Whole Foods market competitive forces and SWOT analysis

Whole Foods Competitive Forces and SWOT Analysis

Whole Foods Porter Five Forces and SWOT Analysis

Whole Foods by many measures is one of the world's most financially successfully retailers of natural and organic foods. The company has successfully supported this strategy with a unique, high quality series of processes throughout its supply chain that extend to its' over 300 stores, with 400 planned in 2010 with each averaging 34,000 square feet in size. The performance and continual high quality levels of the supply chain are critical for supporting the company's unique value proposition and position in the market. As the company is highly reliant on its supply chain, it organizes the divisions and subsidiaries by each major commodity it resellers, with coffee, fish, and produce having vertically integrated supply chains. The company was founded in 1980 and continues to pursue its mission of being the highest quality supplier and retailer of natural foods to support healthy lifestyles and a health planet (Bokaie, 2008). The company has also grown through a series of acquisitions beginning in 1986, with additional acquisitions in 1988 and 1991. The company chose to go public in 1992 to finance future growth and has successfully launched stores in Canada and the United Kingdom (Bokaie, 2008).

The intent of this analysis is to evaluate the trends affecting the retailing of organic foods in general and how they are affecting Whole Foods specifically, and also evaluate the competitive environment Whole Foods operates in using the Porter Five Forces Model. Based on the results of this analysis, the environmental factor that poses the most significant threat to Whole Foods is analyzed and a strategy recommended for combating and mitigating it. A SWOT analysis has also been completed with a discussion of how Whole Foods can use its strengths and opportunities to achieve greater competitive advantage in the market over time.

The Supply Chain For and Selling Through Retailing of Organic Foods

Highly differentiated from its mass-market counterparts and specifically designed to provide for produce, fruits, fish and meats of higher quality, the organic foods supply chains Whole Foods relies on are higher priced and often more constrained in terms of quality. This is however a major part of the industry's unique value proposition and what differentiates it from the mainstream produce, fish and meat supply chains that may have lower standards. The added cost of these supply chains however continues to be supported by the increased prices many Americans, Canadians and Europeans are willing to pay for product, fish and meat that is healthy and good for them. The growth of organic foods has also been aided by the many cooking shows and celebrity chefs who use nothing but the purest and most high quality ingredients in their recipes. The careers of many chefs including Wolfgang Puck, Rachel Ray and others have been as a direct result of their using organic and high quality ingredients and produce. Rachel Ray specifically has focused on the low-cost options available to consumers, many of which are trying to make ends meet in the prolonged recessionary times of today. The overall grocery industry continues to mature and consolidate, and often the quality of suppliers is overlooked as pricing now has become the most critical factor in the broader channels (Capitanio, Coppola, Pascucci, 2009). Organic suppliers have been successful in maintaining their pricing however, as consumers are willing to spend more for higher quality, healthier foods despite their budgets being tighter as well. The mainstream availabili8ty of organic foods through Whole Foods and its competitors has acted as a catalyst of growth on the market.

Analysis of Whole Foods Using Porter's Five Forces

Dr. Michael Porter of Harvard University created the Five Forces Model over twenty years ago and it continues to be used for analyzing markets and industries today. The intent of the Five Forces Model (shown in Figure 1) (Porter, 2008) is to analyze the strategic areas of supplier power, threat of substitution, buyer power and threat of new market entry within a given industry of interest. All of these factors contribute to defining the competitive rivalry within a given industry (Karagiannopoulos, Georgopoulos, Nikolopoulos, 2005). This model has proven to be very effective in defining the competitive dynamics of the airline industry for example, in addition to defining the relative competitive strengths of individual nations and their core industries. When the model was first introduced, Dr. Porter applied it to the tile production industry in Italy and found that due to exceptional levels of process innovation in tile production learned from the Italian auto industry, Italian tile producers would eventually dominate the European residential and commercial markets (Porter, 2008). The Five Forces Model has since been used successfully throughout hundreds of companies and industries (Porter, 2008).

