MGT401-2

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MGT401-2

MGT401-2
Case Study: Whole Foods Market Whole Foods Market is the world’s leading retailer of natural and organic foods, with 193stores in 31 states, Canada, and the United Kingdom.According to the company, Whole Foods Market is highly selective about what it sells,dedicated to stringent quality standards, and committed to sustainable agriculture. It believesin a virtuous circle entwining the food chain, human beings and Mother Earth: each is reliantupon the others through a beautiful and delicate symbiosis. The message of preservation andsustainability are followed while providing high-quality goods to customers and high profitsto investors. Whole Foods has grown over the years through mergers, acquisitions, and new storeopenings. The $565 million acquisition of its lead competitor, Wild Oats, in 2007 firmly setWhole Foods as the leader in the natural and organic food market and led to 70 new stores.The U.S. Federal Trade Commission (FTC) focused its attention on the merger on antitrustgrounds. The dispute was settled in 2009, with Whole Foods closing 32 Wild Oats stores andagreeing to sell the Wild Oats Markets brand. Although the majority of Whole Foods’ locations are in the United States, Europeanexpansion provides enormous potential growth due to the large population and it holds a moresophisticated organic-foods market than the U.S. in terms of suppliers and acceptance by thepublic. Whole Foods targets its locations specifically by an area’s demographics. The companytargets locations where 40% or more of the residents have a college degree as they are morelikely to be aware of nutritional issues. While Whole Foods recognizes it is only asupermarket, management is working toward fulfilling their vision within the context of theindustry. In addition to leading by example, they strive to conduct business in a mannerconsistent with their mission and vision. By offering minimally processed, high-quality food,engaging in ethical business practices, and providing a motivational, respectful workenvironment, the company believes it is on the path to a sustainable future.Whole Foods incorporates the best practices of each location back into the chain. This canbe seen in the company’s store product expansion from dry goods to perishable produce,including meats, fish, and prepared foods. The lessons learned at one location are absorbed byall, enabling the chain to maximize effectiveness and efficiency while offering a product linecustomers love. Whole Foods carries only natural and organic products. The best tasting andmost nutritious food available is found in its purest state-unadulterated by artificial additives,sweeteners, colorings, and preservatives. Whole Foods encourages a team-based environmentallowing each store to make independent decisions regarding its operations. Teams consist ofup to 11 employees and a team leader. The team leaders typically head up one department oranother. Each store employs anywhere from 72 to 391 team members. The manager is referredto as the “store team leader.” The “store team leader” is compensated by an Economic ValueAdded (EVA) bonus and is also eligible to receive stock options. Whole Foods tries to instilla sense of purpose among its employees and has been named for 13 consecutive years as oneof the “100 Best Companies to Work For” in America by Fortune magazine. In employeesurveys, 90% of its team members stated that they always or frequently enjoy their job. Thecompany strives to take care of its customers, realizing they are the “lifeblood of our business,”and the two are “interdependent on each other.” Whole Foods’ primary objective goes beyond100% customer satisfaction with the goal to “delight” customers in every interaction. At thetime of Whole Foods’ inception, there was almost no competition with less than six othernatural food stores in the United States. Today, the organic foods industry is growing andWhole Foods finds itself competing hard to maintain its elite presence.Whole Foods competes with all supermarkets. With more U.S. consumers focused onhealthful eating, environmental sustainability, and the green movement, the demand fororganic and natural foods has increased. More traditional supermarkets are now introducing“lifestyle” stores and departments to compete directly with Whole Foods. This can be seen inthe Wild Harvest section of Shaw’s, or the “Lifestyle” stores opened by conventional grocerychain Safeway. Whole Foods’ competitors now include big box and discount retailers who have made aforay into the grocery business. Currently, the United States’ largest grocer is Wal-Mart. Notonly does Wal-Mart compete in the standard supermarket industry, but it has even begunoffering natural and organic products in its supercenter stores. Other discount retailers nowcompeting in the supermarket industry include Target, Sam’s Club, and Costco. All of theseretailers offer grocery products, generally at a lower price than what one would find at WholeFoods. Another of Whole Foods’ key competitors is Los Angeles-based Trader Joe’s, a premiumnatural and organic food market. By expanding its presence and product offerings whilemaintaining high quality at low prices, Trader Joe’s has found its competitive niche. It has 215stores, primarily