Crafting and executing strategy: the quest for competitive advantage

Whole Foods Market

Instructions

Competitive Forces and SWOT Analysis.

Deltra Davis

Trends In The Retailing Of Organic Foods..

Apply Porter's Model Competitive Environment.

Financial Objectives and Related Success

Environmental Factor

Analysis And Identify Significant Opportunities and Threats.

Whole Foods Market

Whole Foods has proven to be one of the most surprising corporate success stories of recent date: in the competitive grocery business, where profit margins are razor-thin, Whole Foods has consistently shown a profit during even the leanest economic years. It has continued to expand at a steady pace, and even acquired new enterprises. The company began in 1978, when current CEO John Mackey crafted it as an Austin-based natural foods store. It began to expand outside of Texas in 1989, with branches in California, following with a store opening in 2001 in Manhattan and in the UK in 2004 (Our history, 2011, Whole Foods). This is despite Whole Foods' 'bucking' of conventional wisdom, including its refusal to stock non-organic processed goods. It proudly proclaims itself to be a truly ethically-minded company: vegan CEO Mackey's fortunes are entirely in company stock, and he only accepts a dollar salary per year, in testimony to his belief in the company he founded.

Trends In The Retailing Of Organic Food

With the exception of luxury-oriented customers, food in America was primarily advertised as a value-based product. However, this has begun to change for a variety of demographic reasons, most notably the increased concern about the safety of American food and alarm about GMOs. The burgeoning American obesity epidemic has made many consumers concerned about quality as well as quantity. "According to the Organic Trade Association, U.S. sales of organic food and beverages have grown from $1 billion in 1990 to $24.8 billion in 2009. That's 18.4% growth annualized over 19 years" (Beyers 2011).

Whole Foods was born before this trend became mainstream, but its expansion coincided with interest in organics, as well as increasing numbers of consumers who eat vegan or vegetarian some of the time. There has also been an explosion of ethnic cuisine, reflecting the diversity of America, and an upward trend diagnosis of gluten intolerances and food allergies. Whole Foods caters to special diets as well as consumers who simply want better-quality produce.

Whole Foods assumes that consumers care about the sourcing of their foods. The stores contain placards proclaiming how the chickens are farm-raised and the salmon is wild, and also features information about toxicity levels and the life of the animal before slaughter. Ethically-produced food commands a high price, of course, but even during the recession, Whole Foods did not shirk its commitment: "Worried about the safety of the farm-raised salmon? Some of Mackey's stores recently displayed placards detailing test results for PCB contamination in the chain's farm-raised and wild salmon, along with FDA limits. Curious about the life of a chicken in the display case? It comes with a 16-page booklet and an invitation to visit the live chickens at the company's Pennsylvania farm" (Fishman 2004:1).

Apply Porter's Model Competitive Environment

According to management theorist Michael Porter, five distinct factors affect the competitive environment of a good or service. At present, the first factor, the "existing competitive rivalry between suppliers," within the organic food market is fairly intense. Wal-Mart, the world's largest retailer, as well as other companies are also featuring organic foods, bowing to consumer demands that the store shelves are not only laden with Pop Tarts and Hi-C. These organic products are often lower-priced than those found at Whole Foods. Additionally, big box stores offer the ability to do one-stop shopping which consumers do not possess at Whole Foods. A consumer can purchase, for example, a chain saw at Wal-Mart for his or her yard while doing grocery shopping, which he or she cannot do at Whole Foods. Additionally, not all consumers want to purchase more expensive 'green' paper towels and toiletries, but Whole Foods does not stock discount versions of these products. The second factor, the threat of new market entrants, will thus increase as more and more companies offer organic foods to customers.

The bargaining power of buyers is also quite high within the industry, given that consumers have many options in terms of places to buy foods. While some consumers, such as those with celiac disease, may have fewer places to buy their special products, overall the average customer can pick and choose where he wishes to grocery shop -- or to eat out as an alternative. Threat of substitute products is very high. And, particularly for Whole Foods' dependency upon ethical sourcing, the power of suppliers is astronomical, given that the company has made a commitment to hold suppliers to a high ethical standard. If it cannot provide a certain high-demand item (such as a popular type of fish) in a sustainable way, it will not offer the commodity, which can lead to less ethically-minded consumers going elsewhere.

Financial Objectives and Related Success

Whole Foods has made a clear commitment to expanding its operations, given its recent encroachment into the UK as part of its acquisition of Fresh and Wild, and its take-over of Wild Oats, one of its rivals in the organic food market. Its expansion has been slow and steady, and despite the recent recession, it has continued to show a profit, pleasing consumers and investors alike. "A typical Whole Foods store that did $15 million in business in 1999 did $21.4 million in 2003 -- $6 million in added sales that it mostly took away from the likes of Safeway, Kroger, Albertson's, and Food Lion...Whole Foods beat Wal-Mart in both overall and comparable-store sales growth" (Fishman 2004:1).