Whole Foods operates in the organic, or natural and specialty foods retail industry. Leading the industry, Whole Foods Market is the world's most successful natural foods grocery chain. Having recently acquired one of its main competitors, Wild Oats Market, Whole Foods currently competes with two other large grocery chainsKroger and Trader Joe's. The company also acquired Amrion, a company specializing in nutraceuticals (natural supplements with pharmaceutical-type benefits), creating considerable competition with General Nutrition Centers (GNC) nutritional supplements and dietary products. Additional competition is taking place in traditional grocery stores incorporating some organic products on to their shelves. 1. (b)
The attractiveness of this industry and its potential for profit are functions of Michael Porter's five competitive forces model: barriers to entry, bargaining power of both suppliers and buyers, the threat of substitute products, and the depth of competition among rival companies. Barriers to Entry
Currently, Whole Foods has no significant barriers to entry. Americans are becoming more food and health conscious and Whole Foods is catering to this demand by becoming the premier outlet for all-natural, organic food products, while creating a unique, cohesive brand. The company is growing a loyal customer base, and is offering the majority of its products at competitive prices. With more than 300 stores located in the US, the UK and Canada generating twice the revenue per square foot as almost all its competitors, the capital requirements for success are solid, and the switching costs for customers are low. Perhaps the only real barrier to entry is the minimal 3% requirement by the government for organic farming. With farmers only producing such a small supply of organic product, the lack of supply and increased demand could lead to price wars. Even with its prime locations in highly educated, prosperous cities, current economic conditions could also lead to reduction in demand for the premium type products that Whole Foods carries, though there is no evidence of this yet. Bargaining Power of Suppliers
With the demand for organic products growing, the power will typically increase with suppliers. These types of agricultural goods are very critical to the success of the Whole Foods and the natural food market. Having acquired many of its smaller competitors and base suppliers, Whole Foods owns and operates a significant number of subsidiaries, currently keeping the bargaining power of its suppliers in control. However, with increased demand and limits on the amount of organic products produced, that power could shift and suppliers could take more control. Bargaining Power of Buyers
Whole Foods has shifted from its typical 31,000 square-foot stores to larger than 50,000, and even 80,000 square-foot versions. According to the Food Marketing Institute, the rest of the industry is taking the opposite approach and downsizing its stores to an average 34,000 square feet. And with more than 300 Whole Foods locations, being this large a part of the industry, while still growing, and being able to purchase a large portion of the total output makes the buying power of Whole Foods very attractive. And this time, with the future possibility of increased demand, and possible price wars, the high amount of capital Whole Foods secures in the marketplace will help to maintain that bargaining power.
Threat of Substitute Products
The threat of substitute products that may exist in this industry lies with the choice of the consumer, at least when there is no significant price difference. With more than 70% of the items Whole Foods sells being common grocery items, the choice is whether to buy organic or non-organic. The organic product Whole Foods offers is a differentiated industry product where no significant price difference exists, and when the price differential does exist, it is currently...
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