliers to stock all of its stores. stores. Consumers have facilitated the growth of the organic industry beyond the specialized market it once was. With this growth growth the industry has had to adapt and find new ways to keep up with with the consumer need. Whole Foods has also had to compete not  just with with stores stores of their their type but but mainstream mainstream supermar supermarkets kets as well. Whole Foods Foods created created and launched their own organic labeled products in an effort to persuade the consumer to purchase these specialized products from a specialized store. Whole Foods Market possesses several strengths that contribute to their sustained and continued success. The reputation of Whole Foods Market is a prest prestigious igious one in the industry allowing it to demand higher prices of the market; this presents itself as a substantial strength in relation to the  bottom line. line. Whole Foods Foods has a strong private private label label tantamount tantamount to a high quality quality product product that is linked to a unique and enjoyable shopping experience with expertise knowledge of the extensive  products offered offered in the store. store. The core core values set forth forth by the organizat organization ion are respected respected in in the market as well as by the the local community and consumers. Whole Foods is viewed as the authority when it comes to natural/organic foods. This attracts new cus customers tomers who have limited to no knowledge about eating organic or using all natural products.

 

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The differentiation strategy is the most appropriate strategy to employee for Whole Foods Market. The differentiation strategy attempts to provide a competitive advantage via a product or  service offering whose attributes differ significantly from the offerings of rivals or a set of  capabilities for delivering customer value that rivals don’t have. (Thompson, Strickland & Gamble, 2009) Whole Foods has accomplished this by providing a shopping space that that is well lit, brightly colored displays housing fruits and vegetables; eliminating cookie cutter store designs by designing each store according to the size a layout of the space. The only static “rule” is that all store locations must be able to accommodate a 25,000 to 50,000 square foot facility; enhancing seafood standards which require vendors to pass an independent third-party audit to ensure adherence to the strict quality standards. standards. Whole Foods further accomplishes differentiation differentiation by the level of customer service it offers to its its customers. Employees of Whole Foods are enthusiastic and knowledgeable about the products offered, this enthusiasm becomes contagious and in-turn influences the customers. The main differentiation aspect Whole Foods uses is the quality of its  products.. The first  products first core value is “selling “selling the highest highest quality quality natural natural and organic organic products products available.” This core value provides a distinct competitive advantage. Whole Foods has been touted as having the highest and and most stringent quality st standards andards in the industry. Because Whole Foods has held fast to this strategy tthe he return to shareholders has been significant. The expected outcomes in response to the strategy are; a focused loyal customer base whose needs are continuously met and exceeded, on or above target financial results, growth and retained and happy employees and customers. An acquisition is an appropriate action when the following elements are present; the desire to grow a business at a fast pace, to create presence in an area where the entity does not exist, to eradicate some or all direct competition and to increase sales and revenue. An acquisition makes

 

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sense if first the company being acquired meets certain financial criteria and it is determine to be valuable. Whole Foods over the the years has acquired various ssmaller maller natural and organic food stores in the industry. This action proved successful as the company was names one of the the 500 FastestGrowing Private Companies in America. The targeting of Wild Wild Oats presented an opportunity for  Whole Foods to eliminate eliminate competition in the market. Wild Oats stores were located in geographic geographic areas which would allow Whole Foods to enter ten to fifteen new markets, where they had no  presence.  presenc e. The acquisition acquisition also also presented presented a boost boost to Whole Foods Foods financials, financials, raising stock prices prices and increasing sales. Whole Foods began to acquire stores in 1991, by 2005 they owned stores all across the country. This richly increased their presence and allowed them to provide a wider and enhanced selection. Market conditions should be conducive when aggressively acquiring companies. The markets in which Whole Foods acquired smaller businesses had minimal competition outside of the target companies. As the leader of Whole Foods Market it would be appropriate to reward employees for the remarkable success the company has experienced. experienced. Net income for the upscale natural-foods grocer’s fiscal fourth-quarter 2010 totaled $57.5 million, or 33 cents a share. Analysts had expected the grocer to earn 28 cents, according to a FactSet Research survey. Sales rose 15% to $2.1 billion. (Andrejczak, 2010) Whole Foods earned $75.5 million, or 42 cents a share, for the quarter ended Sept. 25, 2011 (Andrejczak, 2011) The company's profit for the first quarter of its fiscal 2012 was $118.3 million, or 65 cents per share, up 33 percent from $88.7 million, or 51 cents per share, in the same quarter last year. (Gaar, 2012) With these types of financial results it is only fair that the employees, team members reap reap the benefits of their hard work. According to Thomas, Strickland and Gamble the use of incentives and rewards is the single most powerful tool management has to win strong employee commitment to diligent, competent strategy execution

 

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and operating excellence. (Thomas, Strickland & Gamble, 2009) An appropriate reward reward structure should link performance targets to every department and team member in the organization. The reward structure would be a minimum of 12 percent of base salaries for all employees not just management. The percentage could increase based on the financial performance of the company. Managers and above would have the same incentive program but with additional or varied  performance  perfor mance standards standards as well as a higher higher percentage percentage payout than individual individual contribut contributors. ors. The  performance  perfor mance standards standards would follow follow the SMART goal model model in that that they would would be specific, specific, measurable, attainable, realistic and timely. timely. Performance standards will be crafted for each operational group in an effort to allow them to have direct impact on the success of the assigned standard. Incentive payments would be paid out in February for the previous year performance results. This incentive plan will encourage all employees to put forth their very best effort in in an attempt to meet and or exceed strategic goals. The reward system is based on tthe he quality of results that are achieved. The minimum percentage payout is in in line with the financial results reported for the previous three years including results from Q Q2, 2, 2012. Once the plan is developed all employees will be sent a letter detailing their level within the company, the strategic objectives they are responsible for as well as the percentage payout expected for their position. Monetary rewards would not be the sole method by which which to reward employees. Employee of the quarter  nominations will be used as a vehicle to recognize employees that consistently go above and  beyond in their functional functional areas. areas. A peer recognitio recognition n program will be enacted. enacted. This program program will will allow individual contributors to nominate their peers for a company award for doing a good job and going above and beyond. Discounts on products and services would also be provided iin n an effort to encourage employees to engage in a healthy lifestyle which is part of the company core values.

