whole foods market - competitive strategy analysis

WHOLE FOODS MARKET, INC.

COMPETITIVE STRATEGY ANALYSIS

GROUP H10

ContentsExecutive Summary..............................................................................................................3

Global Organic Food Industry...............................................................................................4

U.S Organic Food Industry....................................................................................................4

Five Forces Analysis - Organic and natural foods - Industry Analysis....................................4

Whole Foods Market Inc.......................................................................................................4

Strategic Game Board Analysis – Whole Foods Market, Inc.................................................5

Scenario Analysis – Winds of change in the Organic foods industry.....................................6

Whole Foods Market – SWOT Analysis.................................................................................8

Whole Foods Market – Competitive Strategy Analysis.........................................................8

Strategy #1: Design solutions with the customer in mind..............................................................8

Strategy #2: Bigger is better, even in focussed differentiation.....................................................10

Strategy #3: Perishables – An imperishable source of success.....................................................11

Strategy #4: Inorganic growth in Organic foods market..............................................................13

Strategy #5: Change is the only constant.....................................................................................15

Strategy #6: Tangibles and Intangibles........................................................................................16

Recommendations..............................................................................................................18

Exhibits............................................................................................................................... 19

Exhibit 1: Global Organic Foods – Market Value and Forecast....................................................19

Exhibit 2: Global organic food market segmentation...................................................................20

Exhibit 3: Key Players in the Global organic foods industry..........................................................21

Exhibit 4: US Organic Foods – Market Value and Forecast..........................................................22

Exhibit 5: U.S organic food market segmentation........................................................................23

Exhibit 6: Key Players in the U.S organic foods industry...............................................................24

Exhibit 7: Whole Foods - Product Lines / Product Mix - Trademarks and Subsidiaries.................27

Exhibit 8: Porter’s - Five forces analysis of US Organic foods Industry.........................................28

Exhibit 9: Whole Foods Market - History of Acquisitions..............................................................31

Exhibit 10: Whole Foods Market - Product Mix............................................................................35

References..........................................................................................................................36

Executive Summary

Whole Foods Market, Inc. is a very interesting and rich study in terms of strategy

because there are so many different facets of strategy one could observe in the footnotes of

its history. In each segment of analysis starting from analyzing the industry structure in

which Whole Foods operates, to analyzing sources of competitive advantages, to identifying

the creation of sustainable competitive advantage, to establishing the strategy behind

changes made to counter the growing competition and decreasing consumer confidence on

the face of recession, to verifying if geographical diversification to Europe would help, we

have tried to link this analysis with our course concepts. In trying to do so, we have gained

new perspectives which have enabled us to appreciate the power of the tools and

techniques taught during this course and learned how to collate and use information from

multiple sources.

Global Organic Food Industry1

The market value of the global organic food market has seen a substantial increase in the

past few years; however this growth has been at a gradually decelerating rate. The turnover

for the worldwide organic food market was $60 billion in 2009, and this grew at a 14.6%

CAGR (Compound Annual Growth Rate) over the years 2005 – 2009.

Refer Exhibit 1 for the market value and forecast for Global organic foods industry

Refer Exhibit 2 for market segmentation

Refer Exhibit 3 for key players(excluding Whole foods) in the global market

U.S Organic Food Industry

While the market value of the US organic food market has seen a substantial increase in the

past few years; the growth rate has been gradually decelerating. The revenue for the

organic food market in the US was $25.7 billion in 2009, and this grew at a 16.8% CAGR

(Compound Annual Growth Rate) over the years 2005 – 2009.

Refer Exhibit 4 for the market value and forecast for the U.S organic foods industry

Refer Exhibit 5 for market segmentation

Refer Exhibit 6 for key players(excluding Whole foods) in the U.S market

Five Forces Analysis - Organic and natural foods - Industry Analysis

The players in the organic food market are taken to be the producers of organic food for the

purpose of the Five Forces Analysis, in the next page. Detailed analysis in Exhibit 8

Whole Foods Market Inc.

“Whole Foods is a leading retailer of natural and organic products. It owns and operates a

chain of natural and organic foods supermarkets through several wholly-owned

subsidiaries.”2 Headquartered in Austin, Texas, it operates in the US, Canada and UK,

1 Data Monitor: Global Organic Food (Industry profile): Publication date – Dec 20092 Data Monitor: Whole Foods Market Inc. (Company profile): Aug 2009– ,5

employing close to 52,900 people. 275 retail stores are operated, of which there are “264

stores in 38 US states and the District of Columbia, six stores in Canada, and five stores in

the UK.”3

Supporting its store operations are its Austin headquarters and 11 regional offices, regional

bake house facilities, produce procurement centres, commissary kitchens, seafood

processing facilities and a confectionary, amongst others. Product mix, product categories,

trademarks and subsidiaries are listed in Exhibit 7.

