Whole Foods Market

Strategic Management Case Analysis (Whole Foods Market) Submitted to: Sir Ahsan Durrani Submitted by Wasif Qureshi Danish Qazi Danial Mohammad Sharif

Q.1 what are the chief elements of the strategy that Whole Foods Market is pursuing? Use strategy diamond to explain this part. After going through the case one can easily get an idea about the business strategy of Whole Foods Market which basically a growth and expansion strategy. Following is the explanation of the Whole Foods Market Strategy with respect to the business strategy diamond. Arenas for Whole Foods Market •

Whole Foods Market is operating globally with 276 stores in USA, Canada and United Kingdom and panned to have 400 stores globally. It is highly involved in value creation activities to increase the value of its products to have more and more loyal customers which play an important role in achieving its objectives.

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It is offering 16 different product lines to cater the diversified needs of different target markets. These product lines include Fruits & Vegetables, Meat & Poultry, Fresh Seafood, daily baked goods, cheeses, chocolates, Beer & Wines, Coffees & Teas, Body care, natural & organic pet foods, Grocery & household products etc.

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As per the information, WFMs has all together nine regional distribution centers

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They have segmented their customers on the basis of geographic locations

Vehicles •

Whole Food Market is focusing on internal development efforts related to acquisition of external parties. WFM takes responsibility of its actions and tries to correct its mistakes on its own. Most of the business expansion achieved via combination of opening its own new stores in different locations and acquiring small owner-managed chains that were located in the desired markets. The major acquisition occurred in the history of WFM is the acquirement of Wild Oats Market which led it to enter into new geographic locations and new customers. This thing is also in the practice of WFM that they relocate a few of its smaller stores to larger and visible locations to increase the prominence of the stores.

Differentiators WFMs differentiating itself on following basis •

Customization: The layout of the stores of WFMs was designed according to the geographic locations instead of having a standardized layout and they had the specific product mix as per the demand of the target market they operated

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Product Reliability: WFMs is providing quality and reliable food products to its customers. The food offered by WFMs is fresh, full of nutrition, good in taste and meeting the quality standards with 100% guaranteed satisfaction. Whole food market has its own quality standards team which ensures that there are no unacceptable ingredients included and the food is at its purest state.

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Styling: WFMs believed in creating an interactive store ambience that makes the food purchasing more pleasant. Most of the stores include din-in areas, comment board and also customer information centers with the name of Action Centers where customers can get the information on topics related to organics, sustainable agriculture, the environment and other related issues. They believe that their stores are the places where people can gather and interact along with food shopping and eating. Some store also provide with the valet parking and home delivery.

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Image: The focus of WFMs is to form a positive image in the minds of its customers and ensuring them that they are using best practices to create a brand name and make them feel good that they are the customers of Whole Food Markets.

Staging The sequence and pace of the strategic moves of WFM are very frequent specially after increasing the awareness of natural and organic food among the customers WFM decided to response on frequent basis and opening new store and acquiring other small stores are the evidences which show that how well it is performing to enhance its staging.

Economic Logic Obtaining the returns is the ultimate objective of any firm, to make sure that it is attaining the adequate returns Whole Foods Market is charging premium prices for its products offered. Because the nature of the products is organic and pure so it justifies the pricing of the products set by the WFM. Although WFM prices are a little high but still it is charging relatively competitive prices in the market.

Q.2 Is Whole Foods’ strategy well matched to recent developments and conditions in the natural and organic foods segment of the food retailing industry? If we look at the change oriented strategy of Whole foods market then the answer is yes because Whole foods market tied its level best to cater the rising needs of the consumers. As it is noticed that the consumers were becoming more health conscious and preferring natural foods over artificially processed and flavored products so Whole Foods market capture this need by making the organic foods available on a large number of places so that customers can easily get it. This case also highlighted the fact that the sales of organic foods in the United States hit $17 billion in 2006 as stated by Organic Consumer Association, which shows that the consumers’ interest towards the organic foods was increasing day by day, and Whole foods market took the advantage of this changing preferences and promoted organic foods at every level. Whole foods market’s well designed and managed stores with fully aware staff, its business and merchandising strategy, its interest and will towards promoting the organic foods among the consumers, and its growth strategy highlighted that its position was well matched with that of the industry.

