Whole Food Market’s business

Founded in 1980 by John Mackey and Renee Lawson Hardy in Austin, Texas, Whole Foods Market, has become one of America’s most valuable  supermarket chains and has been the catalyst for change in retailing  organic products without artificial additives.   Whole Foods Market purchases products from local, national and international wholesale suppliers and retails them at one of its 479 locations all across USA, Canada, and UK.  Unlike most supermarket chains, Whole Foods Market sells products which meet its standards of ‘natural’. Whole Foods Market sells products of highest quality which do not contain artificial flavors, colors, sweeteners, preservatives and other additives contained in its list of prohibited substances and is the first US supermarket which is certified ’Certified Organic’ supermarket in US. Whole Foods Market Inc. is public company, with shared listed on NASQAD, according to the 10K form.  The 10K form of Whole Foods Market field with  U.S. Securities and Exchange Commission (SEC) provides that the company had operated 465 stores in USA, UK and Canada, and 97% of its sales generated its US stores. The 10K filings show that  Whole Foods Market is the 5th largest food supermarket retailer, and bans around 120 ingredients from its products (Whole Foods Market, n.d.)  Whole Foods Market sells a variety of  non-GMO, vegan, gluten-free, dairy-free and other special diet foods, with a strong emphasis on perishables.

Whole Foods Market’s strategy

Like its products and services, Whole Foods Market’s strategy is unique. Whole Foods Market leverages its brand image and economies of scale to purchase naturally-grown products from supplier and vendors at low prices, and resell them at retail in its stores.  Whole Foods Market’s strategy is based  focused differentiation, as the company offer unique products (i.e. organic and naturally-grown products) to a narrow target market (i.e. better-educated and wealthier customers) (Porter, 1980).  Unlike other supermarket chains such as Walmart, Costco and Target, Whole Foods Market is committed to selling exclusively organic products, establishing its differentiation strategy (Kokemuller, n.d.).

The growth strategy of Whole Foods Market is  contingent upon a number of factors:

1. increased awareness of the importance of healthy eating
2. better-educated target audience with increasing average income
3. generation Z which values healthy eating, organic food, and ethical production
4. increased awareness about the importance of food production

The 10K form, Whole Foods Market.

Currently, the market position of Whole Foods Market is solid, as it remains the largest supermarket chain with exclusively organic products and the largest number of locations.  The focused differentiation strategy has been conducive to the year-on-year growth at Whole Foods Market, and expansion into markets such as Canada and UK.  Therefore, the focused differentiation strategy being pursued by Whole Foods Market is a winning one.

Whole Foods Market’s mission statement

Like most retail business, Whole Foods Market has a consumer-centric mission statement. The mission statement of Whole Foods Market can be found on its website, and is as follows:

‘Whole Foods Market is a dynamic leader in the quality food business. We are a mission-driven company that aims to set the standards of excellence for food retailers. We are building a business in which high standards permeate all aspects of our company. Quality is a state of mind at Whole Foods Market’. 

The following are key takeaways from Whole Food Market’s mision statement:

1. quality products
2. benchmark of excellence for food retailors
3. highest standards in all aspects of business
4. commitment to quality in all aspect of Whole Foods Market

The mission statement implies that Whole Foods Market is committed to differentiating itself from the competition, by placing premium importance on high quality.

The direct competitors of Whole Foods Market includes Sprouts Farmers Market, a supermarket chain which also sells minimally processed organic products at one of its 150 stores nationally and is based in Phoenix, Arizona.  The mission statement of Sprouts Farmers Market is:

‘Healthy eating for less’

The vision statement of Sprouts Farmers Market is:

‘To create a hybrid between a natural foods store, farmers market and conventional supermarket, as such provide low pressure, easy-to-shop, highly affordable steppingstone to better eating.’

Form 10K, Sprouts Farmer Market, Inc

The mission statement of Sprouts Farmers Market is comparable to that of Whole Foods Market, as it also underlines the importance of healthy eating. Unlike Whole Foods Market, which is unambiguous on the quality of products, Sprouts Farmers Market’s vision statement is focused on affordability.