on the west and east coasts of the United States, offering upscale grocery faresuch as health foods, prepared meals, organic produce, and nutritional supplements. A lowcost structure allows Trader Joe’s to offer competitive prices while still maintaining itsmargins. Trader Joe’s stores have no service department and average just 10,000 square feetin store size. Whole Foods exists in a time where customers equate going green and beingenvironmentally friendly with enthusiasm and respect. In recent years, people began to learnabout food and the processes completed by many to produce it. Most of what they havediscovered is disturbing. Whole Foods launched a nationwide effort to trigger awareness andaction to remedy the problems facing the U.S. food system. It has decided to host 150screenings of a 12 film series called “Let’s Retake Our Plates,” hoping to inspire change byencouraging and educating consumers to take charge of their food choices. Jumping on thebandwagon of the “go green” movement, Whole Foods is trying to show its customers that itis dedicated to not only all natural foods, but to a green world and healthy people. As moreand more people become educated, the company hopes to capitalize on them as new customers.Beyond the green movement, Whole Foods has been able to tap into a demographic thatappreciates the “trendy” theme of organic foods and all natural products. Since the store isassociated with a type of affluence, many customers shop there to show they fit into thiscategory of upscale, educated, new age people. Whole Foods has historically grown by opening new stores or acquiring stores in affluentneighborhoods targeting the wealthier and more educated consumers. This strategy has workedin the past; however, the continued focus on growth has been impacting existing store sales.Average weekly sales per store have decreased over the last number of years despite the factthat overall sales have been increasing. It is likely that this trend will continue unless WholeFoods starts to focus on growing sales within the stores it has and not just looking to increaseoverall sales by opening new stores. It is also increasingly difficult to find appropriate locationsfor new stores that are first and foremost in an area where there is limited competition and alsoto have the store in a location that is easily accessible by both consumers and the distributionnetwork. Originally Whole Foods had forecast to open 29 new stores in 2010 but this has sincebeen revised downward to 17. Opening up new stores or the acquisition of existing stores is also costly. The average costto open a new store ranges from $2 to $3 million, and it takes on average 8 to 12 months. Alot of this can be explained by the fact that Whole Foods custom builds the stores, whichreduces the efficiencies that can be gained from the experience of having opened up many newstores previously. Opening new stores requires the company to adapt its distribution network,information management, supply, and inventory management, and adequately supply the newstores in a timely manner without impacting the supply to the existing stores. As the companyexpands, this task increases in complexity and magnitude. The organic and natural foods industry overall has become a more concentrated marketwith few larger competitors having emerged from a more fragmented market composed of alarge number of smaller companies. Future acquisitions will be more difficult for Whole Foodsas the FTC will be monitoring the company closely to ensure that it does not violate any federalantitrust laws through the elimination of any substantial competition within this market.Over the last number of years there has been an increasing demand by consumers fornatural and organic foods. Sales of organic foods increased by 5.1% in 2009 despite the factthat U.S. food sales overall only grew by 1.6%. This increase in demand and high marginavailability on premium organic products led to an increasing number of competitors movinginto the organic foods industry. Conventional grocery chains such as Safeway have remodeledstores at a rapid pace and have attempted to narrow the gap with premium grocers like WholeFoods in terms of shopping experience, product quality, and selection of takeout foods. Thisincrease in competition can lead to the introduction of price wars where profits are eroded forboth existing competitors and new entrants alike. Unlike low-price leaders such as Wal-Mart, Whole Foods dominates because of its brandimage, which is trickier to manage and less impervious to competitive threats. As competitorsstart to focus on emphasizing organic and natural foods within their own stores, the power ofthe Whole Foods brand will gradually decline over time as it becomes more difficult forconsumers to differentiate Whole Foods’ value proposition from that of its competitors. Questions1. Determine the mission statement and the vision of the company Whole Foods. 2. What is/are the strategy (ies) adopted by Whole Foods? 3. Draw the SWOT table of this company. 4. Explain the contribution of the various functional areas (operations, marketing, finance,HR …) to the overall well-being of the company. 5. Explain the issues related to strategic competitive advantage of the company.

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