Strategic Game Board Analysis – Whole Foods Market, Inc.

3 Data Monitor: Whole Foods Market Inc. (Company profile): Aug 2009

Scenario Analysis – Winds of change in the Organic foods industry4

When Whole foods market opened its first store in 1981, the world was quite a different

place. The consumers had no idea where their food came from, where it was produced,

what was used to produce it, and the farming/harvesting/growing methods use to produce

the foods. There were few government and FDA regulations which required publishing this

information to the consumer.

Some factors which affected the growth of the organic and natural foods industry were

Incidence and awareness of Mad Cow disease

Information and perceived threat of genetically modified crops / animals, toxicity of

fertilizers, pesticides, and preserving agents came into the limelight

The median income for the US household grew during this period. So people who

wished could spend more on getting foods which were perceived healthier.4 MarketBuster – Whole Foods Market, Inc. – Lindsay Hutt

The organic and natural food market was quite fragmented during this period. There were

no big players, no organized retail, no nationwide chains, and no reputed brands in this

space at this time. There had always been small players who sold different types of organic

and natural products like farm produce, grocery, meat and poultry, bakery, seafood,

vitamins, fashion and body care products, coffee and tea, and nutritional supplements. But

none of these players carried more than a couple of categories of these products. The shops

were small and were identified niche.

The big players in the foods industry who supplied groceries / meat / fresh produce to the

consumer did not realize the potential of this market right away. Even if they realized, they

made no effort to cater to this segment.

Relatively smaller size of this segment. Although this market was growing at a rapid

pace, the capabilities required to cater to this class of customers were very different

from the average Joe these supermarkets were aimed at and therefore, the smaller

size of this segment may have proved a detrimental effect in the major players’

consideration of extending to this segment.

Development of a whole new network of reliable suppliers to cater to the organic

and natural foods market (suppliers who could produce organic and natural foods)

would have been an entry barrier and would have required quite a significant

investment.

It is also possible that the existing vegetable/fruits/meats/dairy produce

supermarkets did not realize the potential of this growing segment.

As it so often happens in business, someone understood there was a growing market

segment waiting to be tapped. However, the challenge of catering to this market segment

was manifold and the strategy involved behind some of the major decisions/operational

tactics are quite interesting.

Whole Foods Market – SWOT Analysis

STRENGTHS WEAKNESSESPerishables Focus High employee and customer satisfaction Pioneer in Organic and natural foods supermarkets Focussed differentiation Brand Image Store sites, customized layouts Extensive Private label product lines In-store prepared food

Recession changing customer's perception and buying power Weak foray into international markets

OPPORTUNITIES THREATSIncrease in US household median salary Strategic opportunities for acqiusition and merger, especially with the recession exacerbating the financial woes of several targets Growing awareness of healthy food options among the US and global consumers

Competitors like Wal-Mart entering into the fray Brand Image tarnished because of store sales promoting low-cost deals Decentralized operations as the firm grows larger Change in top management (CEO) after 30 years

SWOT ANALYSIS - WHOLE FOODS MARKET INC.

Whole Foods Market – Competitive Strategy Analysis

Strategy #1: Design solutions with the customer in mind 5

Once John Mackey decided to enter the organic foods business, conventional wisdom would

have indicated that he go after a particular type of the produce (fresh produce or groceries

or organic meat etc.,), as this was the way in which the existing players catering to this

customer operated. However, John Mackey decided to defy conventional wisdom and think

about it from the customer point of view. He gained first-mover advantage.

Customer’s point of view: This is a fictional statement intended for illustrationBeth says “As an organic produce consumer, I am committed to using organically and

naturally produced vegetables/ fruits / meats / other items. However, I need to put in a lot of

effort to procure all the items I need. To make my coleslaw salad, I need to travel 10 miles to

5 MarketBuster – Whole Foods Market, Inc. – Lindsay Hutt

the southeast of the town to buy the organic lettuce that Jack’s sells. I also need to go to

Free Range Chicken to buy free-range chicken and organic eggs to make roasted chicken and

poached eggs, which my son really likes. Free Range Chicken is my favourite store and it is

located 15 miles to the north-east of the town. Since I have to travel in so many different

directions and to different stores to get all these items, sometimes I have to compromise on

my promise of buying only the best organic and natural foods for my family”

John Mackey’s vision and ability to think from the customer’s point of view led him to

develop the concept of ‘Organic and Natural Foods Supermarket’. He opened his first store,

an 11000 sq. ft supermarket in Austin, Texas.6 This ability to think from the customer’s

needs and wants(latent and explicit) point of view is at the forefront of most successful

business ideas and often times, as it does here, it leads to a radically new product/service.

