A niche product to a national competitor

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A niche product to a national competitor

• By Tom Anderson
• Kyle McDaniel
• Dan McLindon
• Ray Moorman
• Jeremy Smiley

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Key Question

• Can Whole Foods remain competitive in the
• face of major changes in the external
• environment?

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Supporting Questions

• What is the history of Whole Foods?
• What is changing in the external environment?
• What are the changes in demand?
• How is supply changing in the retail food
  industry?
• How is the competitive landscape changing?
• What is Whole Foods Strategy?
• Marketing
• Growth
• Operational

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Supporting Questions

• What internal factors are affecting Whole Foods?
• What are the strengths, weaknesses,
  opportunities, and threats for Whole Foods?
• What are the future challenges of Whole Foods?
• How should Whole Foods proceed?

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Overview of Whole Foods
Founded 1980
Vision Create an international brand , create a more healthy diet for consumers , pace setter in the industry, be the best in food retail
Brand Values Natural Organic Foods
Competitive Position Premium Products at a Premium Price
Source of Differentiation Best Quality, least processed, most flavorful, naturally preserved, zero hormones and pesticides
Status in 2008 275 stores, 3 countries, 6.6bn in revenue
Corporate Objective 400 stores, 12bn in revenue
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What is changing in the external environment?
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PEST Analysis for Whole Foods
Category Issue Threats/Opportunities Ranking (1-5)
Political 4 tier class system i.e. Organic Definitions Opportunity 1 or 2
Economic 2008 Economy Sours Threat 5
Social More health environmentally conscious population. Opportunity 4 or 5
Technological
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What are the changes in demand?
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Overview of the Demand
Total Food Retail 850bn
Natural Organic Retail 62bn (7.3) niche market
Growth Rate Growth slowed since 2000 (7-9) Organic 17bn (1/3 of natural foods)
Key Items Purchased Fresh fruit vegetables 73 (largest category) Big growth is processed items
3 Key Barriers for Consumers Prices of organic foods likely to decline as competition/supply increases Lack of availability more supply in the future Brand loyalty to natural organic foods
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How is supply changing in the food retailing
industry?
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Porters Five Forces
Heating Up
Cool To Warm
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Porters Five Forces Whole Foods Market
Forces Description Conventional Retailers
Threat of Substitute Products Easy switch to the conventional retailers. Specialty stores built right in to their strategies. High
Bargaining Power of Suppliers Largest food processors acquiring organic food producers. Only 1 of farmland used for organics. Medium to High
Bargaining Power of Buyers For the most part, conventional retailers determine what we pay. Low
Intensity of Competition Degree of commitment by the conventional retailers will determine the intensity. High
Threat of New Entrants Entrants are already there! Their intensity of their pursuit of the natural/organic market is the question. Low Medium
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Whole Foods Answer
Forces Whole Foods Answer to the Competition The Result
Threat of Substitute Products Acquisitions, taking on debt, reducing available cash. Hoping to get into new markets. Plans for new stores, varied floor plans Slowing growth since 2000
Bargaining Power of Suppliers Use local suppliers. But only 1 of farmland being used as organic farms. The big retailers are in a better position to deal with suppliers. Struggling to find beef and chicken suppliers.
Intensity of Competition Growing and marketing organic foods runs 25 to 75 higher than conventional. Conventional retailers setting the price and gaining market share. Spend less () than the competition.
Bargaining Power of Buyers For the most part, conventional retailers determine what we pay. At will.
Threat of New Entrants Entrants are already there! Their intensity of the pursuit of the natural/organic market is the question. Already there.
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How is the competitive landscape changing?
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Changes in the Competitive LandscapeShould they
really welcome competition?

• Local, regional, independent, national, and
  specialty stores are all competitors.
• CEO say it is a gateway for customers to try
  natural/organic foods or opportunity for the
  competition?
• Take a look at Store Sales Growth
• Sales growth has been cut in half since
  2004!

2004 2005 2006 2007 2008
14.9 12.8 11.0 7.1 ???
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Changes in the Competitive Landscape

• We may be seeing a revolution in the food
  retailing business.
• Supercenters Marketplaces Wholesale Clubs
• Will the competition force Whole Foods to rethink
  their strategy?

2006 US Grocery Sales of Stores Revenue in Billions
Conventional Retailers 25 5812 377
Whole Foods 0.7 188 5.6
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What is Whole Foods Strategy?