Whole Foods Market’s mission and vision statement are in alignment with its strategic objectives. Whole Foods Market is committed to continuing to lead the retail industry in terms of selling organic products of the highest quality. Whole Foods Market’ strategy of cost differentiation s aligned with its commitment to increase its loyal consumer base. Whole Foods Market’s mission and vision statement suggests that its leadership is a democratic one.  Walter Robb, CEO of Whole Foods Market, encourages innovation, and participation of all employees, and delegates much responsibility, testifying to how democratic the leadership type is at Whole Foods Market

Driving forces

Driving forces present in industries where Whole Foods Market has a share include but not limited to: online shopping and delivery and intense competition.  Unlike Walmart, Whole Foods Market’s capacity to process online orders and deliver them the same day has been undermined by factors including skilled personnel, and gaps in technology.   In response,  Whole Foods has re calibrated its business strategy by merging with Amazon,   and developing new ways of connecting with consumers online. Competition from stores such as Sprouts Farmers Market and Trader Joe’s is intense as both competitors are laser focused on cost leadership, while Whole Foods Market priority is to deliver products of highest quality.

Porters five force

Porters five force analysis is a viable tool in understanding of Whole Foods Market’s business environments, and identifying  the forces which exert the most pressure on company’s profitability (Dobbs, 2014).

Competition (strong force)

Competition within food retailing industry and organic food retailers is intensive, with companies such as  Sprouts Farmers Market, Walmart, Trader Joe’s and others competing intensively with Whole Foods Market. Moreover, consumers’ switching costs are low, suggesting how Whole Foods Market consumers can switch to products and services of competitors, such as Walmart, Costco and Sprouts Farmers Markets.  Thus, competitive is a strong force, and Whole Foods Market  is advised to continue  focusing on focused differentiation as a way of attracting more consumers.

Bargaining power of buyers (strong force)

The bargaining power of buyers is based on the switching costs and small size of individual buyers (Grundy, 2016). Firstly, the switching costs incurred on consumers when switching from Whole Foods Market  to competitors’ products is low, and thereby, it constitutes a strong force on Whole Foods Market. Secondly, the size of individual buyers is small, which is a weak force. Thus, the bargaining power of buyers is a strong force.  Thus, Whole Foods Market is advised to take this strong force into consideration when developing strategies.

Bargaining power of Whole Foods Market’s suppliers

Bargaining power of suppliers is an essential element and whether its weak or strong plays a key role on Whole Foods Market’s strategy. The bargaining power of supplier is based on the number of suppliers and overall supply. There is a low  number of suppliers in terms of  organic products for Whole Foods Market’ s products. For example, Whole Foods Market purchases 32.5% of products from United Natural Foods, Inc. (“UNFI”), suggesting the power of suppliers.   The low number of suppliers suggest that the bargaining power of suppliers is high. Thus, bargaining power of Whole Foods Market’s suppliers is a weak force.

Threat of substitutes (high force)

The number of substitute products is high in terms of  Whole Foods  Market products. The threat of substitutes is determined by the availability of substitutes, and performance of substitutes. There are a number substitute organic stores, such as Sprouts Farmers Market, Walmart, Costco. Therefore,should there occur a decrease in consumers’ purchasing power,  the consumers of Whole Foods Market can go with substitute products (i.e. not organic products)

Threat of new entrants (moderate force)

The threat of new entrants is low, as penetrating the food retail industry  is onerous and requires high  capital requirement, high cost of brand development. Developing a business which can compete with Whole Foods Market requires high capital. Therefore, the threat of new entrants is low.  Competition is the biggest factor with unprecedented impact for Whole Foods Market. To relieve the pressure, Whole Foods Market has invested a lot in its R&D to ensure it leads the world with leadership in high quality organic products.

Financial performance

• Whole Foods Market revenue stood at $12.9 billion in during the 2013 fiscal year, prior to experiencing an sustained increase to $15.76. billion during the 2017 fiscal year.  Whole Foods Market has reported a total revenue of  $16.03 billion  for the 2017 fiscal year.  Sales and revenue has experienced a upward trend with sustained increases.  Overall, revenues have gone through a gradual upward trend, and the peak performance during the 2017 fiscal year is largely attributed to increased awareness for healthy eating among millennial and baby boomers.

• Developing new stores is essential for Whole Foods’ Market’s ability to sustain its competitive edge, as such its costs relating to developing new stores totaled $447 million In 2014, development costs amounted to $395 million during the fiscal year of 2016, suggesting how Whole Foods Market has been able to bring costs down during expansion.