This concept has been persisted with ever since Whole foods began its operations. The

numbers are the ‘proof of the pudding’, so to speak. Given above are the profitability ratios

of Whole foods, its competitors and the industry as a whole for the past 5 years.7

6 Hoovers Company Records, Whole Foods Inc.7 Whole Foods Market, Inc. Profile - Hoovers

Strategy #2: Bigger is better, even in focussed differentiation

The concept of organic and natural foods supermarket is understood by answering this

question: “Instead of limiting the type of natural and organic products that it carries, why

not bring the entire gamut of organic and natural items (produce / meats / dairy /

vegetables / fruits / fashion and body care/vitamins etc.,) under the same roof, in the form

of a supermarket? Would it not bring customer delight?”

By doing this, he was able to achieve several things at once

Capture all the organic/natural item needs of the organically inclined customer, who

would otherwise be less inclined to buy all the organic and natural items he/she

wanted to, because it entailed travel / trouble / accessibility.

Provide a platform to convert audience who wanted to buy only a specific type of

product (organic or normal) to buy organic and natural produce which would in turn

improve both sales and profitability.

Conventional strategy teaches that in cases where firms cater to niche segments of

customers, usually they charge premium prices, create demand through limited supply, and

create prestigious affinities to promote the product. Measures that promote sense of

exclusivity are pursued to create a sense of pride and belonging. Developing brand loyalties

are heavily invested on. By nature, exclusivity does not lend itself well to supermarkets, big

stores etc. Also note that supermarkets by their format of providing most things together in

the same space do not have an exclusive flavour to them.

However, John Mackey cleverly provided the exclusivity / brand image to a supermarket

format by identifying the Whole Foods stores with ‘Organic and natural foods’. Since this

consumer was and is still a minority, that image transfers itself to the supermarket

associated with only ‘Organic and Natural foods’. This provided John Mackey with the

following opportunities

There was virtually no competition because he had developed a supermarket for

organic and natural foods, whereas the existing providers serviced only certain

product categories. Competition is one of the most important factors of profit.

Where competition is lesser, profits are generally more, provided demand for the

service / product is present.

Whole Foods could charge premium prices as there were customers who were

willing to pay a premium to get membership to this exclusive club of counterculture,

based on organic and natural foods.

“Our sales have grown rapidly through new store openings, acquisitions and comparable

store sales growth, from approximately $92 million in fiscal year 1991, excluding the effect

of pooling-of-interests transactions completed since 1991, to approximately $8.0 billion in

fiscal year 2009, a compounded annual growth rate of approximately 28%. We are a Fortune

500 company, ranking number 324 on the 2009 list.” 8

Strategy #3: Perishables – An imperishable source of successWhole foods market has a distinct advantage in terms of handling perishables, which is a

much more difficult type of product to handle and sell. Capabilities which are rare/unique

and difficult to imitate should be leveraged by a firm to maximize profits and to create a

sustainable competitive advantage. 2/3rd of the revenues of Whole foods market is through

sale of perishable products. Please refer Exhibit 10 for product mix.

8 FORM 10-K, Whole Foods Market, Inc. Fiscal year 2009 Page 4

The following statements in the annual report re-affirm the importance of perishables as a

category for competitive advantage.9

“We offer a broad and differentiated product selection with a strong emphasis on perishable

foods designed to appeal to all shoppers..... We believe our heavy emphasis on perishable

products differentiates us from other supermarkets and helps us attract a broader customer

base…… We believe it is our strength of execution in perishables that has attracted many of

our most loyal customers.”10

Perishable products are by nature difficult to handle as there is a strict time sensitivity of

handling for these products. Capability / resource matrix evaluation is as follows.

Capabilities Valuable (?) Rare / Unique (?)Difficult to Imitate (?)

Sustainable(?)

Handling Perishables 100 100 100 100

Since we have a product category where Whole foods’ execution offers all of the above

attributes, this is a source of competitive advantage for Whole foods market.

9 FORM 10-K, Whole Foods Market, Inc. Fiscal year 2009 Page 810 FORM 10-K, Whole Foods Market, Inc. Fiscal year 2009 Pages 8,14,15

Strategy #4: Inorganic growth in Organic foods market

Firms can grow through organic means (opening new stores/store expansions) or inorganic

means (through mergers and acquisitions). Whole Foods has been growing primarily

through inorganic means. During the last few years, they have also strived to grow through

expansion of their stores. 23% of their existing store space was acquired with

mergers/acquisitions.11 Refer Exhibit 9 for a list of all acquisitions thru 2009.12

The organic and natural foods market is still highly fragmented. There were many

potential targets to pick from. We suspect this led to increase in bargaining power

for Whole foods, thereby enabling them to pursue some good value deals. So, when

Whole foods wanted to move into a new territory or wanted to expand to a new

product, they can actively scour the market for potential acquisitions in that space.

