This document provides an analysis of Whole Foods Market in 2008, outlining their vision, core values, strategies, and organic foods industry. It discusses Whole Foods' vision to become a leading international brand for natural and organic foods retail. Their core values include selling high quality products, satisfying customers, supporting employees, creating profits, caring for communities/environment, and partnering with suppliers. Their growth strategy focused on acquisitions and large new store openings. Marketing emphasized education and community involvement. Operations were decentralized with an emphasis on quality and freshness.

1.
STUDY
Y CASE AN
NALYSIS
WHO
OLE FOO
ODS MAR
RKET IN
N 2008
‐V
VISION, CORE V
VALUES,
, AND ST
TRATEG
GY‐
STRA
ATEGIC MA
ANAGEMEN
NT IN BUSI
INESS
GRO
OUP MEMB
BER:
CARTER BIN
C
NG
MARIA ELISH
M
HA
HAMDI
NIKKO
CLASS MB1
1
YOUNG
G PROFESSIO
ONAL ‐ BUSIN
NESS MANAG
GEMENT
2011
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2. INTRODUCTION
Founded in 1980 in Austin, Texas, with the John Mackey as a cofounder and CEO, Whole Foods
Market had been a leader in the natural and organic foods movement across the United States
during its 27‐year history. The company sells the highest quality, least processed, most flavorful and
naturally preserved foods available. Whole Foods became a public company in 1992, with its stock
trading on the NASDAQ.
The company mission is to promote the vitality and well‐being of all individuals by supplying
the highest quality, most wholesome foods available. The purity of food and the health of bodies are
directly related to the purity and health of the environment, and their core mission is devoted to the
promotion of organic foods, healthy eating, and the sustainability of the entire ecosystem.
VISION
Whole Foods have a vision 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 Foods stores were located. Whole Foods wants to set the standard for excellence in food
retailing.
The Whole Foods Market’s motto: “Whole Foods, Whole People, Whole Planet”, emphasizes
that the vision reaches far beyond just being a food retailer. The company proclaimed that they, as
an organization, have a deepest purpose to help support the health, well‐being, and healing of both
people – customers, team members, and business organizations in general – and the planet
(sustainable agriculture, organic production and environmental sensitivity.
Whole Foods, means that they obtain their natural and organic product locally and all over the
world. They believe that natural food is the best tasting and most nutritious food available. Whole
People, means that they recruit the best people they can and empower them to succeed, and help
the company profitable and beneficial. Whole Planet, means that their support to organic farming
will also protecting the environment and our planet.
DIFFERENTIATED PRODUCT OFFERING
The differentiation of Whole Foods Market from other retails is the product they sell. They
offer a broad and differentiated selection of high‐quality natural and organic products with a strong
emphasis on perishable foods; which bring the company to be the world’s largest chain of natural
and organic foods supermarkets. Our product selection includes, but is not only limited to natural
and organic foods, but also seafood, grocery, meat and poultry, bakery, prepared foods and catering,
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3. specialty (beer, wine and cheese), coffee and tea, nutritional supplements, vitamins, body care,
educational products such as books, floral items, pet products and household products.
Natural foods product, which is defined as a product containing no artificial ingredient or
added color and that is minimally processed, had increased at double‐digit rates in the 1990s in
sales, while the growth had slowed to 7‐9 percent range since 2000. Organic Foods were a special
subset of the natural foods category; to be labeled as organic, foods had to be grown and processed
without the use of pesticides, antibiotics, hormones, synthetic chemicals, artificial fertilizers,
preservatives, dyes or additives, or genetic engineering.
A “365 Everyday Value” line and a “365 Organic Everyday Value” line of private‐label products,
have a less expensive price than comparable name brands, as well as a family of private‐label‐
products with consistent logos and packaging for specific departments, the examples: “Whole
Kitchen”, “Whole Treat”, “Whole Pantry”, “Whole Catch”, etc.
