Whole Foods SWOT and Five Forces analysis

Whole Foods Case Study

Whole Foods SWOT and Five Forces Analysis

Whole Foods is one of the world's leading retailers of organic and natural foods and related products. The company owns 276 retail stores, located throughout the UK, Canada and the U.S. with the average store size being 34,000 feet. The company organizes its key commodities businesses into subsidiaries, specifically for produce (Produce Field Inspection office), coffee (Allegro Coffee Company), fish, (Select Fish) and Pigeon Cove (a seafood processing facility Whole Foods operates in Gloucester, MA). Whole Foods was founded in 1980 in Austin, Texas by John Mackey and Renee Lawson Hardy, owners of the Safer Way Natural Foods. Mark Skiles and Craig Weller also were partners, owners of Clarksville Natural Grocery. The two companies merged and grew rapidly through a continual addition of stores. The company's mission is to bring the highest quality, healthiest natural foods to consumers pursuing a healthy lifestyle, concentrating on high quality standards that their supply chain partners need to meet on a consistent basis. Whole Foods has grown primarily through acquisitions, starting with the acquisition of Bluebonnet Natural Foods Grocery in Dallas, Texas during 1986. Additional acquisitions include Whole Food Company in 1988, Wellspring Grocery in North Carolina in 1991. In 1992, Whole Foods went public, which gave them additional capital to continue growing through mergers and acquisitions. Additional acquisitions included Sourdough, Mrs. Gooch's Natural Foods, Bread of Life, Pigeon Cove, Amrion, Allegro, and Merchant of Vino stores. Coincident with these acquisitions the company expanded into the U.K. with a flagship store in London and developing stores in Toronto.

SWOT Analysis

SWOT Table

Strengths:

Exceptionally strong revenue growth

Highly Focused growth strategy

Broad sourcing and product portfolio

Proven ability to quickly acquire and integrated new companies into the overall corporation

Weaknesses:

Tepid international growth

Overly-conservative international policy

Rapidly increasing rental expenses

Low Employee Efficiency relative to industry average: Revenue per Employee = $138K versus Industry Average of $309K

Opportunities:

Exceptionally strong demand for organic products

Expansion in the UK

Growth in private label products

Media Coverage Favoring organic Products

Threats:

Increasing global competition

Legality of Labeling and regulations

Recession in the U.S.

Consolidating Supply Chain is favoring Mass Merchandisers

SWOT Discussion

Whole Food's strengths begin with their ability to quickly integrate new acquisitions into their existing company both at the process and system level has led to the company being able to achieve exceptionally strong revenue growth over time. The senior management team has specifically focused on acquisitions that further their unique value proposition. The combined effects of these factors have also given the company strong sourcing and a product portfolio that is a competitive advantage today.

Weaknesses that Whole Foods is facing are a combination of broader economic factors and internal inefficiencies. The company has had tepid, weak economic growth due to the overly-conservative strategies relied on for attempting to penetrate the UK and Canadian markets, the risk aversion of the company has also led to slow, unsteady growth in the large flagship store in London, a market know for demand of natural food products (Crisostomo, 12-13). Internally the company has very low employee efficiency, with revenue per employee of $138K versus an industry average of $309K.

Whole Foods has significant opportunity globally however due to strong demand for organic products. Turning around the slow growth in the UK would provide the company with exceptional retail growth opportunities as well. The broader growth of private label food foods shows significant potential for Whole Foods, one of the best opportunities they have. Finally, global media coverage of organic products is acting as a market catalyst of growth (Lambert, 22, 23, 24).

The threats Whole Foods faces include the deepening recession in the U.S., the continuing challenges of labeling and the legality of claims on natural products. The continual strengthening of global competition is also forcing the consolidation of the company's supply chain partners as mass merchandisers including Wal-Mart, Carrefour and Tesco from Europe make inroads into the U.S. market.

Analysis of While Foods Using Porter's Five Forces

Dr. Micheal Porter devised the Five Forces Model for analyzing the broader competitive and economic environment of companies. The five forces model industry is comprised of competitive rivalry, pressure for substitute products, bargaining power of suppliers, bargaining power of buyers, and the influence of potential entrants. Figure 1 shows the Porter Five Forces Model graphically, drawn from the original mention of this model by Dr. Micheal Porter of Harvard University. Each of these areas is now discussed in bullet form in the following series of sections.

Assessing Whole Foods Industry Competitors (Rivalry)

Whole Foods faces significant competition both at the local level in served U.S. markets and globally from Carrefour, Tesco and Wal-Mart. In addition the mergers and acquisitions of competitors are leading to regional competitors gaining critical mass, with Wegman's and Winn Dixie being two examples. As a result of these factors the rating for this factor is high.

Pressure from Substitute Products

Whole Foods is facing moderate competition from health food stores, traditional supermarkets, and supercenters. The pressure from substitute products is therefore considered medium.

Bargaining Power of Buyers

Buyers have more options with every new health food store, launch of new providers of healthy-based foods and health-related products. Competitors are concentrating on price, convenience, evangelism of healthy foods and healthy living and lifestyle changes many consumers globally are looking for (Stuart, 68, 69). As a result, this factor is rated as high.

Bargaining Power of Suppliers

As the demand for organic foods is one of the highest growth areas of grocery stores and food retailing, the entire supply chain of organic products often has more demand for their products than they have products to fulfill all potential orders (Ebenkamp, 14). From local growers, independent and family farmers, food brokers and Co-ops, the supply chain for natural foods is still vastly underdeveloped. This translates into a high rating for this specific factor.

Conclusion

Whole Foods has a very unique market position today that can be augmented and strengthened if the company concentrates on extending its unique value proposition through better internal efficiency and through a more aggressive approach to global expansion. On this latter point, the use of merger & acquisition strategies needs to be considered as the company has shown an innate strength at this area of processes. Minimizing the risks of global expansion is critical for the long-term growth of the company, in conjunction with the growth of U.S.-based markets through lifestyle marketing. The continual orientation and endorsements of healthy foods in the U.S. media is acting as a form of business development for the chain today. To fully take advantage of this dynamic, Whole Foods must work to coordinate and control their supply chain more effectively, to keep global mass merchandisers Carrefour, Tesco and Wal-mart from dominating this retail market.