This reduces the lead-in time for expansion in a particular market / service.

However, there are many factors for an acquisition or merger to be successful. Some

thought tests that would provide us with relevant answers are

o Attractiveness Test: Is the organic and natural foods market attractive? Will it

remain attractive?

o Test of Fit (Synergy): Will the acquisition/merger provide Whole foods with

business advantages that will be more than the sum of parts?

o Better-Off test: Will this acquisition/merger make me better-off financially?

As mentioned in their annual report, we can expect them to further continue with their

strategy of mergers and acquisitions in the future.

“Whole Foods Market’s growth strategy is to expand primarily through new store

openings….We have also grown through acquisitions, with approximately 23% of our

11 FORM 10-K, Whole Foods Market, Inc. Fiscal year 2009 Page 1112 Mergent Online: Whole Foods Market, Inc.

existing square footage coming from acquisitions. Because the food retailing industry is

highly fragmented and comprised of many smaller local and regional chains, we may

continue to pursue acquisitions of smaller chains that provide access to desirable areas,

locations and experienced team members.”13

The impact of acquisitions on the total gross footage and the number of stores in operation

over the past 5 years can be drawn as below14. A major part of the growth between 2007

and 2008 can be attributed to one big acquisition of Wild Oats Inc.

The number of stores has grown from 163 to 275 in the space of 5 years (68%

growth). The total gross footage has grown from 5.82 million sq-ft to 10.56 million

sq-ft (81% growth). The gross profit has grown from $1.65 billion to $2.75 billion

(66% growth)

As we see from the above data, the improvement in gross profitability seems to be a

function of number of stores, gross footage.

13 FORM 10-K, Whole Foods Market, Inc. Fiscal year 2009 Page 1114 FORM 10-K, Whole Foods Market, Inc. Fiscal year 2009 Page 11-12

Strategy #5: Change is the only constant

Although Whole foods market has had some setbacks during the recession, it has bounced

back strongly compared to its competitors and the market. One main reason is that they

have made quite a few changes to their strategy, recognizing the needs of the hour. Some

strategic changes, their intended reasons and their consequences are discussed below15

During the past 5 years, Whole Foods has focussed towards right sized stores16

instead of building bigger stores. Instead their store sizes are being reducing by the

year. This is basically aimed at cutting operating costs. Stores are usually located in

premium real estate sites and hence cost of unutilized or inefficient sizing is high.

Whole Foods Market Inc. Stores 2009 2008 2007 2006 2005Stores in development 53 66 87 88 65Average size (gross square feet) 45,000 49,000 51,000 56,000 55,000Total gross footage in development 2,410,000 3,294,000 4,485,000 5,003,000 3,626,000YoY change in footage development -27% -27% -10% 38% 40%

Source: Form 10-K, Whole foods market, Inc.

17During the recession in years 2008 and 2009, US consumers suffered a confidence

crisis and they searched for the best bargains that they could get. This drove them

to stores like Wal-Mart which advertises low prices on all items. To improve sales

volumes and profitability during this period, Whole foods market had to build the

value and price perception to suit that of the consumers.

o It ran promotions advertising it as ‘Whole Paycheck’, aimed at informing

customers of the value proposition that Whole foods delivers at low prices.

This was also a response to Wal-Mart gaining traction in the natural and

organic foods business.

15 Whole Foods Market, Inc. Profile – Hoovers16 Whole Food, Inc.- Annual Report 200917 Whole Foods Market, Inc. Profile – Hoovers

o It introduced the concept of ‘Value Guru’ who would lead store searches for

best bargains. This move was aimed at promoting the low cost perception

among the consumers. It also meant improved customer loyalty and

improved perception about prices.

o In their own words

“An extension of our leadership position in the natural and organic foods

industry is our strong family of private label brands..... These products are

designed to cover the full spectrum of category needs: from the highest

quality, value entry-point products to super premium, unique offerings that

cater to true food aficionados.”18

The strategic advantage of private label brands is as follows

When there is a strong brand loyalty, private label extensions typically

carry the same promise as the parent brand and therefore, lead to

greater margins at the lower pricing points for the customers.

Interestingly, Whole foods market offers private labels at all pricing

points, helping them capture consumer surplus and minimize the

‘money left on the table’.

Strategy #6: Tangibles and Intangibles

Attribute Strategic Initiatives / Tactics

Expected Benefits

Quality - Certifications and Assurance

First grocer in the US to be certified 'Organic'. Voluntary third Party inspections on Quality of products. "Most Humane Grocery Store"

Consumers are happy to pay the higher prices for the highest quality certified products. Therefore, ability to charge premium prices and therefore improve profitability.