CORE VALUES
Selling the Highest Quality Natural and Organic Products Available
They have high standards and sell the highest quality products. They also believe that
natural and organic products can make a difference in the quality of one’s life.
Satisfying and Delighting Our Customer
They believe that by satisfying their customer, they will get the opportunity to satisfy
the needs of the other stakeholders. When the company can meet or exceed the
customers’ expectations, the customers can turn into advocates for their business. So
they want to serve their customers competently, efficiently, knowledgeably, and fair.
They educate the customers about natural and organic foods, health, nutrition, and
environment, provide a high quality products with a competitive price and great service,
create an inviting and fun store environment with a fresh concept and new ideas, to get
a greater appreciation and loyalty from their customers.
Supporting Team Member Happiness and Excellence
They believe that their success is dependent upon the collective energy and intelligence
of all their team members. They create a motivated environment, give opened
information to all team members, and improving through the creativity & intelligent of
their team members.
Creating Wealth Through Profits and Growth
They are committed to increase long‐term shareholder value and they gain the profit
every day through voluntary exchange with the customers.
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4. Caring About Our Communities and Our Environment
They support organic farmers, growers, and the environment; they respect the
environment by recycle‐reuse‐reduce their waste. They are also active in their local
community, give minimum 5% of profits to wide variety of community and non‐profit
organization.
Creating ongoing win‐win partnerships with our suppliers
They treat their supplier with respect, fairness and integrity, also committed to honesty,
timeliness and clarity in communicating with their suppliers at all times and expect the
same in return. They seek to create transparency from “farm to fork” with respect to
production, planning, sourcing, ingredients, product safety and efficacy in order to bring
to market the safest highest quality products available. The company also educates
their supplier so that they can give the best quality product; foster the supplier for
creating new, unique and innovative products.
Promoting the health of our stakeholders through healthy eating education
By providing healthy eating education, Whole Foods inspire and empower their
stakeholders to make the best health‐supportive, delicious food choices to maximize
personal health and vitality.
Source: http://www.wholefoodsmarket.com/company/corevalues.php (accessed December 6, 2011)
ORGANIC FOODS INDUSTRY
Most industry observers expected that, as demand for organic foods increased, conventional
supermarkets would continue to expand their offerings and selection. Supermarkets were attracted
to merchandising organic foods because the consumer demand for organic foods was growing at
close to 20% annually, and mounting consumer enthusiasm for organic products allowed retailers to
command attractively high profit margins on organic products.
The growth in sales of natural and organic foods is being driven by numerous factors, including:
Healthier eating patterns on the part of a populace that was becoming better educated
customers about foods, nutrition, and good eating habits, especially among aging and affluent
people who concern about health and better‐for‐you foods.
A “wellness”, or health‐consciousness, trend among people of many ages and ethnic group.
Increasing consumer concerns over the purity and safety of food due the presence of pesticide
residues, growth hormones, chemicals, artificial genetically engineered ingredients.
Growing belief that organic farming had positive environmental effects, particularly in
contributing to healthier soil and water conditions and to sustainable agricultural practices.
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5. WHOLE FOODS STRATEGY
Growth Strategy
Acquire Wild Oats, as it’s ranked second behind Whole Foods, the biggest and closest
competitor
Opening bigger store than the average store size of retailers of natural and organic foods, in
metropolitan areas each year – stores that ranged from 40,000 – 70,000 square feet
Opened stores in high‐traffic shopping locations and potential sites that already pass certain
financial hurdles
Marketing Strategy
More to the below the line marketing strategy (less advertising, more with word of mouth)
Do a great efforts to educate people about natural and organic foods, nutrition, and
environment change due to organic consumption
Held a store events as taste fairs, classes, product sampling, and a in‐store signage
Extraordinary services and a personable store personal are expected to change the customer
into advocates (which can be a marketing tools – word of mouth)
Community and customer interaction oriented to help extend the market such as extending
company efforts by jumping into the community citizenship and social activism such as
philanthropic activities
Welfare of employees (teams)
Treat all employees as a team
Empowering work environments
Compensation, Incentives and rewards (using EVA to measure performance)
Routine performance measurements and evaluations
Knowledgeable, competent, and friendly service standard with personal recommendation for
each customer
Corporate Social Responsibility (CSR)
Donating at least 5 percent of its after‐tax profits in cash or products to nonprofit or
educational organizations.