• Regarding net income, Whole Foods Market’s net income for the fiscal year of 2014 constituted $579 million during the fiscal year of 2014, before decreasing to $507 million during the fiscal year of 2016. For the fiscal year of 2017, Whole Foods Market has reported a net income of $245 million, suggesting how Whole Foods Market’s net income has experienced an unprecedented decrease.

• Whole Foods Market’s has been acquired by Amazon in a deal valued at around $14 billion. Amazon is expected to overhaul the company, ensuring its competitive advantage is retain.  Overall,  sales at Whole Foods Market  has performed well for the last 5 consecutive years. Nonetheless, net income has experienced a downward trend, reaching a low of $245 million in 2016.

 

 

 

SWOT

SWOT analysis is an essential analytical tool used to highlight the strengths and weaknesses of companies. Here is Whole Foods Market SWOT (and compared with that of Samsung).

Whole Food Market’s Strengths

Whole Food Market’s internal strengths are composed of its strong brand image, high quality products and highly motivated employees. Whole Food Market’s brand image is robust, and it ensures that the company can attract more consumers and retain them. Regarding the quality of products, Whole Food Market products are high quality compared to other low-cost substitutes, and helps the company further differentiate itself from the competition.  The organizational culture at Whole Foods Market is conducive to developing highly motivated employees, which translates into excellent customer service.  These strengths of t ensure that the competitive advantage of the company is enhanced further.  Based on this analysis, Whole Foods Market has a number of internal strengths, which render competition irrelevant, and ensures that Whole Foods Market keeps leading the organic food industry.

Sprouts Farmers Market,  on the hand, has a  less solid brand image, suggesting the superiority of Whole Foods Market’s brand image.  Sprout Markets’ internal strength lies within its focus on providing lower-cost, minimally processed products.  Sprouts Farmers Market can therefore attract the customers of Whole Foods Market.

Whole Food Market’s Weakness

Internal weaknesses are not conducive to business growth, holding it back. The following internal weaknesses have been noted in Whole Foods Market’s case. Firstly, Whole Foods Market is highly dependent on US market, generating 97% of sales in USA. The predominant majority of Whole Foods Market stores are in USA, which makes the company susceptible to economic changes in USA. Secondly, unlike Walmart, Sprouts Farmers Markets, products at Whole Foods Markets are considered more expensive. High prices of products is another weakness of the company as high prices deter  price-conscious or price-sensitive consumers tend to go with cheaper alternatives. Generating most of its sales from the high-end market is therefore a weakness of Whole Foods Market. The number of Whole Food supplies is limited, as company purchases wholesale from a number of suppliers, translating into another internal weakness for the company.

For Sprouts Farmers Market, its weakness is within the lower brand awareness. Unlike Whole Foods Market, Sprouts Farmers Market does not have a high brand awareness.

Opportunities for Whole Foods Market

This part of SWOT analysis highlights the opportunities Whole Foods Market can take advantage of.  Firstly, Whole Foods Market can expand its distribution network by opening more retail stores in other countries such as China, and other parts of Europe, as there is a heightened awareness of healthy eating around the globe . Then, the company can reach more consumers globally. Secondly, Whole Foods Market can increase the number of suppliers, and reduce its dependency on a small number of suppliers. The higher number of suppliers ensures that the bargain supplier power is low, and that Whole Foods Market can procure organic products at lower prices. Thirdly,  Whole Foods Market  can pursue competitive pricing, and introduce minimal decreases in product prices. Competitive pricing can ensure that Whole Foods Market can attract more price-conscious consumers, and broaden its consumer base. Overall, there are a number of opportunities for Whole Foods Market to take advantage of, and doing so ensures that Whole Foods Market can maintain its leading market position.

Threats facing Whole Foods Market

This part of SWOT concentrates on threats facing Whole Foods Market, and how Whole Foods Market can mitigate these external  threats.

Firstly, there is an aggressive competition in  organic food retailing industry. The competitors of Whole Foods Market, such as Walmart and Sprouts Farmers Market pursue aggressive cost leadership, threatening the market share of Whole Foods Market.  The unprecedented increase in the number of genetically modified organisms (GMO) present in products is another existential threat to the business model of Whole Foods Market.  Therefore, Whole Foods Market is advised to maintain its vision and mission to retain its competitive advantage. Global warming can hinder the ability of supplier’s to produce products ordered by Whole Foods, as such presents an existential threat to Whole Foods Market.  Therefore,  Whole Foods Market has to re-calibrate its strategy to ensure that they have in place strategies to response to these challenges.