Business Strategy -

Promote Locally Grown - $2.7 m in loans to 45 local

By promoting local producers, they are gaining the vote of the local people,

18 FORM 10-K, Whole Foods Market, Inc. Fiscal year 2009 Page 10

Supplier Buy-In producersreducing opposition to stores, getting an assured supply of produce and distributing risk.

Operational Strategy - Site Selection

Initially stores were started in college towns primarily. Now, stores are situated in high density shopping areas and are in a mall or freestanding

By starting the stores in counterculture hotbeds, mostly college towns, Whole foods was able to start stores where it expected most of its customers lived and thereby increase potential sales and ensure minimum profits.

Business Strategy - Vision, Mission, Consumer & Employee satisfaction

"Whole Foods, Whole People, Whole Planet" & recently, "Whole Paycheck" - Donating 5% of after-tax profits to not-for-profit organizations

Their business strategy statement emphasizes their outlook towards the world. This is a form of 'Cause- Marketing', where they have united the consumers who identify with their cause of highest quality, community service. This helps them build a strong brand and this in turn helps them survive and prosper through good and bad times and also improve profitability.

Business & Operational Strategy - Employee Empowerment

Team approach to store operations - self managed teams within store. Product mix & pricing decisions at store level made by teams.

Employee empowerment and morale boosting resulting in reduced turnover from 23% in 2008 to 12% in 2009, very low for food retailing industry. Reduced 'Training Costs', improved customer service, improved customer satisfaction resulting in improved sales and profits. FORTUNE magazine’s “100 Best Companies to Work for in America.” - 12 consecutive years

Business Strategy - Marketing

Marketing spend - 0.4% - among the lowest in supermarkets. Spend divided into separate budgets for each store which decides how and which not-for-profit organizations it wants to support

Local community customized marketing instead of 'One size fits all' marketing. Expected to bring 'word of mouth' and more efficient use of marketing spend.

Green Choice

Natural Products Association’s “2009 Socially Responsible Retailer Award” - 2009 Green ChoiceAward from Natural Health magazine - Environmental Protection Agency (“EPA”) Green

The Green movement has been gaining a strong foothold in the US during the past decade. To capture this set of customers and to affirm their commitment towards the society, nature and environment, these initiatives were driven. The intangible output is gaining a new set of customers and a stronger brand image leading to all the benefits of a strong brand

Power awardsfrom 2005 through 2008 - Leadership in Energy and Environmental Design (“LEED”) certification

Recommendations

Whole foods market should continue to invest on improving the efficiency of their

execution on the perishables segment of the organic and natural foods market. This

is their core competency and major source of competitive advantage in the

operations space. Not a lot of firms can execute this strategy except for maybe

established supermarkets like Wal-Mart, therein lays competition too.

Whole foods market needs to analyze expanding to overseas markets, especially

Europe as a potential market. European markets account for 47.9% of the global

organic foods market.19 However, the firm might face quite a few entry barriers in

the form of entrenched competition, having to build its competitive advantages as

they might be based on geography, execution know-how for an Europe based plan,

creating a supplier/distributor chain (supply chain) from scratch, European

government regulations etc.,. The firm’s can diversify its geographical risk if it can

enter Europe and gain a foothold.

It will be interesting to track the progress of Whole Foods Market from this point in time.

19 Data Monitor: Global Organic Food (Industry profile): Publication date – Dec 2009

Exhibits

Exhibit 1: Global Organic Foods – Market Value and Forecast20

By the end of 2014, the market value is estimated to be $96.5 billion representing a 60.7%

increase since 2009 at a predicted CAGR of 9.9% over the years 2009 – 2014.


Exhibit 2: Global organic food market segmentation21

Market Segmentation by Category: In 2009, the contribution of the fruit and vegetables

segment to the global organic food market’s revenues was 31.5%, while that of the

‘Prepared food and others’ segment was 20.4%.

Market Segmentation by Geography: In 2009, 48.7% of the market value of the global

organic food market was generated by the Americas, while Europe contributed 47.9%.


Exhibit 3: Key Players in the Global organic foods industry

Key Players in the market

Note: Whole Foods Market Inc. will be explained in later sections, and hence has not been

elaborated in this section.22

Wal-Mart Stores Inc: As the leading retail company worldwide, Wal-Mart has retail

stores in numerous formats globally. Discount stores, supercenters, Sam’s clubs etc, are

some of the retail store formats in the US. Everyday Low prices are offered at its retail

stores. For the Financial year ended January 2009, a turnover of $401,204 million was

generated.

Carrefour S.A: Carrefour has the dual distinction of being the world’s second largest

retailer after Wal-Mart, and the leading retailer of groceries and consumer goods in

Europe. The grocery store formats operated include hypermarkets, hard discount,

supermarkets and convenience stores, with Carrefour leading the hypermarket retailer

space globally. For the Financial year ended December 2008, a turnover of $129,096

million was generated.