Created the not‐for‐profit Animal Compassion Foundation in January 2005
In October 2005, Whole Foods had established a not‐for‐profit Whole Planet Foundation
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6. Store Operations
Decentralized team management & process
Highly dependent on team members and associates led by team leaders
Each product category have different team member for responsible, respectively
Store team leaders were paid a salary plus a bonus based on EVA contribution
Customizing the looks and product display to best show off the particular product mix for the
store’s target clientele
Total Quality Management
Define quality by evaluating the ingredients, freshness, safety, taste, nutritive value and
appearance of all of the products that they carry
Maintain the list of unacceptable ingredients (about 81 ingredients)
Purchasing and Distribution
Whole Foods used regional and national suppliers so the company in a better position to
negotiate volume discounts
Some perishable product, like seafood, coming from distant supply sources were flown in to
stores to ensure maximum freshness
The company operated nine regional distribution centers to supply its store
Pricing
“If people believe that the food is healthier and they are doing something good for themselves, they
are willing to invest a bit more, particularly as they get older.”
As one analyst said that, it’s a big opportunity for a Whole Foods to sell their premium products at
premium prices.
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7. WHOLE FOODS MARKET’S FINANCIAL PERFORMANCE
Year
2000
2002
2004
2005
2006
2007
Store
117
135
163
175
186
276
Difference
‐
18
28
12
11
90
Sales Growth
‐
10.0%
14.9%
12.8%
11.0%
7.1%
Store Contribution
9.4%
9.6%
9.3%
9.6%
9.6%
8.9%
The growth of store number between 2006 to 2007 seems like a bad move for Whole Foods, it
is only natural that more stores we operate, then we expect more sales growth will be grabbed, but
the Whole Foods didn’t find it right, as we could see that the sales growth is dropped below 10% and
so the store contribution dropped below 9%. This is the worst ever condition for the last 4 years.
From this point of view, we can conclude that between 2006 to 2007 there is a slight concern
about declining performance in effectivity and efficiency in store operations respectively.
The financial statement is providing more evidence of the in‐effectivity and in‐efficiency of
growing more stores. Although the sales is growing 18% more, the direct store expenses and other
operating cost are growing more than 18%.
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8.
Even in last quarter of 2008, the store expenditure is exceeding its operation cash flow,
resulting in $929 million debt, but the company taking action to sell $425 million of preferred stock
to bolster its financial position. The expenditure itself occurs from acquisition of Wild Oats Markets
and more stores opening.
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9. INDUSTRY ANALYSIS
PORTERS’ FIVE FORCES ANALYSIS
•
•
•
•
•
BARGAINING POWER OF
SUPPLIERS
• Quite limited supplier of
natural and organic
products
• Company can import
product from all over the
world
• The company is become
the largest account for
many suppliers of natural
& organic foods.
THREAT OF NEW ENTRANTS
High entry barrier, such as: capital
requirements, inventory cost, etc.
Big economic of scale
Government policies
Threat from large retailers which can
entry this specialization product
through subsidiaries
High profit margin
COMPETITIVE RIVALRY
• Natural & organic foods
retailer, such as Wild Oats,
Fresh Market, Trader Joe’s.
• The producers or
manufacturers of natural &
organic products.
