Whole Foods Strategic Audit
Robert Harper Andrew Pequinot Taylor Tisdale Renee Werner
MBA 8820 Professor Denis Grégoire
April 18, 2006
Executive Summary – Whole Foods Strategic Audit Whole Foods Market competes successfully within the organic/natural foods industry, having enjoyed close to 19% growth over the past five years. As a point of comparison, Kroger – a traditional supermarket operator – only grew 4%. On a larger scale, the organic food retail industry in the U.S. has fared well in the last decade. Reported sales grew 23.4%, which is much more than the 3.3% growth of the overall food industry during the same time period. However, a recent announcement from a Whole Foods competitor recently sparked considerable buzz in the industry and put a mild dent in Whole Foods Market stock price. The announcement came from the industry giant Wal-Mart who unveiled its plan to more than double its organic offerings and begin marketing to more upscale clientele, many of who currently shop at Whole Foods. Wal-Mart is well known for squeezing supplier margins to bring “everyday low prices” to consumers. As the industry leader in several retail categories, including traditional grocery sales, Wal-Mart has the size and influence to significantly impact the organic food landscape if it dedicates itself to the market. Although Wal-Mart’s impact on the natural niche remains to be seen, it’s critical that Whole Foods review its strategy in light of Wal-Mart’s entry. Whole Foods’ advantage comes from offering both high quality and a wide variety of organic products. It also excels at delivering an inviting shopping experience for its customers. Because of these high-value offerings, Whole Foods sets its prices in the premium range. Our concern with Wal-Mart entering the market is that the overall price range of organic foods may decrease, resulting in customers expecting those products to be less expensive at other retail outlets, including Whole Foods. In addition, if Wal-Mart continues to pursue the organic food niche, it may give existing organic food competitors the ability to offer more products at a lower cost. Although this competitive threat may tempt Whole Foods into entering a price war with Wal-Mart, our recommendation is that they continue to pursue their current strategic course of premium differentiation. This course will include continuing to offer a high-end shopping experience, including knowledgeable employees such as dieticians and chefs. Long-term, Whole Foods may consider backward integrating to control its own food supply. Even though Wal-Mart is indeed a formidable competitor, we believe that their customer base is ultimately looking for a different product (only low prices) than then Whole Foods customer (high quality and the overall shopping experience), and we would do well not to waiver from our current direction.
Table of Contents Topic I. Introduction II. Organic/Natural Foods Industry Overview A. PEST Analysis B. Porter’s Five Forces III. Competitor Analysis A. Trader Joe’s B. Wild Oats C. Wal-Mart IV. Whole Foods Firm Analysis A. Current Competitive Position B. Resources and Capabilities C. Profit-Earning Potential V. Problems/Opportunities VI. Recommendations A. Short-Term B. Long-Term VII. Endnotes VIII. Appendices and Exhibits Page Number 4 4 5 6 9 10 11 12 14 14 14 17 19 20 20 21 22 24
Introduction Whole Foods Market, a retailer of organic/natural foods, is the largest player in a hot
market, experiencing nearly 19% growth over the past five years.1 When you compare that to 4% growth over the same period for Kroger, a traditional supermarket operator, one can begin to grasp how special Whole Foods’ rise has been.2 With projected sales for 2010 continuing to rise (Whole Foods recently raised its target from $10 billion to $12 billion) and consumer demand growing, Whole Foods appears to have limitless potential.3 But a recent announcement from a Whole Foods competitor recently...
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