Whole Foods Case Study Michael

Whole Foods Case Study

Michael Porter Five Forces analysis

Supplier Power:

Once upon a time, the organic supermarket Whole Foods had a high level of power as a supplier. It was difficult for consumers to find the type of organic foods and foreign and luxury goods Whole Foods provided in many areas of the country. Whole Foods stocks gluten-free, vegetarian, and other specialty goods and services once impossible to find at the local Piggly Wiggly.

However, 'once' is the operative word. Now such products are becoming more and more common in everyday supermarkets. Even Wal-Mart has begun to stock organic produce. Also, as the consumption of organic produce and other products, such as international cheeses and peanut-free nut butters, becomes more accepted, natural food stores and other natural foods chains may open up branches in underserved areas of the country.

Organic farmland has become more accessible and more common for other suppliers. While this is good for the sustainability movement as a whole, it could make it easier for competitors to supply these items at lower cost than does Whole Foods. Additionally, the expansion of farmer's markets nationwide can make local produce far cheaper and just as ethically uncompromised as commercially-grown organic foods.

Buyer Power:

Whole Foods consumers have been stunningly ineffective, up to this point, at driving prices down. Even dedicated Whole Foods shoppers often call their favorite venue to buy organic cleansers and baby food 'Whole Paycheck' because of its expense. Whole Foods almost never deploys sales or products at a low price point, but by clinging to its image that consumers 'feel good' shopping there, it has thus been able to remain successful. It has begun to sell some of its own market-branded products, but while lower in cost than its high-end items, these goods are still far more expensive than what can be found at the local Wal-Mart.

A point against Whole Foods' favor in terms of having a captive audience of buyers is that in the end, Whole Foods is still selling -- food. Buyers can competitively drive prices down by switching to other venues. When the economy sours, eschewing going out to eat is one of the first moves of any frugal customer. Even if Whole Foods consumers are more affluent than their Kroger's counterparts, no one is immune from losing his or her job. Consumers cut back on eating prepared foods (a key driver in Whole Foods' business) and eating out at expensive places. Switching supermarkets is relatively easy in the food industry, and even if food is a necessity, eating at Whole Foods is not. The personal costs of switching to eating somewhere else are likely to be low.

Competitive Rivalry:

Competition is heated in any facet of the food business, because of the fluidity of buyers. Whole Foods' uniqueness was once its strength, but no more. Now other competitors that are cheaper but model themselves upon a similar healthy, organic model have made incursions into the market. These include companies such as Trader Joes. And the organic lines of Wal-Mart and standard supermarkets are real competitive threats.

Threat of Substitution:

Substitution threats are increasing. As the products that Whole Food customers can buy are less rare than before, customers can use their new leverage to 'substitute' a cheaper version of organic peanut butter or organically grown tomato from another retailer. Also, specialty shops that stock international foods that are a staple at Whole Foods are proliferating in new areas of the nation, as being a 'foodie' has become more popular as a hobby. As a 'plus,' however, as interest in eating at home grows, Whole Foods products could be used as a substitute amongst the affluent for even pricier restaurant meals.

Threat of New Entry:

Beginning a food business of any kind is difficult. This is one possible plus for Whole Foods. There is a great deal of red tape about sanitation and hygiene, when dealing with food preparation and sales. The requirements and regulations regarding organic products are even more onerous.

SWOT

Strengths

Whole Foods is a long-standing and trusted brand name in organic produce. Consumers who believe in the organic movement have long trusted Whole Foods to provide high-quality products. Additionally, Whole Foods is not simply a 'crunchy' health food store: it has highly exclusive lines of international products, wines, cheeses, and bath and body products. For customers who are vegan or vegetarian, have children with allergies or harbor other issues that require them to carefully watch their food ingredients and intake, Whole Foods is trusted for fair labeling.

Whole Foods also makes ethics a part of its brand image, something its competitors do not engage in: For example its 'starred' rating of animal husbandry, to ensure that animals raised for consumption are treated in an ethical fashion, is unique. And its stores are attractive places to eat in as well as shop. Even its employees are enthusiastic about the company's mission to make the world a better place through food.

Weaknesses

'Whole paycheck.' This sums up Whole Foods greatest perceived weakness in a nutshell -- the company is seen as expensive and catering to the affluent that have the luxury of putting their consciences before their wallets. Additionally, for customers who are organically-focused, there are many cheaper substitutes without the price sticker of Whole Foods. Because it is exclusively organic, customers cannot pick and choose what they want to buy. For many customers, going organic is not an all-or-nothing prospect -- instead they must prioritize. For example, a mother cannot buy organic baby food and non-organic Special K, spending her hard-earned pennies in a balanced fashion. While the popularity of the organic movement is growing, not all customers want to give up their Oreos and Frosted Lucky Charms, even if they eat grass-fed beef, and Whole Foods does not stock commercial, non-organic 'unhealthy' items.