Tesco PLC: Headquartered in the UK, Tesco is a food and grocery retailer with stores in

14 countries globally. The various store formats operated by it include Express, Metro,

Superstore, Extra and Homeplus. For the Financial year ended February 2009, a turnover

of $99,699 million was generated.


Exhibit 4: US Organic Foods – Market Value and Forecast23

The largest contributor to the market’s overall value in 2009 was the Fruit and Vegetables

segment with revenues of $9.5 billion (corresponding to 37% of the market’s value). By the

end of 2014, the market value is estimated to be $42 billion representing a 63.3% increase

since 2009 at a predicted CAGR of 10.3% over the years 2009 – 2014. The market forecast

for the years 2009-2014 is


Exhibit 5: U.S organic food market segmentation24

Market Segmentation by Category: In 2009, the contribution of the fruit and vegetables

segment to the US organic food market’s revenues was 37%, while that of the ‘Prepared

food and others’ segment was 20.7%.

Market Segmentation by Geography: In 2009, 42.9% of the market value of the global

organic food market was generated by the United States, while Europe contributed 47.9%.


Exhibit 6: Key Players in the U.S organic foods industry25

Key Players in the market

Note: Whole Foods Market Inc. will be explained in main text, and hence has not been

elaborated in this section.

Wal-Mart Stores Inc: Wal-Mart is the world’s largest retail company operating in various

retail store formats globally. Discount stores, supercenters, Sam’s clubs etc, are some of

the retail store formats operated by Wal-Mart in the US. Wal-Mart offers a wide variety

of products at Everyday Low prices (EDLP) at its retail stores. In the US, Wal-Mart

operates in all the 50 states. It has 891 discount stores (average size of 108,000 square

feet) in 47 states, 2612 supercenters (average size of 260,000 square feet) in 48 US

states and 153 neighbourhood markets (average size of 62,000 square feet) in 16 US

states. 121 distribution facilities are operated in the US to support Wal-Mart’s US retail

operations. Of these, 106 are owned by Wal-Mart and the remaining by third parties.

For the Financial year ended January 2009, a turnover of $401,204 million was

generated. In FY 2009, Operating profit was $ 22,798 million and Net profit was $ 13,400

million. Wal-Mart’s US operations contributed 82% of Wal-Mart’s operating income with

a strong financial performance. Key financials of the company are as below


The Kroger Co: As a leading grocery retail chain the US, supermarkets and multi-

department stores are operated by Kroger under numerous banners such as Kroger, QFC

, King Soopers, Ralphs, Fred Meyer, Smith's, Food 4 Less, Fry's, Dillons, and City Market.

In 31 US states, 2481 supermarkets and multi-department stores are operated directly/

through subsidiaries, in addition to 40 manufacturing plants. In January 2009, a turnover

of $76,000 million was generated. During FY2009, Operating profit was $ 2451 million

and Net profit was $ 1249 million. Refer key financials of the company given below

The Hain Celestial Group, Inc26: Hain specializes in the “manufacture, marketing and

distribution of natural and organic foods and personal care products in over 50 countries

around the world.”5 With headquarters in Melville, New York, Hain mainly operates in

US, Europe and Canada, by selling its products to specialty and natural food distributors,

natural food stores, and other supermarkets, retail classes of trade such as drug stores,

mass-market retailers, food service channels etc. The company categorizes the segment

it operates into grocery, teas, snacks, proteins, personal care products, and others, i.e.

on the basis of product divisions. In the Financial year ended June 2009, a turnover of

$1135.3 million was generated. In Fiscal 2009, a net loss of $24.7 million was reported,


in comparison to a net income of $41.2 million in 2008. Refer Key Financials of the

company given below.

Exhibit 7: Whole Foods - Product Lines / Product Mix - Trademarks and Subsidiaries27

Sourcing majority of its food from natural food vendors, the product categories offered by

Whole Foods include grocery, seafood, bakery, meat and poultry, prepared foods and

catering, specialty (beer, wine and cheese), nutritional supplements, coffee and tea,

vitamins, body care and educational products such as books, pet products, floral, and

household products.

With its private label products amounting to greater than 2300 SKUs (Stock Keeping Units), 365

Everyday Value, 365 Organic and the Whole Brands family are the brands used to market its private

label products. Store-made and regionally made fresh products are sold under the Whole Foods

Market label, while specialty and organic coffee, tea drinking chocolates are sold through its

subsidiary – Allegro Coffee Company.