Whole Foods Market’s core competence

Whole Foods Market’s core competency is how it is capable of procuring and selling organic, and naturally processed products that consumers love and are willing to pay premium price for, and how the company leverages its economies of scale and motivated workforce to deliver great customer service.

 

Whole Food Markets’ value chain activities

Value chain activities and how they are management has been central to Whole Foods Market’s success in organic products retailing. Value chain  activities of Whole Foods Market include:

1.  partnering with suppliers
2.  purchasing products
3. managing products
4. marketing and selling products

Partnering with suppliers

Unlike most retailers, Whole Foods Market is diligent when it comes to selecting its prospective suppliers. The Company has a non-exhausitve list of requirements for prospective supplier in terms of product quality and production. In addition to that, Whole Foods Market ensures that its relationship with its suppliers are mutually beneficial and only partners with companies which share the same values and principles as the Company.

Purchasing products

Whole Foods Market follows a number of quality control test before purchasing products. Products need to meet a number of requirements before, Whole Foods Market purchases them.

Managing products

Store managers are given more leverage and autonomy when it comes to managing the stores and products. This type of leadership style helps employees to be more motivated and committed. Overall, the value chain activities of Whole Foods Market is efficient, and is congruent with the business strategy of the company.

Whole Foods Market’s generic competitive strategy

Whole Foods Market’s generic strategy is called focused differentiation.  By adopting this focused differentiation generic strategy, Whole Foods Market targets a small number of consumers with differentiated products. Focused differentiation strategy has a number of benefits to Whole Foods Market such as customer loyalty, higher margins and customer awareness.

Diversification

Whole Foods Market has never been interested in diversifying its product offerings. The Company is focused on selling organic perishables. Nonetheless, it would be a viable business choice if Whole Foods diversified into meal-prep or meal-ready space. Most consumers do not have the time cook. Therefore, by providing organic meal-preps, Whole Foods Market can successfully diversify its range of products (Morgan, 2017).

 

Whole Foods Market’s penetration of other markets

Whole Foods Market has so far penetrated the Canadian and British markets. Whole Foods Market entered the Canadian market in 2002, and the British market in 2004. The Company has entered both markets by opening directly owned Whole Foods Market stores in both countries. To reduce its reliance on US market, the Company is advised to penetrate other markets such as China and Europe.

Whole Foods Market’s HR practices

Whole Foods Market has a number of unique HR practices. This part will concentrate on these HR practices the Company employs

Recruiting

• HR responsibilities within stores are delegated to team leaders within each store
• Candidates apply online or at designated stores within stores
• Shortlisted candidates are granted a phone interview, followed by personal interviews
• Only those of high caliber are offered positions within the Company

Promotion

 

• Whole Foods Market has an online university for its employees, as such they can learn new skills and qualify for promotions
• Tuition reimbursements for employees taking classes with a view of being offered promotion at the Company

Appraisal

• Appraisal process is completed twice a year
• Appraisal process is time-consuming
• Rewarding system is based on gainsharing scheme, allowing more equity and transparency

Whole Foods Market’s organizational structure

 

Whole Foods Market has a four-tier hierarchy in its global organizational structure:

(a) global headquarters

(b) regional offices

(c) facilities

(d) stores

This four-tier hierarchy supports corporate monitoring and enables the executive to keep tabs on the corporation (Mackey, 2010).

In addition to the four-tier hierarchy, there are 12 geographic divisions within the Company. Each division has functional structures (Smithson, 2017). Each division geographical division has a responsibility to resolve all issues relating to their designated geography.

Whole Foods Market’s CSR

 

Whole Foods Market has long deviated from the traditional ‘shareholder only’ model of corporate governance by embedding its core values in its overall business strategy to accommodate the interest of all of its stakeholders (i.e. employees, customers, communities, suppliers, and etc.). The Company ensures its responsibilities to all stakeholders are dutifully discharges by these means.

