Whole Foods' strategic management and competitive advantage analysis

Whole Foods

Strategic Management of Whole Foods

Strategic Management Definition

Company Background and the Core Values

Current Market Analysis

Whole Food Competitive Advantage

Elements of Strategy Whole Foods

Growth Strategy of Whole Food

Strategy Audit

Corporate Value Chain

Strategic Management of Whole Foods

Strategic Management Definition

Strategic management can be defined as the process of formulation and implementation of the company objectives and goals which are made keeping in mind the resources available with the company and the internal and external environment that the company is functioning in (David, 2005, p 31-33). Thereby strategy can be defined as the course of action that a company develops with the optimum use of resources with the aim of achieving its long-term goals. Strategy can also be defined as the process of providing guidance to the direction, focus the efforts and defining the organizational set up clearly so that a company can take steps to direct if resources and respond to a changing environment.

Every strategy needs a plan and the planning of a strategy is defined as strategic planning. This planning process involves the collection, assimilation and analysis of analytical data and such data is used as inputs in the process of strategic planning (Nag, Hambrick & Chen, 2007, p. 935-937). The first requirement for a strategy management process is to define the goals of the company. In the case at hand, it is first necessary to define the goals of the company both in the long-term and the short-term. The vision and the mission of the company are also important considerations in regards to the strategy of the company.

Company Background and the Core Values

Based in Texas, Whole Food products Inc. sells natural and organic food and is the first to do so on a large scale in America. Over the years the company has included almost every organic food in its menu. Its long list of organic food includes produce, seafood, grocery, meat and poultry, bakery, prepared foods and catering, beer, wine, cheese; in addition to whole body, floral, pet products, and household products. The company claims to have maintained the highest standards in the natural food industry since its inception in 1980 with its focus on sustainable agriculture.

Among the core values of the company are its commitment to sell the highest quality of natural and organic products that are available with the aim of satisfying and delighting the customers. The company also values the virtue of wealth creation through the acquiring profits and growth through the delivery of happiness and excellence of the team members. The core values of the company include their commitment to care for the community and the environment and work with the suppliers to achieve this aim.

The mission of the company is to cater to the entire natural food requirement of all the people on the planet. The slogan "Whole Foods, Whole People, Whole Planet," illustrates how the company values its mission. The company wants to provide food that is least processed and of the highest quality without any adulterations. The company actively supports organic farming by funding farmers through its Whole Planet Foundation's micro-lending operations. For its commitment to the society and nature the company supports food banks and sponsors neighborhood events and through donations to non-profit groups. Every year the CSR spending of the company is at least 5% of the total profits of the company.

Current Market Analysis

The organic and natural food segment has been increasing over the years at an average rate of 8% to 10% with the growing demand from customers to have healthy and ethically produced food. There has been consumer demand for a greater range and variety of organic food at the local grocery stores owing to this awareness increase. The growing popularity for organic food has given rise to what has now come to be known as the green movement in the U.S. This movement encompasses all the aspects of natural food and includes food processing, distribution and retail grocery stores as well as the foodservice industries.

This has been accompanied by another growing concept, that of buying local. This concept is based on the consumer demand of fresh, locally-grown food and the international organic food players are capitalizing on this by campaigning aggressively on this issue. These two movements combined have shaped the market and the demand for the organic and natural food. Such consumer demands, coupled with the chance to improve image through fulfilling social responsibility, every aspect of the supply chain of the market from the local produce to finished goods and the retail and foodservice sectors, have been included in the movement. The retail companies too are keen to ride on this wave and the market for organic food has thus blossomed.

By the addition of more local vendors and putting local products to its stores, Whole Foods has tried to take advantage of the market situation which favors those dealing in organic and natural foods. The supermarkets have also entered the bandwagon and are now keeping specialty items on their shelves and pursuing the policy of competitive pricing. Whole Foods Market's idea of providing fresher items, larger variety of organic products and more natural and organic choices is now being emulated by other grocery stores. The company's ploy of selling expensive prepared foods and promising an enjoyable shopping are also ideas that are being copied by other grocers and some supermarkets.

The primary competitors for Whole Foods include supermarket and retail companies as well as discount retailers. Such companies have now started to offer organic food. Wall-Mart, the largest retailer in the U.S. has now put organic and natural food in its stores in competition to Whole Food. The company is also facing competition from other supermarket discount retailers like Target, Sam's Club and Costco who are offering competitive prices to Whole Food and often selling organic products at prices lower than that of Whole Food. Trader Joe's, a Loss Angeles-based grocery dealing in organic and natural food. The competitor has been able to find a niche place in the market by high quality at low prices. It is one of the biggest competitors of Whole Food.

