Whole Foods Managerial economics

Managerial economics: Whole Foods

In many ways, Whole Foods defies current assumptions of what constitutes a successful company strategy. It is an organic niche supermarket that prices its products relatively high in relation to its competitors. Yet it has become wildly successful in recent years, even defying conventional predictions of its likely demise during the credit crisis of 2008. This paper will explore the 'secret' of Whole Foods success using the core principles of managerial economics. Concepts germane to managerial economics include: exploiting the elements of effective leadership; ethics programs and the ethical orientation of the company; risk-taking; optimizing organizational structure; optimizing strategic control; and the need for balance between rewards, culture, and boundaries.

The elements of effective leadership and ethics

When Whole Foods began as the brainchild of current CEO John Mackey, its product was what distinguished it from its competitors. Mackey has been called an effective leader because of his ability to identify an emerging niche market and his unique integration of ethics into the company worldview. Whole Foods, unlike most grocery stores began with the concept that it would offer organic produce alone to consumers and rather than focus upon price it would sell an ethos of an ambient store in which shoppers felt 'good' shopping. Later, it expanded to offer more and more specialty food items spanning from vegan to vegetarian; gluten-free to nut-free. However, many of these items are far more expensive than conventionally-produced foods. This is partially how the store earned its moniker 'Whole Paycheck' given that organic and ethically-raised products are invariably more expensive than the alternatives found in standard supermarkets. However, by fulfilling an unmet need, Whole Foods remains buoyant, given that it does not compete on slashing prices alone. Unlike conventional supermarkets which offer a wider range of goods, there is often a struggle to out-price Wal-Mart. But Whole Foods prides itself on offering something unique. And while more grocery stores are offering organic alternatives (including Wal-Mart); Whole Foods still offers a far wider array of products in this area. Finally,...

Much like Starbucks, it is an affordable luxury which consumers delight in 'experiencing' not merely going to as a chore and they feel good going there, thanks to the stress placed upon ethical consumption.
Risk a company may take and pros and cons of different organizational structures

Whole Foods has become even more specialized in its offerings and more determined to link its philosophy with its product offerings, even vowing to cut out some of its popular 'healthy junk food' or at least reduce it. "Mackey, in a stroke of corporate transubstantiation, declared that Whole Foods would go on a diet, too. It would focus on stripped-down healthy eating. Fewer organic potato chips, more actual potatoes. He told the Wall Street Journal in August, "We sell a bunch of junk" (Paumgarten 2010). Mackey has been called a risk-taker because of his willingness to even challenge customer preferences for popular items because of his personal ideology.

However, while this iconoclastic attitude might seem like an odd and careless way to run a business, it really does not behoove Whole Foods to soften its stance on health-related concerns. The only way it can justify its higher prices and store offerings is through its focus on niche marketing. Even consumers who are not exclusively organic expect a certain level of purity at Whole Foods, even though they may buy cheaper paper towels and dish soap at a conventional grocery store. The utility derived from Whole Foods is not defined by saving money.

Whole Foods also has a relatively non-hierarchical team-based structure of running the company that does encourage some local responsiveness (Fishman 1996). Each individual store is divided into 'teams' that provide input about customer needs and mangers have discretion in terms of what is ordered, presentation and pricing. This was instrumental when Whole Foods had had to reevaluate its approach to pricing somewhat in recent years, given the softening of the economy. It has expanded its lower-cost lines of in-store brands. "To counter its reputation for being expensive, Whole Foods is offering more price promotions and discounts in all of its stores, and lately it has held…