Q.3 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 “Whole Foods, Whole People, Whole Planet” motto? Do the motto and the principles underlying the motto (case Exhibit 1) really matter at this company or are they just nice words and window dressing? Explain. In our point of view Mr. John Mackey’s vision was very much clear and at its best. The way Mr. Mackey developed a worthy and effective strategy and brought efficiency in the operations of providing organic foods to the consumers. His strategic vision for Whole Foods Market helped it to create a place the market as well as in consumers’ minds. The vision was not only providing the organic foods but also making sure that the consumers are aware of what actually meant by organic food. Their vision shows that they are also making a part for the betterment of the society and hence completing its social responsibility by promoting the offering of no preservatives foods and encouraging formers to grow the pesticides free corps. As for as company’s motto “Whole Food, Whole People, Whole Planet” is concerned in our view point it is not just a bunch of nice words but this show the strong notion of the Whole Foods towards its consumers and the society. The actions, activities, business strategy, store operations, its contribution to the society are the facts which supports its motto that they are actually doing what they are claiming. Here we want to break down the motto and explain it separately with respect to its values: Whole Food: By this Whole Foods Market means that the organic food on its purest state and it is a truth that they are highly involved in promoting and selling organic food and this thing can be supported by the facts that most of their product lines are based upon the 100% organic foods like fresh seafood, fresh fruits and vegetables, natural and organic meats, organic coffees and so on. They have also mentioned in their core values that they provide natural and organic food to bring quality in consumers’ lives.

Whole People: Whole Foods take a special care of its customers as well as employees. Their claim of Whole People is supported by its core value that they satisfy their customers more than their expectation so that they are delighted and to do this they have empowered team members of every stores to whatever they can do exceeds customer expectations. Taking care of its employees is also an important factor for Whole Foods they believe in employee empowerment, self-motivated work force and self-directed teams. They also share their growth by involving employees in different Employee Stock Ownership Plans (ESOPs, they reward their employees by gain sharing. Whole Planet: As Mr. Mackey shared its belief that my desire is to promote Well-being of every one on earth and earth itself this statement shows that how much importance the give to the planet and how encouraged they are towards the welfare of the society. Whole Foods Market consider itself as an participant in the community and give 5% of its profit to the community and not for profit organizations. This part motto is also supported by this fact that Whole Foods Market won a Green Power Partnership award from the U.S Environmental protection agency for consecutive two years 2006 and 2007. This shows that society and institutions also accept the participation made by Whole Foods Market.

Q.4 Do WFM’s core values as presented in case Exhibit 3 really matter? Have they contributed to the company’s success? Why or why not?

The application of the core values can be seen in every aspect of Whole Foods Market. Whether it’s a development of strategy, taking care of customers, empowering and involving employees, taking care of social responsibility we can see that these values area taking WFMs to the height of success. For instance if we take its employee empowerment value than we will find that the customers satisfaction was merely because of this value because the give free hand to the employee to make the customer delight and this value lead to wining the customers heart. And other value was to work for the community welfare and this value led WFMs to achieve environmental awards. One of their values is to increase the value of retail experiment and their merchandising and business strategies have successfully achieved it by giving a pleasant atmosphere in the stores during purchase. Their sales staff also guide customer in a nice way and make them feel the most important by giving them special attention.

Q.5 How well is Whole Foods Market performing from a financial perspective? Financial performance of Whole Foods Markets was very good since 2006, but decrease in 2007 in term of profitability instead of growth in revenue in 2007. •

Net income of company increase from $98,915 thousand or $98.9 Million in 2003 towards $203.8 Million in 2006, but fallen down in 2007 to $182.2 Million.

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The growth rate in Net income from 2003 to 2006 was 26.5% and it is decrease in 2007 by rate of 9.6% which impact the total growth rate to 16.9% in growth rate from 2003 to 2007.

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The Revenue growth rate from 2003 to 2006 was 19.5% as well as increase in 2007 with the rate of 21.2%. It shows that whole food is growing in term of revenue but decrease in net income.