Whole Food Competitive Advantage

The company enjoys a competitive advantage through product differentiation. The key component to the success of the company is the very set up of the stores of Whole Food. Careful research goes behind the planning, decoration and setting of every store to ensure that they are meeting the demands of the local community. The locations are strategically chosen. The company chooses sites where there would be large space and heavy footfall at the stores. Several metrics are used to select cities. The primary cities chosen are predominantly metro areas and cities. The metrics upon which the company chooses a city or an area to set up a store includes the important factors like income levels, education and population density.

The shopping experience that the company offers is also the competitive advantage that the company offers; this is their differentiation. The shopping experience at a Whole Foods store begins with a welcome that is given by well trained employees of the company. Wine tasting, food sampling and in store chefs ready with numerous recopies are USPs of the company that provide them market leverage. The consumers can also get information about aspects related to their food from the "Take Action food centers" like legislations and environmental issues related to the food they consume and the food that are sold at the stores. There are some exclusive stores that provide services like home delivery, organizing cooking classes and other luxuries like massages and valet parking. The company offers all these extra services in its grocery stores with the aim of attracting the more than average customer to the stores.

Unlike their competitors, the company does not use price to gain competitive advantage. The company claims to have a niche market with exclusive customers and hence does not want to enter the price war. The company rather relies on quality products and services to provide a satisfying experience to its customer to stand out in the competition. In terms of marketing activities like advertisements, the company does not spend as much as its competitors.

The company utilizes the word of mouth campaign for their good will to spread from one customer to another within the local community. It wants that people keep talking about the exclusive shopping experience that they had while going grocery shopping in one of Whole Food's stores. However the company does advertise in some select health magazines and uses in house advertising at the stores. Their aggressive CSR campaign and the company's consciousness to animal treatment is another source of market leverage.

Growth Strategy of Whole Food

The growth strategy of Whole Foods seemed apt during the first decade of its existence. Since its inception in 1984, the company has grown through a very aggressive strategy of acquisitions. The company made 16 acquisitions in the first 16 years of its business. Starting off in Austin, the company expanded to Houston and Dallas and then to New Orleans and other places. In the process the company made several acquisitions of other organic and natural food companies like the Wellspring Grocery company, Bread and Circus of Massachusetts and Rhode Island, Mrs. Gooch's Natural Foods Markets of Los Angeles, Bread of Life of Northern California, Fresh Fields Markets on the East Coast and in the Midwest, Florida Bread of Life stores, Detroit area Merchant of Vino stores, and Nature's Heartland of Boston. The acquisitions continued through the early 2000s and the company also moved into Canada and the United Kingdom. The largest of takeovers was the acquisition of arch rivals Wild Oats Market's Inc. In 2007.

However this expansion strategy came to a halt when the company got into a tangle with the competition council where it was alleged that the takeover would result in unfair competition in the market. The case went on for two years until it was resolved in 2009. But by that time the global recession had hit the world and the company too suffered. The spree of expansion that the company undertook through acquisitions and opening up of new stores impacted Whole Foods during the recession. The weekly store sales dropped across the board for the company even though its sales have increased. The initial strategy that the company had taken of aggressive expansion failed. The company needs to increase store sales not indulge in store expansion as it has been proved that overall increase in sales is not enough to have sustained financial growth. In the market environment of increasing competition, it is essential for the company to increase. The company seemed to have understood its situation and even after announcing an addition of 29 stores in 2010, it was brought down to 17 stores.

Another reason for the reducing profits of the company is the increase in competition and the concentration of the market. Earlier there were a large number of smaller competitors in the market. The market was fragmented and there was no one big player which is the situation that Whole Foods had taken advantage of in the initial years. However as the company grew, other large players entered the market. Companies like Wall-Mart are offering the same products as Whole Foods at competitive prices. These se large companies are difficult to take over on one hand and on the other hand the very large coffers of the competitors would allow them to engage in aggressive campaigns. Therefore the strategy of acquisitions and aggressive expansion does not hold well in the present scenario.

Recommendations There

Immediate action with respect to increasing financial performance and maintaining its competitiveness is needed to be taken by Whole Foods to ensure the success of the company under the challenging market conditions. Some of the recommendations for the company are:

Cost Curtailment

The company needs to cut costs in order to increase and gain back its profit margins. Profits have fallen even as the overall sales have increased. This indicates that the overhead costs of the company are too high. The company can reduce overhead expenses by reducing manpower and some of the free services that they offer. Moreover the company should also take a serious consideration of their policy of opening of new stores. The company needs to consolidate its position by increasing store sales in the existing stores. The company also needs to make an evaluation about the importance and cost effectiveness and value of the services in the stores. If necessary the company should do away with some of the less productive and less cost efficient services. The change of service orientation should be done without compromising the exceptional in-store experience of the consumers. The capital that would be unlocked from this exercise can be used to bring back valued services for the customers or used for other business processes.

