BUSI 400 D09 1

Group Case Analysis 1 Whole Foods - Group 5 Liberty University 3 December 2012

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Executive Summary

Supermarket expert Phil Lempert once said of Whole Foods, Theyre not selling food. Theyre selling life (Serazio, 2011). The current grocery industry leader in organic and natural products, Whole Foods is a fascinating case study on the line between serving the lifestyle needs of a customer base while maintaining profitability. Throughout the past three decades, Whole Foods has grown organically through small acquisitions of companies that share the values of the now-retail giant. Because of their empowerment of their workforce, associates set the industry standard for customer service and product knowledge. The employees passionately care about the values that Whole Foods stands for, and because of that customers see Whole Foods as one of the most socially responsible corporations. The downturn in the global economy has had an effect on Whole Foods. A merger with a competitor in the organic and nature foods market faced severe antitrust litigation and price narrowing between regular and organic foods placed more natural and organic foods in more locations. The corporation is left with a series of decisions on whether or not to play ball against competitors like Wal-Mart and Kroger or continue to provide extreme value at a higher cost than other grocers.

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Existing Mission, Objectives, and Strategies

Existing Mission Statement

Whole Foods existing mission statement reads, to promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome food available.

Objectives

As a chain of upscale, premium grocery stores, Whole Foods has seen one third of its existing square feet come into the company as a result of acquisitions. The company fully believes that their stores make a significant difference in the lives of those who shop there the average Whole Foods shopper drives 20 miles to visit compared to the average grocery consumer who drives an average of 2 miles to their grocery store and in the lives of those who call Whole Foods their career. The Whole Foods brand has straddled a difficult line throughout its existence. As a leading voice in the natural and organic food supermarket industry, Whole Foods attracts a very liberal customer base. On the back end of the company, Whole Foods and its CEO John Mackey are dedicated towards driving down prices and increasing profit as much as possible an idea counter-culturally different than what most of their shoppers would do if they were given the keys to the company.

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Therefore, the companys objectives are to maintain the profitability Whole Foods has enjoyed throughout its existence while satisfying both the dietary and lifestyle needs of a highly-involved customer base.

Strategies

After the financial crisis of 2008, Whole Foods pivoted and made a few adjustments to their current strategies. First, Whole Foods cut in half the planned new store openings. Next, they cut discretionary spending by 50% and suspended its cash dividend. These fiscal changes allowed the company a financial flexibility similar to their status before the recession. Finally, they devised a three point approach to entering into a more priceconscious grocery marketplace by increasing the range of their lower priced items, strengthening their image as a value retailer, and launching their own in-store brand, Whole Trade.

New Mission Statement

Whole Foods seeks to make the world a better place both inside and outside our stores through providing immense value value in our well-being, value in the time we spend fostering relationships, and value in our high-quality, wholesome food.

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SWOT Analysis

Strengths 1. In a 2009 study by the Wall Street Journal, Whole Foods was rated as the most socially responsible corporation. In a post-recession economic climate, consumers look for reasons not to shop with particular brands. Whole Foods has committed themselves to making the world a better place both inside and outside their stores. Shoppers will continually hold Whole Foods in high regard as an employer of choice and a purveyor of high-quality food. 2. Whole Foods is known to shy away from carrying mainstream brands and instead finding niche, specialty brands to showcase to their customers. Therefore, Whole Foods is seen as a retailer involved in creating a better lifestyle for its shoppers and also is a trend setter. For instance, Whole Foods anecdotally has carried up to 50 different brands of olive oil in their stores at a time. 3. One of the biggest problems retailers have is hiring and retaining top talent. Whole Foods associates are knowledgeable and can provide helpful information to their shoppers. This competitive advantage makes the Whole Foods experience something that a shopper wants to experience time and time again. The company is able to retain their talent through paying above market average wages, providing great health benefits, and fringe benefits such as free gym memberships.