• Rival from other retailer
such as: grocery store or
supermarket
BARGAINING POWER OF
BUYERS
• No switching cost needed
• Product Differentiation
of Natural and Organic
Foods
• High attention of
customer to healthy and
life improvement (low
power)
• Consumer demand is
quite high and growing
at around 20% annually
THREAT OF SUBSTITUTE
• Non‐organic products (grocery
store)
• Restaurants
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10. TOWS ANALYSIS
THREAT
People’s ignorance about the difference between organic and non‐organic foods.
High profit provokes new entrants in this industry
High bargaining power from supplier of natural and organic foods
OPPORTUNITIES
The product sold is niche product, so there are not many competitors.
There are more and more people who aware of the benefit of natural and organic foods for
their health.
There are many market segments which can be the company’s market targets.
WEAKNESS
Premium price can cause demand loss in some economic conditions, which will affect
company's profit.
The product sales is limited to natural and organic product, so the company still unable to
compete with Walmart and Kroger.
Because of the lack of supplier number, Company become very depending on the supplier of
natural and organic products.
STRENGTH
Differentiation with the natural and organic product they sell.
Have a big capital investment.
Whole Foods have a large number of chain stores with large average store size, which is spread
throughout the Americas and Europe.
Company's image that close to environmental care and healthy living.
Have employees, divided into teams, who have competence in their field.
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11. RECOMMENDED STRATEGY FOR WHOLE FOODS MARKET
RECOMMENDED MARKETING STRATEGY
• Hamdi’s strategy recommendation for marketing :
“Doing ATL Marketing such as TV commercial, brochure to teach people the
benefit of natural and organic food.”
“Cooperation with fitness center, hospital and other
business that need an organic and natural food.”
“Gathering with a community that need an organic and natural food such as
diabetic, fitness, people with serious illness and so on.”
“Participating in a ‘green’ program in every aspects of the company
to be a driver for a customer buying product from Whole Foods.”
“Another strategy might be reconsider is the price of the product which is
premium. Based on the research in the case, 75% of the respondents are not
buying organic and natural foods because they it’s more expensive. It means
losing of demand. They might consider reducing the price a little by using
promotional marketing such as discount and bundling to gain the slice.”
• Lisa’s strategy recommendation for marketing :
“To create brand awareness, Whole Foods can make website to give
information and educate costumer about the company and what product is
sold, what’s it differentiation from other retail, and some information related
to the store, such as price, promotion, etc. The company can also give some
additional features on the web, such as share receipts to others, cooking
consultant, online customer service, etc.”
“Having cooperation with some TV cooking show, like Top Chef, Hell’s Kitchen, Hot
Kitchen, etc ; with TV Channel, like AFC (Asian Food Channel) or Cooking Channel
(U.S.) for advertising will generate more sales for Whole Foods.”
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12. “Whole Foods can make a bundling product or package product, with a special
or different unique name, example: “Organic Family”, “Organic Kids”, “Organic
Breakfast”, for some product such as Cookies with Milk, or, Bread and Juice,
etc. It will be better if the bundled product price can be a little bit lowered
down (as a promotion), so it can grab more customers, especially the price
sensitive costumer.”
“Organic Product concerns about health and life quality, so Whole Foods can do
Above the Line marketing activities such as, advertising in health magazine, food and
gourmet magazine, and sport magazine, which the consumer target is close with the
Whole Foods target itself: people who care about health and well‐being.”
“Develop an exclusive member card for Whole Foods’ customer,
Whole Card, to build consumer loyalty”.
• Carter’s strategy recommendation for marketing :
“To help maintaining customer visits from the existing and prospective
customer, Whole Foods can create for seasonal events in the stores such as
healthy cooking tips demo, or babies health seminary, etc. in order to increase
sales converting probability.”
“In order to maintain the customer, Whole Foods can also make monthly free
booklet/magazine that promotes healthy living tips and other related contents for
subscribed and loyal customer, the booklet/magazine will contain the promotion
events and product that will be executed within next month in the prospective
store.”
