WholeFoods Strategic Analysis

Topics: Organic food, Retailing, Supermarket Pages: 10 (2419 words) Published: July 23, 2014
To:
John Mackey, CEO – Whole Foods Market, Inc.
From:
Re:
Whole Foods Competitive Position and Analysis
Date: January 26, 2011
Introduction
Whole Foods Market is a multi-national retailer of organic and natural foods. According to the Organic Trade Association (OTA) and Nutrition Business Journal, the organic and natural foods industry’s revenue is currently approximately $26 billion in the U.S.1 and $71 billion worldwide2. The OTA says that the organic and natural food category grew between 15% and 20% each year through 2008 before being stifled by the economic downturn in 2009 with only 5.1% growth3. Similar growth trends are expected for the next few years. With increased competition from more traditional grocers like Kroger and Safeway, as well as supercenters like Wal-Mart and Super Target, is Whole Foods’s fate in jeopardy?

Competitive Position
Whole Foods’s position in the organic and natural foods sector is dominant. With approximately 33.6% market share in the U.S. in 2010, no other single competitor comes close to the organic food volume of Whole Foods4. Exhibit 1 shows Whole Foods’s revenue and market share from 2003 to 2009. Since 1980, Whole Foods has concentrated on offering the highest variety of organic and natural food products5. With exception of Whole Foods, the organic and natural food market is fragmented with many customer buying channels. Competition exists from direct competitors like The Fresh Market, extended product offerings from traditional grocers and supercenters like Kroger and Wal-Mart, and local farmers’ markets and coops such as those found around Charlottesville, VA. The threat of new entrants is high as more existing food retailers chase the product differentiation and variety of organic foods. Exhibits 2 and 3 show a list of competitors, key figures, and strategies of those competitors. Whole Foods has the advantage of being the first large mover in the organic retail industry. Substitutes in the organic and natural food segment are limited although more food retailers are now offering organic food selections. Whole Foods takes advantage of its above industry average selection with higher prices than most competitors on the hard to find organic products. With few complete channels to buy organics, buyer power is low for those products with limited selection, and high for those organic products being offered in many channels. According to a United States Department of Agriculture (USDA) study, suppliers are limited but are growing to larger regional and national positions6. Unlike the traditional grocers and supercenters, Whole Foods has the advantage of close partnerships with over 2,000 organic suppliers world-wide7. This enables Whole Foods to retain control, get more products year round, and keep prices as low as possible for customers. A complete five forces analysis is found in Exhibit 4. Currently, Whole Foods’s capabilities are well-positioned for market growth. Exhibit 5 shows an analysis of Whole Foods’s current capabilities. Whole Foods’s team of highly skilled procurement specialists assists stores in buying what customers want and provides assistance to suppliers through growth loans and cost reduction consulting. These relationships ensure high quality standards and timely delivery to 299 stores. The Whole Foods’s store model is focused on local customers’ organic needs as well as an aesthetically pleasing atmosphere for organic food exploration and education. Whole Foods also concentrates on educating pregnant mothers and Page 1 of 10

parents on the benefits of organic foods. The company’s website has a blog dedicated to organic food cooking and healthy lifestyle tips8. Overall, these capabilities are what the traditional grocers and supercenters are currently lacking.

However, competitors are copying Whole Foods’s success. Just this week, Wal-Mart announced plans to increase the number of healthy food items available at its stores. With support from First...
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