 

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The company’s current strategies support ethical business behaviors because the chosen strategies overlap company and community goals. goals. These overlaps prove to create a competitive advantage. Whole Foods leaders recognize that society impacts the competitive environment in which companies do business. Society provides the team members, set the rules and regulations  by which which businesses businesses operate, operate, drives drives the demand demand for company products products and services services and provides provides the basic roads, telecommunications, water supply and electricity with which to operate. (Thomas, Strickland & Gamble, Gamble, 2009) Whole Foods is is committed to doing business in an eethical thical and legal manner therefore, the ethical climate at Whole Foods supports doing the right thing due to its social responsibility, staffing structure and quality standards. standards. The ethical climate at Whole Whole Foods is clear and concise. Whole Foods has developed documents, charters polices and process to facilitate an ethical environment. Efforts to employ employ an ethical strategy and observe ethical ethical  principles  principl es in operating operating busines businesss are in direct direct concert concert with with being a good corporate corporate citizen citizen and being being engaged in socially responsible business behavior. Whole Foods has made charitable contributions and donated time team member time for community service endeavors. (Thomas, Strickland & Gamble, 2009) Whole Foods take serious serious its responsibility to be an active participants in all local communities in which it operates. Whole Foods donates a minimum of 5 percent of its profits every year to various community community organizations. (Whole Foods, 2012) Whole Foods further  supports ethical business behaviors by taking actions to enhance employee well-being and make the company a great great place to work. (Thomas, Strickland & Gamble, 2009) Whole Foods supports team member happiness and excellence by rewarding effort and results, creating an environment where motivated team members can do well and reach their highest potential, the structure of the work unit within Whole Foods is one of self-directed teams, information that may be potentially impacting to team member jobs is readily available all compensation information is available for 

 

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review and leveraging the diversity of team member ideas in an effort to produce creativity and receive multiple contributions which drives innovation. Quality standards at Whole Whole Foods play an enormous role in supporting ethical business behaviors. Quality can be viewed as the cornerstone of ethical business behaviors. Quality is all about the value a product has in relation to other  contending products. When consumers spend money on products they expect tthat hat they are receiving the best value for their money. Whole Foods ensures this this by adhering to high standards and aims to provide the highest quality products to its customers by evaluating the ingredients for  freshness, safety, taste, appearance and nutritive value.

All in all Whole Foods Market appears to be a progressive and stable company with aggressive growth plans for the future. Extensive effort has been exerted exerted in planning and execution of all of aspects aspects of the business. Whole Foods has to capitalize on its individual strengths and opportunities to sustain its its edge in tthe he marketplace. Currently, they are classified as the number one organic food retailer in the United States. John Mackey’s vision for Whole Foods Market to be the international brand known for being the best retailer of natural and organic foods has come to fruition through the careful execution of vision, mission, core values and strategy.

References

 

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Zacks, E. R. (2012, May 3). Whole foods posts healthy 2q. Retrieved from http://finance.yahoo.com/news/Whole-Foods-Healthy-zacks-1176500019.html

Texas-based Whole Foods again one of 'best' places to work.” Anonymous. The Colorado Springs Business Journal. Colorado Springs:Jan 30, 2009

Billquist, A. (2011, September 26). Growth strategy of whole foods and kroger. Retrieved from http://www.augustbillquist.com/2011/09/26/growth-strategy-of-whole-foods-and-kroger/  

Thompson, A., Strickland, A. J., & Gamble, J. (2009). Crafting & executing strategy. New York,  NY: McGraw McGraw-Hill -Hill Larning Larning Solutions Solutions..

Andrejczak, M. (2010, November 3). Whole foods profit up 58%; shares gain. Retrieved from http://articles.marketwatch.com/2010-11-03/industries/30693961_1_executive-johnmackey-shares-food-retailers

Gaar, B. (2012, Feburary 8). Whole foods posts highest-ever quarterly profit, plans to keep growing. Retrieved from http://www.statesman.com/business/whole-foods-posts-highestever-quarterly-profit-plans-2160646.html

Whole foods market. (2012). Retrieved from http://www.wholefoodsmarket.com/

 

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Table 1

Figure 1 Core Value

Selling the highest quality natural and organic  products available  products available Satisfying and delighting our customers Supporting team member happiness and excellence

Creating wealth through profits and growth Creating ongoing win-win partnerships with our 

Strategic Objective •

•

 products Respecting all forms of life

•

Respecting all forms of life

• •

suppliers

Promoting the health of our stakeholders through healthy eating education

Differentiation of its organic

Growth by store expansion Differentiation of its organic  products

•

•

Respecting all forms of life

Educating via public participation

 

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Caring about out communities and our environment

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the Whole Foods Market vision. Respecting all forms of life

•

Educating via public participation and an extending an invitation to join the Whole Foods Market vision.

Figure 2 Operating Income for previous 5 years

Figure 3 Net Revenue for previous five years

 

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