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Weaknesses 1. The grocer provides higher quality goods. These diverse, unique goods bring about higher prices for Whole Foods shoppers. In a post-recession business climate, Whole Foods is competing now against price-conscious customers more than ever before. A perception that Whole Foods is expensive anecdotally known as Whole Paycheck in reference to the higher cost of their food weakens their position. 2. Most stores do not carry many major brands, instead focusing on niche brands to provide a unique experience to their shoppers. However, a first-time shopper at a Whole Foods could be confused by a diverse brand lineup and struggle to find the time it would take to discern the correct brands for their lifestyle. 3. The industry makes less than a penny of profit on every dollar spent on retail stores. There are price-conscious shoppers who will only purchase items at Whole Foods that they cannot purchase at other stores, only to buy the majority of their food at a lower-cost store, like Wal-Mart. Investing in the retail store experience to provide a competitive differentiation is expensive, hard to justify on a large scale, and makes it difficult to provide a premium experience across the brands footprint.

Opportunities 1. Whole Foods can expand even more into prepared food. The stores already have a reputation as a hybrid grocery store and restaurant. 28% of shoppers are unsure of what their next meal will be up to two hours before the meal, providing a great

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opportunity for Whole Foods to find high-profit solutions. By transitioning to more of a hybrid restaurant and grocery store, it gives shoppers more reasons to come back to Whole Foods more often, and provides a competitive differentiation. 2. As the economy continues to struggle, Whole Foods has an opportunity to increase the range and scope of their low-cost items. A strategy for the company is to grow its Whole Trade in-store brand, and doing so provides high-qualtiy products for shoppers who are already are willing to try new brands with a highmargin solution for the retailer. On top of all this evidence, with associates who are knowledgeable and can make sincere recommendations, Whole Foods has the potential to roll out a powerful in-store brand. 3. Maintaining their differentiation what makes Whole Foods different from the competition will be critical. As more stores transition and adapt to the changes Whole Foods has made to the industry, by providing more organic and natural goods and specialty brands, Whole Foods must innovate and create the next great idea in grocery stores. Customers are willing to try out new, innovative ideas given Whole Foods previous credibility.

Threats 1. The global economys recession has consumers more price conscious than ever. As the pricing gap between regular food products and organic food products narrow, price-conscious shoppers may shy away from Whole Foods and consider retailers like Wal-Mart or Kroger. Additionally, shoppers may only pick-and-

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choose specific items to purchase at Whole Foods and find the other goods at a lower cost elsewhere. 2. 92% of Whole Foods 53,000 employees are full-time team members. As a result of President Obamas reelection in November of 2012, the pending health care reform could have a drastic effect on the health premiums and medical plans available for their employees. Skyrocketing health care costs and new legislation will create a volatile climate inside the health insurance industry sure to drive up costs for all employers. 3. With over 100,000 grocery stores in the US, the competitors to Whole Foods are diverse and hard to fully understand. As the company expands to more markets both domestically and internationally, each new competitor Whole Foods matches up against requires the company to pivot and reestablish itself.

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Competitive Profile Matrix Whole Foods Critical Success Factors Market Share Location of Facilities Brand Awareness Expansion Management Customer Loyalty Price Competitiveness Total Trader Joes Critical Success Factors Market Share Location of Facilities Brand Awareness Expansion Management Customer Loyalty Price Competitiveness Total Sunflower Farmers Market Critical Success Factors Market Share Location of Facilities Brand Awareness Expansion Management Customer Loyalty Price Competitiveness Total

Weight 0.20 0.09 0.11 0.12 0.08 0.18 0.22 1

Rating 4 3 4 4 4 2 2

Weighted Score 0.80 0.27 0.44 0.48 0.32 0.36 0.44 3.11

Weight 0.20 0.09 0.11 0.12 0.08 0.18 0.22 1

Rating 3 4 2 2 3 3 4

Weighted Score 0.60 0.36 0.22 0.24 0.24 0.54 0.88 3.08

Weight 0.20 0.09 0.11 0.12 0.08 0.18 0.22 1

Rating 2 2 2 1 2 2 3

Weighted Score 0.40 0.18 0.22 0.12 0.16 0.36 0.66 2.10

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External Factor Evaluation Matrix Key External Factors Opportunities Expanding store brand items Acquisition of smaller competitors Increase in health awareness Increase in brand loyalty through rewards card Increase awareness through community events Threats Big box stores increasing organic options Lower spread per trip per customer Increase in lower cost food alternatives Decreasing desire for niche products Local farmers markets Total Weight Rating Weighted Score