Assessing Whole Foods Industry Competitors (Rivalry)

In the U.S., Whole Foods faces significant competition from both regional and global chains including those big box merchandisers moving into groceries including French conglomerate Carrefour, Target, English conglomerate Tesco and Wal-Mart. In addition, Whole Foods competes with traditional regional food retail brands including Albertson's in the western U.S., Vons' and Ralphs, in addition to Winn Dixie. All of these grocery retailers realize the potential for organic food and are gradually moving into the market, testing new products with their customer bases. As a result of all these factors, this factor gets a rating of high in the overall analysis.

Pressure from Substitute Products

The pressure and competition from substitute products and produce Whole Foods faces is moderate, as the supply chain is for the most part constrained by the total number of producers. The pressure on substitute products that are not as organically grown or healthy is moderate, there is the issue of constrained supply chains on the most popular item which tends to minimize all out price competition. Due to all of these elements, the pressure from substitute products on While Foods in medium.

Bargaining Power of Buyers

The buyers or consumers have more flexibility in who, where and what they buy due to the proliferation of healthy foods throughout many of the grocery retailers who are starting to carry organic products. In addition, the growth of the supply chains for organic products is also leading more competition in retail channels, as suppliers look to also grow their businesses as well. The loyalty of a customer and their lifetime value to a specialty grocery chain such as Whole Foods is very significant. As a result, the bargaining power of buyers is high.

Bargaining Power of Suppliers

At the center of the entire industry are the suppliers, who are gaining in power and influence on a continual basis. As the investment in supplying produce, fish, and meat to the quality standard needed by Whole Foods and other retailers they compete with is so high, the costs to become a supplier in this industry are also very high. It takes significant investment to become a supplier of organic products and once established, a stable and higher-end pricing strategy as well. Suppliers compete however on their overall reputations for delivering quality products, and often can substantiate higher prices based on the quality levels (Drichoutis, Lazaridis, Nayga, Jr., 2006). Suppliers in this industry must also invest heavily in technologies to move their products from harvest to market quickly, to minimize spoilage and loss. Organic suppliers are therefore moving to create more effective selling consortiums or exchanges to provide greater flexibility and support across the industry for investment in electronic and technology-based initiatives. Due to all of these factors and the retailers including Whole Foods being so dependent on suppliers this factor received a rating of high in this analysis.

Analysis of Five Forces Model Analysis

Across all five elements in the Porter Five Forces Model, the factor that poses the most significant threat to Whole Foods is the role of suppliers in their business model. The level of quality must consistently stay at a high enough level of support and strengthen their unique value proposition, while at the same time bringing entirely new produce, fish and meats to market. This combination of quality and variety, with an increasingly eclectic mix of products, is also an essential part of the future strategy of Whole Foods as well. Due to the quality aspects of the products they sell and the need for continually fueling stores with new products, produce, fish and meats, suppliers are also an essential catalyst of innovation as well. Due to all of these factors, the role of suppliers is the most strategically critical for Whole Foods Market.

SWOT Discussion

Despite a global economic recession, the company continues to grow and attract new customers, mainly because the value people are placing on being healthy has never been greater. Driven by the high costs of healthcare and the belief on the part of many consumers that the dollars they spend on groceries ought to go for the highest quality and most nutritious available, Whole Foods continues to experience revenue growth. The strengths of aligning their brand with a very high quality, healthy image of food has served the company well and will continue to attract new customers over time. This aspect of their strengths needs to be looked at from the standpoint of potentially acquiring key suppliers for the most common products, produce, fish and meats they sell. The company needs to grow more aggressively in the UK, where there is the potential for significant growth. In addition, the focus on how to create more efficient global operations needs to be looked at, as this area could be easily turned into strength for the company over time. There is also the need to align the brand with celebrity chefs and celebrities who have chosen to pursue organic foods with many becoming vegetarians. This shift in the broader culture presents Whole Foods with an exceptional growth opportunity and chance to be the trusted advisor to this and future generations of consumers (MacDonald, Whellams, 2007). Overall, the company must also concentrate on supply chain management, execution and focus on keeping their value proposition highly differentiated and unique. If the company can accomplish all of these strategies in a coordinated and synchronized approach, it will continue to be successful. The growth in Europe is only beginning and getting all of these elements together into a concerted strategy will further differentiate and strengthen the company in those markets as well. The need for continually creating trust with loyal and new customers must pervade all strategies, as the greatest growth will occur when trust is earned and kept.