“Promote fresh delivery products by customer order (online order if
applicable) to reach more extensive market area and customer.”
• Nikko’s strategy recommendation for marketing :
“Whole Foods Market’s vision is to become the international brand. So, in order
to achieve that vision, they need strong brand ambassadors for their brand to
be widely known further. They actually can use their customer as their brand
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13. assadors. There is no nee
ed for any co
ost for those kind of amb
bassadors.
amba
What
t they only n
need to do is that to crea
ate a special and unforgettable
mom
ments or feeli
ing caught by the custom
mers having a
a shopping in
n Whole Foo
ods
Mark
ket. For exam
mple, provide
e more entertainment fo
or the custom
mers. The
stren
ngth of word of mouth is really unbelievable, if th
he customer is really hap
ppy,
they can easily sp
pread it to th
he world (suc
ch as forum discussion, m
mail groups,
socia
al communiti
ies, etc).”
“Make affiliation
n or partners
ship with hea
althy club, gy
ym, etc. For e
example,
foods market
t can place a
a banner in th
hose places f
for free, inst
tead they
Whole f
give
e a free mem
mbership for some month
hs for the customers who
o buy for
certain am
mounts.”
ting; coopera
Doing
g ATL market
ation
with f
fitness cente
er, hospital;
gathe
ering with a c
community t
that
need an organic &
& natural foo
od;
partic
cipating in a “green”
progr
ram; reducin
ng the price b
by
discount or bundl
ling.
Make
e website; ab
bove
the lin
ne marketing
g
strate
egy; bundling
g
produ
uct or packag
ge
promotion; coope
eration
with T
TV Channel;
develop member card.
Hamdi
H
Lisa
MA
ARKETING ST
TRATEGY
Carter
Nikko
Create seasonal e
events;
e monthly fre
ee
make
bookl
let/magazine
e;
promote fresh delivery
ucts.
produ
Build internatio
onal brand
with strong brand
ambassadors ye
et without
cos
st; Affiliation or
par
rtnership wit
th healthy
club
b, gym, etc.
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14. RECOMMENDED OPERATING STRATEGY
• Hamdi’s strategy recommendation for operating :
“Purchase wind energy (they did it in January 2006) to reduce the use of
nuclear power plant as well as a sales driver.”
“They used local farmers to provide inventory for Whole Foods. It’s been a
good strategy since they aren’t far from the store itself so that the
transportation cost will be inexpensive.”
“TQM as a standard of quality in Whole Food.”
• Lisa’s strategy recommendation for operating :
“Whole Foods can use Sun‐Panel/Solar‐Panel System, which can help reduce
electricity power usage and save the environment, supporting the green
environment, which close to the one part of company motto: Whole Planet.
The use of Solar Panel will reduce the operation building cost of using the
electricity, more further, it will provide the electricity for the store and
buildings around.”
“Since Whole Foods have a strong brand and become the largest account for
their suppliers, then the company has a power to pressure suppliers, or
negotiate with the suppliers, for lower wholesale price.”
• Carter’s strategy recommendation for operating :
“Using more technology oriented operation process (green technology if
applicable) to reduce operating cost such as online Supply Chain
Management, so that Whole Foods can reduce inventory cost and other costs
from fast moving and perishable products.”
“Outsourcing some areas of operation that are not in the company’s core
competency such as cleaning service, delivery & distribution service, etc. so
the company can reduce the operating cost of each store globally, and also
gaining standardize service in each store.”
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15. • Nikko
o’s strategy recommend
dation for op
perating :
“Sinc
ce Whole foo
ods market system is dec
centralized, t
the quality st
tandard may
y
become an issue. So, it is better to create
e a Key Perfo
ormance Inde
ex (KPI) for
each store. So, th
he managers
s can evaluat
te which bran
nch performs well or
below
w the standa
ard. It will lea
ad to an imp
provement fo
or the operat
tion of the
store
e.”