0.15 0.16 0.07 0.12 0.06

4 4 3 3 2

0.60 0.64 0.21 0.36 0.12

0.13 0.10 0.08 0.07 0.06 1

1 2 3 2 2

0.13 0.20 0.24 0.14 0.12 2.76

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Internal Factor Evaluation Matrix Key Internal Factors Strengths 18 new stores opened in 2011 EBITDA up 17% from 2010 to $835(M) Excellent employee morale Revenue up YTY $2,910(M) in 2011 Comparable store sales growth up 8.5% Sales increased 12.2% to $10.11(B) from 2010 Income available for shareholders up 42.5% from 2010 Diluted earnings per share up 35.0% from 2010 Weaknesses Inventory value down 92.3% from 93.9% YTY One extensive store remodel Insurance liabilities rose $8.3(M) YTY Low interest payments on short-term cash investments General/administrative expenses up $38.5(M) YTY Global economic issues depress discretionary spending Stock price volatility: 2011 range was $34.57 to 72.10 Excessive leaseholds: 20 leases in 2011 of non-operating use Pending antitrust legal issues Total Weight Rating Weighted Score

0.05 0.07 0.10 0.05 0.02 0.15 0.05 0.02

3 4 3 3 3 3 4 3

0.15 0.28 0.30 0.15 0.06 0.45 0.20 0.06

0.10 0.15 0.02 0.02 0.04 0.05 0.03 0.05 0.03 1

2 2 1 1 1 2 2 1 2

0.20 0.30 0.02 0.02 0.04 0.10 0.06 0.05 0.06 2.50

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Alternative Strategies, Giving Advantages and Alternatives for Each

Increase On-Site Premade Food Options Whole Foods has some of the most loyal customers in the retail industry. Those who shop at Whole Foods travel on average up to ten times as far to shop at Whole Foods as compared to the shoppers at other grocery stores. Therefore, Whole Foods is seen as an innovative, thought-leading company who provides great products. To capitalize on this momentum and a wide geography of their customer base, Whole Foods can continue to create more premade food options for consumption on-site or to-go. According to Serazio, consumers of organic products are not brand-conscious and are invested in organic as a way of life (2011). Presently, organic and natural restaurants are not as prevalent as their grocery store item counterparts are in the markets where Whole Foods is in business. By expanding their premade food options, Whole Foods appeases the market by providing an upscale location to eat out without the restaurant price tag. This strategy could turn a brand loyal Whole Foods customer who shops the store twice a month to either turn their bi-weekly trips into more of a destination. Instead of seeing grocery shopping as a chore, they could combine their dinner and enjoy a night out. Or, that same customer could view Whole Foods as an option to take business lunches or when they want to eat out of the house. To accomplish this strategy, Whole Foods would need to make a minimal investment ensuring that each store had sufficient space for shoppers to partake in a meal. While it may result in a loss of square footage for products, the perception for a shopper

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seeing a table and chairs will result in a more relaxed, calming atmosphere. Customers will understand that Whole Foods wishes for them to relax and enjoy their shopping experience (Underhill, 2009).

Rediscovering Their Roots and Reestablishing Competitive Advantage Five years ago, Whole Foods was depicted as a company insistent that they are fundamentally different when compared to the likes of McDonalds or Wal-Mart. The higher wages employees received empowered them to make decisions that benefitted both employee and employer. Executives capped their pay at fourteennot fortytimes the pay of store employees (Harris, 2006). These practices aligned with our postrecession business climate and were five years ahead of their time. Whole Foods has adapted to the market. Consumers began to cherry pick their grocery shopping coming to Whole Foods for the specialty items and relying on priceconscious Wal-Mart or Kroger for the rest of their grocery list. To respond, Whole Foods introduced its own brand of value items to boost margins and allure shoppers to gather all of their items. The addition of value items inevitably means the store is scaling back their specialty items, which means that Whole Foods is getting away from their core competencies. In 2006, the brand painted a vision of being a mega-chain retailer whose growth through acquisitions allowed them to be different than Wal-Mart (Harris). Instead, it feels as if the corporation is simply aiming to be like Wal-Mart, not different. Establishing once again that the experience is what differentiates Whole Foods, not the price, is what could bring Whole Foods back to prominence after a messy, legal

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battle to acquire Wild Oats Markets has eroded the brands focus. There will always be price-conscious Wal-Marts and online retailers who will undercut on price. One easy way for Whole Foods to continue to rediscover its roots and break out of a post-recession mindset is through social media. Currently, the company does not focus on advertising and does not advocate a large sum of their budget towards branding their company. However, the brand is built around human connections between their associates and the store environment. Managers have say over up to 10% of the SKUs stores stock in order to provide a local flare to each store. Scaling a social media solution, like Twitter or Facebook, to connect with fans will allow Whole Foods to not only stay front-of-mind but also to assert the brands promise to promote vitality and well-being.