• Marketing
• Growth
• Operational

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Marketing Strategy

• Product
• High Quality Natural and Organic Food and nonfood
  items
• Offerings vary based on store size and tastes of
  local clientele
• Exotic offerings and product variety
• Ex) Japanese eggplant, 40 cheeses, 20 coffees
• Private label products
• Emphasis on perishables (fruits/veg., bakery
  goods, meat, seafood) 67 of sales

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Marketing Strategy

• Price
• Goal is competitive price at highest quality
• Organic foods are 25 75 more costly to grow
  and market
• Price and Quality are competing forces
• Whole Foods chooses to focus on Quality,
  therefore prices are higher than conventional
  grocers

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Marketing Strategy

• Place
• No standard store design. Layout customized for
  site and product mix.
• Colorful, inviting, fun
• Gathering place to learn, interact, eat, and
  grocery shop
• Presentation
• Highly regarded food displays, cleanliness, wide
  aisles

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Marketing Strategy

• Promotion
• Primarily rely on word-of-mouth recommendations
• 0.5 of revenue spent on advertising
• Most marketing spend is for in-store signage and
  events
• Store personnel is knowledgeable and personable

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Growth Strategy

• New stores and acquisitions of small
  owner-managed chains in desirable markets
• Ideal store size is 45,000 60,000 sq. ft.

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Operational Strategy

• Team-based management of store operations
• Many personnel, merchandising, and operating
  decisions made at store level
• Buying responsibility at the national and
  regional levels for volume discounts
• Own and operate many distribution centers 2 for
  produce, 9 bake houses, 5 commissary kitchens for
  prepared food, and a central coffee roaster

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What internal factors are affecting Whole Foods?
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Internal Analysis

• Affordability is a key Weakness WF must build
  value with every customer interaction.
• Email recipes, establish newsletter, personalized
  services once customer is in the store, free
  organic cooking classes, partner with local
  farmers in advertising

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Internal Analysis

• Value Chain Analysis
• Logistics seem to be streamlined
• Operations opportunity to be more efficient,
  appeal to more customers/increase average
  spending
• Focus more on perishables (fruit and vegetables)
  reduce waste and spoilage in biggest section of
  the store
• Eliminate non-essential services valet parking,
  massages
• Develop budget that allows chefs to teach organic
  cooking classes to customers at no cost.
• Continue to invest in customer service
  associates. Their interactions can help build
  brand loyalty.

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Internal Analysis

• Value Chain Analysis (continued)
• Marketing severely under-funded, develop new
  marketing campaign in current markets to reach
  more middle/upper income families. Focus on
  pesticide/hormone free and benefits to the earth
  capitalize on green/healthy trends.
• Management/Administration board should remove
  John Mackey and replace him with a leader with
  experience in grocery or organics. Proven
  inability to lead at this level. Doesnt have the
  vision to make the changes necessary right now.

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What are the strengths, weaknesses,
opportunities, and threats for Whole Foods?
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SWOT Analysis
STRENGTHS Experience in the Industry Large, customized stores Huge selection/variety over 30,000 items Nationally Known Organic/Natural Foods Seller WEAKNESSES Price up to 75 higher Locations only in affluent areas Advertising Budget very low (WOM approach) Promotional Offers no coupons
OPPORTUNITIES Expand private label selection lower price for customers Advertise more, create coupons and promotions to get people in the store Hype right now is to eat healthier and protect the environment Rewards program frequent buyer cards (like Kroger cards) Back to Basics buy more local products that people will pay more for THREATS Conventional Supermarkets Bad Economy Local Farmers Markets/Independent Retail Chains
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What are the future challenges for Whole Foods?
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Future Challenges

• Conventional Grocery Stores over saturate Market
  offer Organic Natural Foods
• Convince new customers to shop at WF rather than
  more convenient stores
• Pricing being able to compete against the
  conventional grocery chains
• Getting more people in the store

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Recommendations for Whole Foods Market
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Recommendations

• Lower Price to Compete with Grocery Stores
• Add a customer rewards program for frequent
  buyers
• Mail coupons to customers in a targeted marketing
  effort
• Expand Private Label Selection
• Lowers mfg costs, could offer discounts to
  customer for using WF brand products

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Recommendations

• Expand Private Label Selection
• Lowers manufacturing costs, offer discounts to
  customer for using WF brand products

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Recommendations

• Personalize Service at WF
• 3 days after purchase, email Thank You cards to
  customers after purchases
• 7 days after purchase, email 10 coupon to use on
  next purchase
• Email recipes
• Advertise, Advertise, Advertise
• Mail fliers to local zip codes show locally
  grown foods, classes offered, items on sale,
  coupons

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Recommendations

• Catering
• Offer catering to local businesses events
• Stop re-branding Wild Oats stores
• Halt expansion until WF builds up more cash
• Focus on profitable stores and use that
  philosophy to improve unprofitable stores
• Look at option of selling some underperforming
  Wild Oats stores

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Questions?