The various trademarks owned by the Company and its subsidiaries are listed below:

“Whole Foods Market; 365 Everyday Value; 365 Organic Everyday Value; AFA; Allegro Coffee

Company; Wild Oats; Wild Oats Marketplace; Capers Community Market; Bread & Circus;

Fresh & Wild; Fresh Fields; Global Local; Green Mission; Harry's Farmers Market; Merchant

of Vino; Mrs. Gooch's; Vine Buys; Wellspring; Whole Baby; Whole Foods, Whole People,

Whole Planet; Whole Kids Organic; and Whole Trade.”28

27 Data Monitor: Whole Foods Market, Inc. (Company profile) - Aug 2009 28 Data Monitor: Whole Foods Market, Inc. (Company profile) - Aug 2009 – Pg. 4,5

Exhibit 8: Porter’s - Five forces analysis of US Organic foods Industry29

Buyer Power: As food retail is rather fragmented in the US, the bargaining power of

buyers is weakened. Retailers and end-consumers (if the distribution channel is

eliminated by the player) are the main buyers. As the inclination towards healthy eating

is growing, the dependence of large retailers on organic foods is slowly increasing.

However, products are increasingly directly sold to the end consumers, as they are from

large retail chains such as Wal-Mart. In the event of direct supply to end consumers, as

organic foods are perceived to be healthier and ‘naturally’ produced, consumer demand

increases, thereby weakening buyer power. Overall, buyer power is low.

Supplier Power: Organic farmers are the main suppliers in the market. These farmers

supply for the main segments of this market such as fruit & vegetables, prepared foods,

beverages, meat, fish, poultry, dairy etc. as they cultivate organic products, rear animals

etc. As Organic farming avoids the utilization of chemicals, the effort required by the

farmer is greater, but this also results in an increased influence on the market.

Some suppliers directly sell organic food to the public through farmers markets. On

account of this forward integration, they are able to directly reach the end consumers,

thereby strengthening their position. However, as the scale of operations of these

suppliers is relatively small, the organic farmers do not have much influence on the

market.

Factors which are of great importance to the retailer include the product quality and

geographical location. Supplier power is strengthened on account of long term contracts

entered into between the retailers and suppliers. Supplier choice is also limited for a

retailer when local produce is to be offered. Especially in the case of developing

29 Data Monitor: Whole Foods Market, Inc. (Company Profile) - Aug 2009

countries, key players are dedicated to various standards when dealing with a supplier,

which increases the power of even small suppliers.30

However, large retailers such as Wal-Mart etc. put pressure on the smaller suppliers, as

they command more power and are therefore at an advantage over the small suppliers.

On the whole, supplier power is moderate.

New Entrants: New entrants to the market include an existing company expanding into

organic produce, or a new company set up. Due to limited shelf space in retail stores and

significant capacity utilisation by non-organic products, unless capacity is increased,

sacrifices are required in terms of non-organic products. Hence, the attractiveness of

entry is lower. However, strong growth in the markets attracts potential entrants. By

and large, the threat of new entrants is moderate.

Substitutes: Substitutes include non-organic versions of the products which constitute

the main segments of the organic food market, i.e., fruit & vegetables, prepared food,

dairy & beverages etc. While the benefits of these substitutes are not very significant in

terms of health when compared to organic products, they are more reasonably priced,

and available in greater quantities. Hence, they pose a strong threat to the market

Competitors: Strong growth in the market reduces the intensity of competition between

the players in the market. Even though the main market segments are quite varied,

product differentiation in this market is limited, thereby increasing competition as

players cannot effectively distinguish themselves from others. Despite the limited

product differentiation, however, rivalry is slightly reduced as players offer a wide range

of products. On the whole, there is moderate competition between players, which is

30 Data Monitor: Whole Foods Market, Inc. (Company Profile): – Aug 2009

balanced by strong market growth easing rivalry at one end to a lack of differentiation

intensifying rivalry on the other end.

Exhibit 9: Whole Foods Market - History of Acquisitions31

In Nov. 1991, Co. acquired Wellspring Grocery, Inc. for $769,000 in cash, a $100,000 note

payable and 194,394 shares of Co. common stock.

On Oct. 12, 1992, Co. acquired all of the outstanding stock of Bread &Circus, in exchange for

approx. $20,000,000 in cash plus $6,200,000 in newly issued Co. common stock.

In Jan. 1993, Co. acquired 83.3% of Sourdough: A European Bakery, Inc. at a total cost of

$1,142,000, which included $643,000 cash and 35,738 shares of Co. common stock.

On Sept. 10, 1993, Co. acquired Mrs. Gooch's Natural Food Markets, Inc. for 2,970,596

shares of Co. common stock.

In Feb. 1995, Co. acquired two natural foods supermarkets in Northern California doing

business as Bread of Life and a natural foods supermarket in Florida operating as Unicorn

Village Ltd.

In Dec. 1995, Co. acquired a natural foods store in Evanston, Ill., doing business as Oak

Street Market, for $2,500,000 in Co. stock (195,000 shares).