Recommend specific strategies and long term objectives

The past century has seen drastic changes in the makeup of the world demographic and social changes abound. These transformations have changed have touched and forever changed the social environment we live in. Our habits, interests, and life expectancy all have transformed. A clear sign of this change is the increasingly customers preferences on organic food consumption. The global organic food market drives $22.75 billion of business per year, and the United States accounts for 45% of that total. As we learn more about the world we live in and the way we treat our planet, many of us are in pursuit of a healthy lifestyle.

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This makes the market increasingly lean to choose products that foster personal wellness, improving the functioning of the body, prevent aging and go more green, or natural. While consumers seek to maximize their dollar value while shopping, Whole Foods now has the opportunity to explore new strategies, developing very specific foods to niche markets that are willing to pay a little more than conventional food.

Specific strategies

Whole Foods can conduct a strategic campaign focused around merchandising. If the brand does decide to expand their premade food options, it would additionally be an excellent time to evaluate the placement of items throughout the store. By working with local store managers and district leaders, Whole Foods can identify what products could be best served in a different location and learn from the bright spots throughout the organization (Heath & Heath, 2011).

Creating different promotions by communicating the benefits of every product would assert Whole Foods market place knowledge of organic food. As companies begin to invest in technology like digital signage, it allows Whole Foods to capture their associates knowledge of different foods to create a database of market intelligence. A quick and easy way to assert the companys knowledge could be through recipe-sharing in-store.

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Brand and launch a new service within Whole Foods. If the chain wishes to grow their market share of premade food and offer a hybrid restaurant and grocery store, branding the service under a new name would generate excitement and buzz surrounding the brand. Additionally, Whole Foods could make a unique and unexpected endeavor into advertising through television commercials and print mediums, along with a social media presence.

Creating blogs and leveraging social media to explain the benefits and assert the quality of every organic product is yet another example of thought leadership. A true way to leverage the expertise of all of their associates is through social media. Providing a forum for customers to ask questions about different products including recipes, different ways to prepare items, and nutritional information and allowing the questions to be answered either by a corporate social media team or directly by associates would be a continuance of Whole Foods empowerment of their people.

Long Term Objectives

Continue to explore expansion into the European market. Presently, the brand holds a handful of stores in the United Kingdom. Through careful planning and study of the European market, engage in introducing the European customers to the Whole Foods brand.

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Balance global integration and local needs through empowerment of their employees. As the company expands internationally, there is more emphasis and pressure on local district and store managers to stock the right items that fit the geography of the area in which the store is.

Make continuous adjustments over time to optimize its global enterprise system, including back-end information technology upgrades. Upgrading and investing in technology solutions gives the outward appearance of staying with the trends but also allows a deeper set of data to be harvested from shoppers.

Create a new branch of clothes, and different items made from recycling product and organic cotton. Consumers who shop at Whole Foods wish to see products that match their lifestyle choices, and diversifying their options with more durable goods could potentially be a long-term solution.

Whole Foods must focus on opening small stores rather than big stores in the long-term. Competing with Wal-Mart is not an advisable long-term strategy, and given Whole Foods commitment to niche items, a smaller store concept could thrive in downtown areas and suburbs.

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Works Cited

America's Healthiest Grocery Store - 2011 Annual Report. (2011, November 23). Retrieved 2012, from Whole Foods Markets, Inc: http://www.wholefoodsmarket.com/sites/default/files/media/Global/Company%2 0Info/PDFs/ar11.pdf

Harris, M. T. (2006). Welcome to 'Whole-Mart'. Dissent (00123846), 53(1), 61-66.

Heath, C., & Heath, D. (2011). Switch, how to change things when change is hard. (1st ed.). New York: Crown Business.

Serazio, M. (2011). Ethos groceries and countercultural appetites: consuming memory in Whole Foods' brand utopia. Journal Of Popular Culture, 44(1), 158-177. doi:10.1111/j.1540-5931.2010.00825.x

Underhill, P. (2009). Why we buy: The science of shopping. New York, NY: Simon and Schuster, Inc.