Whole Foods' rise as the organic food market leader

Whole Foods: Case Study

Trends in organic foods

Whole Foods' expansion as a company seemed to crest with a unique degree of prescience, relative to the upsurge of interest in organic foods in America. Once upon a time, organic foods in America were only offered at niche health food stores and farmer's markets. However, concerns about childhood obesity and the safety of staple products such as meat, milk, and vegetables have cause the demand for such products to sharply escalate. 65% of consumers in 2005 had tried organic food, up from 57% in 2004 and 2003. Organic farmland has also rapidly expanded, meaning that stores such as Whole Foods have greater access to more localized suppliers (a critical point, given that buying local is another important food trend linked with an interest in organic farming). Today, Whole Foods is the biggest seller of organic produce in the world. It has also acquired 'Wild Oats,' another organic store, and has made that chain conform to its high standards of quality and overall approach and layout.

The establishment of USDA standards for what constituted an organic food product was also helpful for Whole Foods. This ensured that companies that were simply vaguely 'healthy' in their marketing could not make unsubstantiated health claims upon their labels. Whole Foods could justify its philosophy (and higher prices) with documented evidence that its products were prepared differently -- and better -- than products grown and/or manufactured through conventional food processing.

SWOT

Strengths

Whole Foods has successfully branded itself nationally and internationally as the leading purveyor of organic foods. Since it became a publically-traded company in 1991, it has been able to finance a wide-ranging expansion, despite the typical 'small scale' nature of companies with a commitment to whole, unprocessed foods.

Whole Foods stocks a wide variety of foods of interest to consumers who are focused on nutrition: not only does it supply organically-produced vegetables and meats; consumers can be confident that even the prepared foods they purchase have wholesome ingredients. Unlike a consumer at Kroger's, when shopping at Whole Foods for cereal, there is no tedious label-reading for a consumer who wishes to eliminate foods with high fructose corn syrup or artificial colorings and dyes from his or her diet.

Whole Foods stores are attractively laid out and have an ambiance that ordinary supermarkets lack. Even competitor Trader Joes does not have a place where people can eat lunch and relax, like many Whole Foods. Educational demonstrations, a wide variety of cooking supplies, health and beauty sections, wine -- all of this makes going to Whole Foods a shopping experience, rather than a chore.

Weaknesses

In a word, cost. Whole Foods has earned its nickname of Whole Paycheck, and because of the national focus on cost-cutting even its core market of more affluent shoppers may balk at its typical prices when many consumers fear for their jobs. Whole Foods also does not offer consumers much choice, to pick and choose what expensive food items they wish to purchase, and on which items they want to save. For example, a health-conscious student on a budget might be willing to buy organic strawberries, but try to buy generic laundry detergent to save money. At Whole Foods, there is only the more expensive, environmentally-friendly detergent. As more stores are offering organic strawberries, the student might decide to shop elsewhere. The shortage of time for many consumers may also reduce foot traffic at Whole Foods: consumers who used to stop at Whole Foods for specialty items but do the bulk of their shopping at a mainstream supermarket may eliminate their trip to Whole Foods, if they are working longer hours to make more money. Time-pressed consumers may also have less time to linger while shopping.

To some extent, by offering only organic foods, there is a limit to how much Whole Foods can reduce its prices: because of the nature of organic food, it costs more to produce than food produced by more conventional methods: it is more labor-intensive. Thus, there may be an intrinsic barrier to how much Whole Foods can compete, given that it cannot offer organic produce at a discount, but make a profit off of less healthy items. It may be limited to only expanding into relatively affluent or boutique areas. It cannot really compete upon price with its mainstream competitors, unless it was to radically change its image and offer non-organic, cheaper foods.

Threats

In 2008, over 75% of stores offered organic foods: Whole Foods is no longer the only 'organic' game in town. Also, discount organic venues have emerged, like Trader Joe's, that offer more in-house discounted brands and have a lower price point than Whole Foods. Trader Joe's has expanded into Manhattan and a number of areas where Whole Foods' likely consumer demographic resides.

How to use its strengths and opportunities

Whole Foods, since it is no longer the only store that offers a wide range of organic foods, must look to capitalize upon other unique aspects of its store experience. Getting consumers to come for free cooking demonstrations and workshops on eating more healthfully might draw a wider consumer demographic, including those 'pinching pennies' but still desiring to eat more healthfully. For upscale consumers, expanding its offerings of international products would give it an edge on its lower-priced competitors. And expanding its range of prepared foods and in-store cafes would encourage consumers worried about the ingredients in fast food, who still do not have enough time to cook, to eat at Whole Foods.