Inputs Diagnosis Whole Foods

Topics: Organic food, Grocery store, Supermarket Pages: 5 (1861 words) Published: February 19, 2013

Rivalry Among Existing Firms
The range of competitors within the overall industry include chain and independent supermarkets (Krogers, Safeway, others); mass merchandisers and super centers (Wal-mart,Target); convenience stores; wholesale clubs (Sam’s); restaurants and fast food chains andnatural food stores (Whole Foods, Wild Oats Generally the concentration of competitors has been fragmented by geography. However, through recent consolidations, the emergence of regional and national chains has started to prevail along with the decline of the independent/local shops. This consolidation activity has allowed many companies to spread their fixed costs over a wider range of output, thus creating more efficiency in operations. Often, it is cheaper for a company to acquire an incumbent due to the location of their stores and access to customers rather than to raise the capital for entirely new stores, which is how Whole Foods has been able to expand following their growth model strategy. Whole Foods acquisition growth plan has helped them to gain enough economies of scale to better compete with the Wal-marts and Sam’s Clubs. Threat of Substitutes

Price of substitutes plays a role in determining a company’s profitability. Organic food is priced at a premium to conventional food reflecting the high labor costs in cultivating the product. The price premium may be one reason why organic food has not become mainstream. Another reason is that consumers either lack education about its benefits (or don’t care) so that the price premium does not appear to be justified. However, when comparing upscale organic and prepared foods to competitors such as restaurants, the benefit/cost ratio appears more justified. Market research conducted shows that “20 percent of shoppers as dedicated to healthy eating”.(PRNEWSWIRE, 2013) These shoppers tend to be better educated, more affluent, couples or singles without children, and generally in better physical shape than the rest of the population. These individuals that actively seek out health and nutritional information, are younger to middle aged, and have medium to high household incomes. Thus, this market segment likely has a higher propensity to substitute than the segment above, but still is probably lower than the overall market. In total, the organic segment of the market has captured “73 percent of consumers as of 2008”.(QSRMAGAZINE, 2013) Buyer Power

The retail grocery market is typically considered somewhat resistant to economic downturns, thus, to some degree, consumers’ food budgets are price insensitive. However, there is risk that consumers will switch from high quality / high margin stores to mass merchandisers (Walmart, Shop N Save) to stretch declining incomes further in a downturn market. Furthermore, while individual consumers typically lack significant buyer power to affect the specific prices of products, collectively, they can exert influence on retailers to sell or not sell specific types of products. Supplier Power

The organic food suppliers are not highly concentrated, so natural food retailers have some power over them. Also, the natural food retailers may have the ability to backward integrate with partnerships and joint ventures with local growers. In addition, there is a trend for top conventional food manufacturers to invest in national/organic food companies as shown by the following excerpt * Kraft (NYSE: KFT  ) : Boca Foods, Back to Nature

* PepsiCo (NYSE: PEP  ) : Naked Juice
* General Mills (NYSE: GIS  ) : Cascadian Farm, Muir Glen * Dean Foods: Horizon, The Organic Cow of Vermont, Alta Dena, White Wave/Silk * ConAgra (NYSE: CAG  ) : Lightlife, Alexia Foods
* Kellogg (NYSE: K  ) : Morningstar Farms, Kashi, Gardenburger, Bear Naked * Coca-Cola (NYSE: KO  ) : Odwalla
* M&M Mars: Seeds of Change
* Hain Celestial (Nasdaq: HAIN  ) : Nile Spice, Health Valley, Bearitos,...
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