Increased PR and Marketing

While the competitors engage in aggressive marketing and PR campaigns, Whole Food uses very little of its resources for this purpose. The company rarely engages in advertisements except for some health related magazines. Word-of-mouth recommendations and testimonials from shoppers and consumers is the only way that the company wants its PR and advertising and marketing campaign to happen. The marketing budget is mostly spent for in store activities. However given the ferocious competitive nature of the business and the competitors engage in aggressive marketing campaigns, it is recommended that Whole Foods indulges in more of outdoor marketing and PR campaigns and not only rely on word-of-mouth spread of their image.

Strategic Entry into New Markets

The company needs to carefully revisit its strategy of aggressive growth. The business environment in the present day does not support aggressive growth. Rather the company needs to look into ways and methods of slow but steady growth. The company needs to carefully measure the chances of success and failures of entering new markets. The time for the company is to consolidate the lead it has in the market and cement its place in the areas and regions and cities it is present in. To gain sustained growth, the company needs to look into markets that are untapped by the organic food concept. The growth in such markets could be slow and low but it would be steady. Such markets could some of the regional markets of the European Union and the Middle East.

Strategy Audit

External Factor

Weight

Rating

Weighted Score

Comments

Opportunities

The role of the company is huge in t he restoration of the values of life

.3

5.0

1.5

Having global reach

.2

4.5

.9

Leader in the organic food sector

.3

5.0

1.5

Threats

Competitors

.1

3.7

.37

Government control

.1

3.0

3

Total

1

2.) Corporate Value Chain

Every company wants to create some value for its customers through the products of services that if offers to them. The group of activities by companies that are carried out to provide some sort of value for the customers is known as value chain.

The first person to propose this was Michael Porter in his book 'Competitive Advantage' published in 1985. The value chain concept allows companies and organizations to check their activities and business process that tend to add value to the products or services for the customers and identify and understand the relation between the processes. The costs and profits are affected and often determined by the way the activities of value chain. Hence this can also serve as a tool to understand the profit making business processes of the company (Walters & Rainbird, 2004, p 75-86).

Elements in Value Chain

The proposed value chain framework by Porter stressed on understanding how inputs for a product are turned into outputs which are then bought by customers. Using this concept, the Porter's value chain model identifies a set of process that are common to all businesses. The schematic diagram of the model is given below.

The activities that go into making a value are divided into two parts-primary activities and support activities.

The physical creation, sale, maintenance and support of a product or service by a company or an organization are termed as primary activity of the company. Such activities can be classified as follows:

Inbound Logistics-this refers to the internal receiving, storing and distributing of inputs and the processes that are involved with it. The relationship with the supplier is a key factor in value chain as the supplier provides input I the form of raw materials or parts for the final product. Anything that comes into the company for further processing and preparation of the final product would be considered as inbound traffic (Pass, 2005, p 45-75).

Operations- the activities that transforms the inputs got through inbound logistics into outputs that can be bought by the customers is called operational activities of a company or organization. All the machines and the mechanical processes, for example in a factory, are operations to transform raw materials into a finished product (Walters & Rainbird, 2004, p 75-86).

Outbound logistics-these are activities that help the finished product to reach the customer. Such activities can be collection, storage, and distribution systems which can be an internal activity or an outsourced activity.

Marketing and Sales- the process that a company uses to try and persuade customer to purchase their product would be called marketing and sales activities. The value factor in this activity is the way one communicates with the customer.

Service-once the final product is purchased value can be given to a customer through after sales service (Pass, 2005, p 45-75).

The supporting activities, lending support to the various primary activities, that are elements of the value chain are as follows:

Procurement or purchasing -- the activity that an organization undertakes to provide resources necessary for operations is procurement.

Human resource management-this activity refers to the process of selection and appointing of employees, their training, motivation, rewarding and retaining. This support activity is important because the employees or people are critical in the production process and good employees can create value for the company (Walters & Rainbird, 2004, p 75-86).

Technological Developments- keeping up with recent developments in technology, keeping the business process and company information private and protecting a company's knowledge base are included in this activity. By using the latest technology and minimizing of costs creates value of this activity in the value chain.

Infrastructure- the various operations of the company that help maintain the daily functions is considered as infrastructural activities.

Using the above structure of a value chain, it can be put to increase value of a company as well as to a customer by increasing sub-activities of primary and support activities, identifying links between all the activities and creating opportunities for the elements to interact with the help of the links between them to create value.