On Aug. 30, 1996, Co. acquired Fresh Fields Market, Inc., which operated 22 natural foods

supermarkets in exchange for approx. 4,800,000 shares of common stock, plus the

assumption of approx. 399,000 shares of outstanding options to purchase common stock.

Subsequent to Apr. 13, 1997, Co. acquired two stores in South Florida doing business as

Bread of Life in exchange for approx. 200,000 shares of newly issued Company stock.

In Aug. 1997, Co. acquired the outstanding shares of The Granary Market in exchange for

approx. 33,000 shares of stock of Co.31 Mergent Online : Whole Foods Market, Inc. Page 3-5

In Sept. 1997, Co. merged with Amrion Inc. Co. will issue approx. 4,600,000 shares of

common stock to the shareholders of Amrion.

In Dec. 1997, Co. acquired Allegro Coffee Company in a stock merger. Co. issued approx.

175,000 shares of common stock in exchange for Allegro's outstanding stock.

In Dec. 1997, Co. acquired Merchant of Vino, which operates four gourmet/natural food

supermarkets and two specialty wine and gourmet food shops in the greater Detroit

metropolitan area, for approx. 1,100,000 shares of Co. stock.

In Apr. 1999, Co. acquired the outstanding stock of Nature's Heartland, Inc., which operated

four natural foods supermarkets in the greater Boston metropolitan area, in exchange for

approx. $24,500,000 in cash.

In Sept. 1999, Co. acquired 800,000 shares of common stock from Real Goods Trading

Corporation for $3,600,000, or $4.50 per share. The newly issued shares give Co. a 16.4%

ownership stake in Real Goods.

Effective Jan. 14, 2000, Co. contributed its Amrion, Inc. and WholeFoods.com, Inc.

subsidiaries to WholePeople.com, Inc., in exchange for 14,530,000 shares of convertible

preferred stock of WholePeople.com.

In Feb. 2000, Co. acquired substantially all of the assets of Natural Abilities, Inc., which

operated three natural foods supermarkets in the Sonoma County, California area, in

exchange for approx. $25,700,000 in cash plus the assumption of certain liabilities.

Effective June 30, 2000, Co. and Gaiam Inc. merged their Internet properties into a newly

formed company named Gaiam.com Inc. Following the merger, Gaiam will own 50.1% of

Gaiam.com Inc. and Co. will own the remaining 49.9%.

In Jan. 2001, Co. sold NatureSmart Inc.

In May 2001, Co. completed the sale of all of its interest in the NatureSmart business of

manufacturing and direct marketing of nutritional supplements for approx. $28,000,000 in

cash.

On Oct. 31, 2001, Co. acquired certain assets of Harry's Farmer's Markets, Inc., in exchange

for approx. $36,000,000 in cash plus the assumption of certain liabilities.

On Oct. 27, 2003, Co. acquired certain assets of Select Fish LLC (Select Fish) in exchange for

approximately $3,000,000 in cash plus the assumption of certain liabilities.

In Jan. 2004, Co. acquired Fresh &wild. On Jan. 31, 2004, Co. acquired all of the outstanding

stock of Fresh &Wild Holdings Limited (Fresh &Wild) for a total of approximately

$20,000,000 in cash and approximately $16,000,000 in Co. common stock, totalling 238,735

shares.

On Aug. 28, 2007, Co., through its wholly−owned subsidiary, purchased 25,175,997 common

stock of Wild Oats Markets, Inc. by means of a tender offer for all of the outstanding shares

of Wild Oats at a price of $18.50 per share, or approximately $565,000,000 plus the

assumption of approximately $148,000,000 in existing debt.

On Sept. 30, 2007, Co. sold all 27 Henry's Farmers Market and eight Sun Harvest store

locations and a related Riverside, CA distribution centre, to a subsidiary of Smart &Final, Inc.

Terms of the transaction were not disclosed.

Exhibit 10: Whole Foods Market - Product Mix

Product Category 2009 2008 2007Grocery 33.80% 33.20% 32.00%Prepared Food 19.10% 19.30% 19.80%Other perishables 47.10% 47.50% 48.30%Source: Whole Foods Inc. - Annual report 2009

References

Whole Foods Market, Inc. – Company Profile – Datamonitor – Aug 2009

Organic Food in the United States – Industry Profile – Datamonitor – Dec 2009

Mergent Online: Whole Foods Market, Inc. (NMS: WFMI)

Whole Food, Inc. - Annual Report – Form 10-K – Sep 2009

Whole Foods Market, Inc. Profile – Hoovers – Jul 2010

Hoover’s Company Records – In-depth Records – Whole Foods Market, Inc. – Jun 2010

Whole Foods Market, Inc. MarketBuster – Lindsay Hunt – Mar 2005

www.wholefoodsmarket.com

http://www.wholefoodsmarket.com/

whole foods market - competitive strategy analysis

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