Competitive Forces and SWOT Analysis

Competitive Forces and SWOT Analysis

Whole Foods Market Case Study

Trends in retailing of organic foods

The retailing market is affected by frequent changes that influence the companies activating on this market, and that also influence consumers. The retailing market for organic foods makes no exception. Over the past decade, the organic food market has suffered a series of modifications, most of them leading to the development of this market segment.

For example, since 2000 the country's traditional supermarkets have sold more organic food than the 14,500 natural food stores. Even more, since 2002, most supermarkets have expanded the range of the commercialized organic foods, their display ranging from fresh products to wine, cereals, even cheeses, potato chips, different types of meat, and also canned and frozen fruits and vegetables.

Furthermore the organic product that was preferred by consumers is represented by fresh products, mainly lettuce, carrots, and apples. Other top sellers in the organic foods department include meat, dairy, bread, and snack foods, increased sales volume being reported for these categories in particular. Consumers' increased appetite for organic foods has determined large chains of supermarkets and hypermarkets to create departments specialized for these types of items only.

The organic foods retailing in the U.S. has developed from a niche market to the fastest growing food sales segment because of the modifications that changed consumers' behavior. For example, certain customer segments, like those oriented towards a healthier lifestyle, which includes healthier eating, have expanded their knowledge on organic foods and their advantages. Aside from a healthy lifestyle, many consider that organic farming addresses the health of the environment, therefore orienting to such activities.

Organic foods sales have increased from $1 billion in 1990 to an estimated $23 billion in 2008. It is expected that sales will increase 18% each year (OTA, 2008). Although sales have decreased in most areas because of the economic and financial crisis, the organic foods sector did not report any sales volume decreases (Hunt & Dorfman, 2009).

Whole Foods Competitive Environment

The threat of substitute products and services

Organic foods can be easily replaced by regular foods. Organic foods do not represent a majority in comparison with other types of foods, which means they are easy to be replaced. Also, the price of organic foods is higher than the price of regular foods, many consumers avoiding to buy organic foods because of their price. Another factor that might disadvantage organic foods in comparison with regular foods is represented by the availability or organic foods. Certain stores do not commercialize organic foods, which are considered to have low availability by customers that do not buy such items.

The threat of the new entry of new competitors

Given consumers' increased interest in organic foods, more and more companies that produce and sell such items enter the market. Some of them are small companies that produce and sell on limited local level, but others are large chains of stores that deal exclusively with organic foods, covering a wider geographical area.

The intensity of competitive rivalry

Some of the company's competitors include: Wild Oats Market, which was the company's toughest competitor before being acquired by Whole Foods, Fresh Market chain, Trader Joe's, Sunflower Farmers, Fresh & Easy Neighborhood.

Whole Foods does not have competitive prices. The company sells premium products at premium prices. These prices are considered unaffordable by certain customers that orient towards other organic foods producers that offer lower prices, even if the quality is lower than that of Whole Foods products.

The company's competitive advantage is based in product quality. Also, the company is able to cover an important geographical area, increasing the number of stores each year.

The bargaining power of customers

On this market, buyers have a relatively low bargaining power. A company like Whole Foods, even if is characterized by high prices, address a specific customers segments, customers that are willing to pay more for the quality of products ensured by the company.

The bargaining power of suppliers

Suppliers have a relatively high bargaining power. On a market like organic foods, suppliers are very important for companies' activity. In other words, they practically depend on their suppliers.

As a consequence, suppliers represent the most important environmental factor of influence for Whole Foods, and the same situation applies in the case of any organic foods company. This business consists mainly in the raw materials that the company uses to produce the goods it sells under this brand. The company's activity depends on the quality of the raw materials, and on any potential delays from suppliers. The prices negotiated with suppliers have a direct impact on the production costs, and on the end-user price.

SWOT Analysis

Strengths

The company's strong position on the market in ensured by the numerous strengths the company benefits from. First of all, the company is renowned by the quality of its products. This further creates competitive advantage in comparison with the company's competitors. The company benefits from a long tradition on the market, becoming one of the most prominent brands in the field, and granting the company the experience is required for managing a business in this industry. Another strong point is represented by the wide range of organic foods provided by Whole Foods. Also, the company is able to cover a large geographical area, which helps increase the number of customers, and increase their loyalty.

Weaknesses

The most important weakness of Whole Foods is represented by the high prices of its products. As mentioned above, the company sells premium products at premium prices. There are customer segments that find such prices unaffordable.

Also, the company's distribution system is not a flexible one, determining the company to lose ground in favor of certain competitors.

Opportunities

The organic foods market segment is in continuous development process, which means there is room for Whole Foods to grow and to expand its activity.

The company's production capacity allows for the company to make rapid and significant developments in expanding its range of products, compared to smaller companies that cannot afford to modernize their production process.

Threats

The biggest threat for Whole Foods is represented by large chains of supermarkets and hypermarkets. This is because such retailers can afford to practice lower prices in comparison with Whole Foods, prices preferred by most consumers. Also, some customers prefer to do all their shopping in one place, like a supermarket or a hypermarket, instead of making the extra effort to shop for organic products at Whole Foods.