• Founded in 2005, Whole Planet Foundation provides micro credits to entrepreneurs in developing countries. Over 1.8 million borrowers have been provided with loans by the Whole Planet Foundation. The vast majority of the borrowers (80%) are women, as Whole Foods Market is committed to female empowerment (Form 10-K, 2016)

 

• Founded in 2011, Whole Kids Planet is a non-profit organization with an objective of empowering kids and families around the globe, and has provided over 3600 school in US and Canada with school garden grants. Whole Kids Planet has also provided 4700 salad bars to US schools, underscoring the importance Whole Foods Market attaches to CSR.

 

• Each Whole Foods Market store has a designated budgets intended to benefit the goodwill of the projects within the society. The funds are used to support projects which can be useful for the communities (Form 10-K, 2016).

 

• Whole Foods Market is committed to contributing 5% of its after tax profits to non-profit organizations annually, according to its 10K filings.

 

• In 2008, Whole Foods Market has stopped offering plastic bags at check-outs with a view or reducing litter pollution. Moreover, the Company has been awarded the Green Power award a number of times for its commitment to preserving the environment.

These and other CSR initiatives of Whole Foods Markets is a testament to how committed the Company is to ensuring the needs of all its stakeholders are considered.

Whole Foods Market’s best practices

There are a number of best practices which can be derived from  Whole Foods. The most remarkable aspect of the Company is how it was able to embed environmentally friendly practices in its corporate strategy, and how it has taken steps to ensure that Whole Foods is accountable to all of its stakeholders.

Whole Foods Market uses both intrinsic and extrinsic rewards to motivate its employees to do their best. Whole Foods Market gives employees discounts on Whole Foods Market products. Whole Foods Market keeps a balance between monetary and non-monetary rewards. By providing employees with a number of rewards, Whole Foods Market keeps them motivated.

Executive pay

Whole Foods Market has two CEOs, John Mackey and Walter Robb. Both CEOs have been being paid a symbolic $1 a year each since 2007 (Gandel, 2007).  The pay package of the whole executive team was remunerated less than$5 million during the fiscal year of 2016. These executive pay packages pale in comparison with Walmar’t CEO, Doug McMillon’s pay. Walmart’s Doug McMillon has been paid $33 million during 2016 fiscal year (Horowitz, 2017).

 

Reference

 

• Porter, M. E. 1980. Competitive strategy: Techniques for analyzing industries and competitors. New York, NY: Free Press
• Mackey, J. (2010). Creating the High Trust Organization – Whole Foods Market
• Dobbs, M. (2014). Guidelines for applying Porter’s ve forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.
• Grundy, T. (2006). Rethinking and reinventing Michael Porter’s ve forces model. Strategic Change, 15(5), 213-229.Karagiannopoulos, G. D., Georgopoulos, N., & Nikolopoulos, K. (2005). Fathoming Porter’s ve forces model in the internet era. Info, 7(6), 66-76.
• Whole Foods Market, Inc. Form 10-K, 2016
• Sprouts Farmers Market, Inc. Form 10-K, 2016
• Morgan, B 2017, 5 Ways Amazon Can Maximize Its Acquisition Of Whole Foods Market, Forbes, accessed 18 April, 2018, <https://www.forbes.com/sites/blakemorgan/2017/06/20/5-ways-amazon-can-maximize-its-acquisition-of-whole-foods-market/#5724c29d6171>
• Gandel, S 2017, Whole Foods’ CEO Pay Discount Expires, Bloomberg Gadfly, accessed 18 April, 2018<https://www.bloomberg.com/gadfly/articles/2017-06-21/whole-foods-ceo-pay-discount-expires-with-amazon-deal>
• Horowitz, J 2017, Walmart CEO Doug McMillon saw his pay jump 13% last year, CNN Money, accessed 15 April, 2018, <http://money.cnn.com/2017/04/20/news/companies/walmart-ceo-doug-mcmillon-pay/index.html>
• Whole Foods Market, n.d., Unacceptable Ingredients for Food, Whole Foods Market, accessed 21 April, 2018, <https://www.wholefoodsmarket.com/about-our-products/quality-standards/food-ingredient>
• Kokemuller, N, n.d., What Are the Core Strengths That Are Critical for a Focused Differentiation Strategy?, Chron, accessed 20 April, 2018, http://smallbusiness.chron.com/core-strengths-critical-focused-differentiation-strategy-50750.html

Smithson, N, 2017, Whole Foods Market’s Organizational Structure Analysis, Panmore Instiute, accessed 10 April, 2018, <http://panmore.com/whole-foods-market-organizational-structure-analysis>