Use S
Sun‐Solar Panel
syste
em; negotiation
with the supplier
rs to
cut d
down the pric
ces.
Purchase Win
P
nd
energy; use lo
e
ocal
farmers; TQM
M.
Hamdi
Lisa
OPERATING
G STRATEGY
Ca
arter
kko
Nik
Technolog
gy oriented
operation
n process;
Outsourci
ing some
areas of o
operation
Use KPI to evaluate
ve the
and improv
stores operation.
Page | 15

16. RECOMMENDED FINANCIAL STRATEGY
• Hamdi’s strategy recommendation for financial :
“Increasing in total square footage of all stores of 2,935,290 (46%) square feet
just increase the store sales of $984,397 (17.5%). It means that the acquisition of
Wild Oats wasn’t significantly increasing the total sales of the company. This is
happen because many of Wild Oats store size were smaller than the average of
Whole Foods store size and the Wild Oats store weren’t renovated to Whole
Foods. The direct expenses also increase as well as the increasing of store size
(fixed cost). So they might consider finding a small size Wild Oats store that has a
low contribution margin and sell it as soon as possible.”
“Another strategy to grow the company is to increase sales by increasing the
quantity to sell. They have to continue increasing the size of their store across the
country based on their store size standard. By increasing the size, they might
increase their sales. Perhaps in the future, they will consider broadening the
business to other region such as Australia and Asia.”
• Lisa’s strategy recommendation for financial :
“In 2007 Whole Foods acquired 74 stores of Wild Oats and increasing its number
of store to be 276, increasing the total square footage of all stores to 9,312, 107
square feet. Nevertheless, the average of Wild Oats store size is smaller than the
average of Whole Food’s, so the average store size in 2007 in decreasing. In 2007,
the store contribution rate became lower than the previous years, because the
direct store expense is getting increase as the total store size is increase as well.
The larger store size will impact to a higher direct store expense, which can
reduce the store contribution margin. So, Whole Foods can use the strategy to
reduce the average store size, in order to increase the store contribution ‐ profit
margin.”
“The company do their financing mostly from debt, especially when they did the
acquisition of Wild Oats. I recommend the company to minimize the debt and use
equity financing for their investment, in order to bring back the company financial
health. The healthier company will attract more investor.”
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17. “A large increasing of store number didn’t make a significant increasing of sales,
especially in 2007. So, I recommend Whole Foods should close down its
unprofitable store. Decreasing a number of stores will give impact on lowering
capital expenditures. The higher capital expenditures will be lowering net income,
so if Whole Foods can reduce its capital expenditures, the net income is expected
to increase.”
• Carter’s strategy recommendation for financial :
“No real financing strategy that I could provide, but the main issue is to reduce
operating costs by improving efficiency and effectivity in all operational
activities, so that the large growing operation expenses can be cut off as low
as possible, as the company preventing itself to open/acquire more stores
until the operational activities are stable due to changes.”
• Nikko’s strategy recommendation for financial :
“To increase the sales, I think Whole Foods should add more product category
they sell that contains organic and natural ingredients.”
“Another idea is reduce the cost of goods sold. It means using porter’s low cost
strategy to teach the local farmers to produce goods with low cost but in the same
quality. By lowering the cost, the company can get lower price from the farmer.”
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18.
Increase st
tore size by
buying new
w store; sell
wild oats s
store that has
low contrib
bution margin;
expand to other region
n.
Close down
unprofitab
ble store;
reduce ave
erage store
size; do mo
ore equity
financing t
than debt
financing.
Hamdi
a
Lisa
FINANCIAL STRATEGY
G
Carter
N
Nikko
Re
educe operating costs
by
y improving efficiency
an
nd effectivity
y in all
op
perational ac
ctivities.
Add mo
ore product
categor
ry; using
porter’s
s low cost
strategy
y.
‐‐‐‐FIN‐‐‐‐
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