Whole Foods Acquisition Strategies Supervalu

Whole Foods

Acquisition Strategies

SuperValu vs. Whole Foods: Industry analysis

SuperValu vs. Whole Foods: Industry analysis

The supermarket industry is one of the most competitive in America: it is wildly responsive to shifts in consumer demand. Fuel cost increases, natural events that affect the availability of crops, and other aspects of commerce can quickly wipe away profits or challenge what would otherwise seem a sensible marketing and distribution strategy. With this in mind, the Minnesota-based chain SuperValu has focused on a traditional, low-price, high volume strategy in the rapidly growing discount supermarket market to generate revenue. SuperValu has attempted to expand into as many areas of the nation as possible and profit by offering low prices and selling at high volume to consumers. In direct contrast, the organic supermarket Whole Foods is only slowly expanding its outreach across the nation and world, taking advantage of the expanding interest in holistic cooking and organic foods. It has acquired several of its competitors to create a slightly higher-volume niche strategy and reduce competition, but it knows will never be able to price its products as low as SuperValu and instead focuses on a specific consumer demographic.

Whole Foods' cautious strategy has paid off thus far. Interest in organic food is exploding across the nation. Even Wal-Mart, the nation's largest retailer, has become a critical market player in organics. Of course, this could hamper Whole Food's success, given that Wal-Mart is able to price even organic foods at lower cost compared with specialty retailers. As the economy continues to remain on shaky ground, consumers are often more apt to reduce their food costs. Eating cheaper foods is easier than cutting down less flexible aspects of a regular, weekly budget. Furthermore, the public's questioning of the industrialization of organic agriculture has caused many of Whole Foods' most loyal consumers to seek out local farmer's markets rather than resort to commercial superstores. "If I shop at Whole Foods, I'm choosing Chain," wrote one food blogger (Levin 2011). The more labor-intensive technology of producing organic agriculture on a mass scale has grown more efficient, but caused some consumers to question if it really provides additional health value or value to the environment.

SuperValu is also challenged by rivals such as Wal-Mart, but because of cost rather than a specific market niche. Wal-Mart Supercenters, Sam's Club, Costco, and Dollar Stores have all been eating into traditional supermarkets' market share. "In 2001, Wal-Mart became the largest seller in food" (Imlay 2006). Because of Wal-Mart's ambitions to even offer organic produce even Whole Foods has been forced to reconsider its traditional model of differentiation. On one hand, increased demand for organics has driven many individuals to seek out Whole Foods. On the other hand, demand has also spurred superstore-size rivals to enter the market. Whole Foods has enabled itself to lower costs in comparison to totally independent stores. Its acquisition of its smaller competitor Wild Oats, which had significant penetration in the West, enabled it to expand its stores and sell at a higher volume (Moore 2007).

Whole Foods is thus adopting a generic strategy of Michael Porter's in which it focuses on a market niche (albeit an expanding one) for organic foods and outcompeting rivals within that niche segment by having lower costs than its rivals. It is able to serve niche, food-conscious consumers at a lower price than totally independent stores. The Wild Oats acquisition was deemed significant because, as well as eliminating a rival, Whole Foods was able to increase its volume of sales rapidly. Its number of venues substantially increased in areas of the country generally under-served by organic markets (Moore 2007). Whole Foods is not as inexpensive as Wal-Mart, but compared with other organic food markets that are not part of a chain, it is often substantially cheaper. One food blogger, comparing the price of organic crackers noted that "Carr's crackers were only $3.79 at Whole Foods" but "$4.39 at Haight Street Market, $4.25 at Say Cheese" in her area (Levin 2011).

This seems to be a wise strategy for Whole Foods, given that it cannot compete on price without sacrificing its core values. "There has been much consolidation in the supermarket industry in recent years. The surviving players have realized that they cannot be all things to all people. Instead, they are attempting to do the things they do best better than their competition" (Inlay 2006). In contrast, SuperValu's strategy has been to expand as swiftly as possible and offer value-based savings on a wide variety of goods, including fuel and pharmaceutical items as well as foods. It acquired the Albertson's grocery chain (another mega-store), further increasing its outreach across the nation.

One of the dangers of adopting a niche market strategy like Whole Foods is that if the demand for the niche product experiences a sharp downturn, than the profits of the company will likewise sink. SuperValu, in contrast, can hedge its bets against, for example, a poor crop and an upsurge in the cost of food because of its expansion into the drugstore industry. Consumers may try to buy less food, but certain aspects of their budget such as aspirin and soap are difficult to cut out entirely. Also, because SuperValu sells food based upon lower prices alone, even when consumers are cutting back on more expensive organic goods, they are still likely to go to SuperValu for the best deals on drugstore items and gas.