There are some ratios of Whole foods;

Gross Profit Margin

2007

2006

34.8%

34.9%

2005

2004

35.1

34.7

%

%

2003 34.2%

Operating Profit Margin

4.5%

5.7%

5%

5.6%

5.2%

Net Profit Margin

2.8%

3.6%

2.9%

3.4%

3.1%

Return on total Asset

5.69%

9.98%

12.53

14.52

%

%

Earnings per Share

$1.3

$1.46

$1.05

$1.06

$0.84

Current Ratio

0.85

1.22

Return on Equity

Q.6 How well is Whole Foods Market performing from a strategic perspective? Is the strategy working? Does the company have a winning strategy? If we look at the strategic perspective of WFM than we can easily say that at strategic level the company is following a growth and expansion strategy and most of expanding occurred through horizontal integration which is the acquisition of its competitors and by expanding the number of its own stores. The only mishap happened to WFMs was a recession that is faced in 2008 and became a barrier in achieving the strategic objective of having 400 stores. Although WFMs faced some recession and hurdles in its way but still we think that the strategy of the Johan Mackey is working and helping the WFMs to enjoy a competitive edge over its competitors like Fresh Market, Traders Joe’s, Sunflowers Markets etc. the acquisition of its major competitor Wild Oats also shows that the company is performing so well that it is in the position to not only beat its competitors but also acquire them. Following are some factors which give WFMs a competitive edge over its competitors: •

Attractive and friendly environment and the supportive staff at WFMs stores

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Number of geographic areas covered by WFMs is also larger than that of its competitors

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Size of the stores and availability of a large number of product lines

Q.7 Do you approve of the decision to acquire Wild Oats Market? What pros and cons do you see? To some extent acquisition of Wild Oats was a good decision with respect to the growth strategy of Whole Foods Market because it helped WFMs to have an increase in the number of stores and to explore new geographic location which obviously allowed WFMs to serve more customers. In our point of view there are some pros and cons that are related to the decision of acquiring Wild Oats.

Pros •

This decision wiped out a major competitor of WFMs and now it can focus on other competitors and their strategic moves

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It helped WFMs to enter into new geographic location where Wild Oats was operating and it helped to increase the number of stores of WFMs

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After acquisition of a major competitor of the cadre of WFM rivals now WFM is able to focus on the larger supermarkets because in the present situation it has acquired it’s the biggest competitor.

Cons •

Since acquiring Wild Oats was a major decision so after acquiring it WFM will now focus to improve the stores and the quality of the products which will divert its attention from its growth strategy and it might not be able to focus on its own stores.

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Acquisition of Wild Oats was a capital and costly decision and it can affect the financial position of the WFM.

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This acquisition is also against the strategy of WFM to have larger stores because Wild Oat’s stores are relatively smaller.

Q8: Were John Mackey’s Internet postings unethical, or in any way inappropriate? What actions, if any, do you disapprove of? What actions, if any, should the company’s board of directors take with regard to his Internet posting and blogs? John Mackey’s posting on internet before the acquisition of wild oats markets is very unethical because it was his personal views and he should keep control on his emotions rather than to make it fun, stakeholders may be influence negatively from this act of john Mackey, board of directors should force john Mackey to apologize publicly to FTC on this issue as he did, or they can demand resignation from him. Q9: What recommendations would you make to John Mackey regarding the actions that Whole Foods’ management needs to take to get through the recession that began in earnest in 2008? Should the company severely cut back on opening so many new stores? Should the company vigorously contest the reopening of the FTC’s challenge to the Wild Oats acquisition? Are any other strategy changes needed? •

As economic conditions are not good for business therefore they should delay the expansion plan of opening of new stores

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They should reduce the capital expenditures for example they do not need to make new furniture or shelves in wild oats markets, otherwise it will incurred in huge expenses.

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New price promotions must be start to attract new customers & advertisement policies needs to be revised and implemented in a new passion and style, they should make believe on customers that they are buying the foods at cheap prices and in context of inventory management, priority should be given to those items which has more demands in the town rather than to store the luxury items.

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For a certain period they should not give the dividend because they should focus on payback of loans.