Whole Foods market in 2008 - Case Study
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This document provides an analysis of Whole Foods Market in 2008, outlining their vision, core values, strategies, and organic foods industry. It discusses Whole Foods' vision to become a leading international brand for natural and organic foods retail. Their core values include selling high quality products, satisfying customers, supporting employees, creating profits, caring for communities/environment, and partnering with suppliers. Their growth strategy focused on acquisitions and large new store openings. Marketing emphasized education and community involvement. Operations were decentralized with an emphasis on quality and freshness.
Whole Foods market in 2008 - Case Study
- 2. INTRODUCTION Founded in 1980 in Austin, Texas, with the John Mackey as a cofounder and CEO, Whole Foods Market had been a leader in the natural and organic foods movement across the United States during its 27‐year history. The company sells the highest quality, least processed, most flavorful and naturally preserved foods available. Whole Foods became a public company in 1992, with its stock trading on the NASDAQ. The company mission is to promote the vitality and well‐being of all individuals by supplying the highest quality, most wholesome foods available. The purity of food and the health of bodies are directly related to the purity and health of the environment, and their core mission is devoted to the promotion of organic foods, healthy eating, and the sustainability of the entire ecosystem. VISION Whole Foods have a vision to become an international brand synonymous not just with natural and organic foods but also with being the best food retailer in every community in which Whole Foods stores were located. Whole Foods wants to set the standard for excellence in food retailing. The Whole Foods Market’s motto: “Whole Foods, Whole People, Whole Planet”, emphasizes that the vision reaches far beyond just being a food retailer. The company proclaimed that they, as an organization, have a deepest purpose to help support the health, well‐being, and healing of both people – customers, team members, and business organizations in general – and the planet (sustainable agriculture, organic production and environmental sensitivity. Whole Foods, means that they obtain their natural and organic product locally and all over the world. They believe that natural food is the best tasting and most nutritious food available. Whole People, means that they recruit the best people they can and empower them to succeed, and help the company profitable and beneficial. Whole Planet, means that their support to organic farming will also protecting the environment and our planet. DIFFERENTIATED PRODUCT OFFERING The differentiation of Whole Foods Market from other retails is the product they sell. They offer a broad and differentiated selection of high‐quality natural and organic products with a strong emphasis on perishable foods; which bring the company to be the world’s largest chain of natural and organic foods supermarkets. Our product selection includes, but is not only limited to natural and organic foods, but also seafood, grocery, meat and poultry, bakery, prepared foods and catering, Page | 2
- 3. specialty (beer, wine and cheese), coffee and tea, nutritional supplements, vitamins, body care, educational products such as books, floral items, pet products and household products. Natural foods product, which is defined as a product containing no artificial ingredient or added color and that is minimally processed, had increased at double‐digit rates in the 1990s in sales, while the growth had slowed to 7‐9 percent range since 2000. Organic Foods were a special subset of the natural foods category; to be labeled as organic, foods had to be grown and processed without the use of pesticides, antibiotics, hormones, synthetic chemicals, artificial fertilizers, preservatives, dyes or additives, or genetic engineering. A “365 Everyday Value” line and a “365 Organic Everyday Value” line of private‐label products, have a less expensive price than comparable name brands, as well as a family of private‐label‐ products with consistent logos and packaging for specific departments, the examples: “Whole Kitchen”, “Whole Treat”, “Whole Pantry”, “Whole Catch”, etc. CORE VALUES Selling the Highest Quality Natural and Organic Products Available They have high standards and sell the highest quality products. They also believe that natural and organic products can make a difference in the quality of one’s life. Satisfying and Delighting Our Customer They believe that by satisfying their customer, they will get the opportunity to satisfy the needs of the other stakeholders. When the company can meet or exceed the customers’ expectations, the customers can turn into advocates for their business. So they want to serve their customers competently, efficiently, knowledgeably, and fair. They educate the customers about natural and organic foods, health, nutrition, and environment, provide a high quality products with a competitive price and great service, create an inviting and fun store environment with a fresh concept and new ideas, to get a greater appreciation and loyalty from their customers. Supporting Team Member Happiness and Excellence They believe that their success is dependent upon the collective energy and intelligence of all their team members. They create a motivated environment, give opened information to all team members, and improving through the creativity & intelligent of their team members. Creating Wealth Through Profits and Growth They are committed to increase long‐term shareholder value and they gain the profit every day through voluntary exchange with the customers. Page | 3
- 4. Caring About Our Communities and Our Environment They support organic farmers, growers, and the environment; they respect the environment by recycle‐reuse‐reduce their waste. They are also active in their local community, give minimum 5% of profits to wide variety of community and non‐profit organization. Creating ongoing win‐win partnerships with our suppliers They treat their supplier with respect, fairness and integrity, also committed to honesty, timeliness and clarity in communicating with their suppliers at all times and expect the same in return. They seek to create transparency from “farm to fork” with respect to production, planning, sourcing, ingredients, product safety and efficacy in order to bring to market the safest highest quality products available. The company also educates their supplier so that they can give the best quality product; foster the supplier for creating new, unique and innovative products. Promoting the health of our stakeholders through healthy eating education By providing healthy eating education, Whole Foods inspire and empower their stakeholders to make the best health‐supportive, delicious food choices to maximize personal health and vitality. Source: http://www.wholefoodsmarket.com/company/corevalues.php (accessed December 6, 2011) ORGANIC FOODS INDUSTRY Most industry observers expected that, as demand for organic foods increased, conventional supermarkets would continue to expand their offerings and selection. Supermarkets were attracted to merchandising organic foods because the consumer demand for organic foods was growing at close to 20% annually, and mounting consumer enthusiasm for organic products allowed retailers to command attractively high profit margins on organic products. The growth in sales of natural and organic foods is being driven by numerous factors, including: Healthier eating patterns on the part of a populace that was becoming better educated customers about foods, nutrition, and good eating habits, especially among aging and affluent people who concern about health and better‐for‐you foods. A “wellness”, or health‐consciousness, trend among people of many ages and ethnic group. Increasing consumer concerns over the purity and safety of food due the presence of pesticide residues, growth hormones, chemicals, artificial genetically engineered ingredients. Growing belief that organic farming had positive environmental effects, particularly in contributing to healthier soil and water conditions and to sustainable agricultural practices. Page | 4
- 5. WHOLE FOODS STRATEGY Growth Strategy Acquire Wild Oats, as it’s ranked second behind Whole Foods, the biggest and closest competitor Opening bigger store than the average store size of retailers of natural and organic foods, in metropolitan areas each year – stores that ranged from 40,000 – 70,000 square feet Opened stores in high‐traffic shopping locations and potential sites that already pass certain financial hurdles Marketing Strategy More to the below the line marketing strategy (less advertising, more with word of mouth) Do a great efforts to educate people about natural and organic foods, nutrition, and environment change due to organic consumption Held a store events as taste fairs, classes, product sampling, and a in‐store signage Extraordinary services and a personable store personal are expected to change the customer into advocates (which can be a marketing tools – word of mouth) Community and customer interaction oriented to help extend the market such as extending company efforts by jumping into the community citizenship and social activism such as philanthropic activities Welfare of employees (teams) Treat all employees as a team Empowering work environments Compensation, Incentives and rewards (using EVA to measure performance) Routine performance measurements and evaluations Knowledgeable, competent, and friendly service standard with personal recommendation for each customer Corporate Social Responsibility (CSR) Donating at least 5 percent of its after‐tax profits in cash or products to nonprofit or educational organizations. Created the not‐for‐profit Animal Compassion Foundation in January 2005 In October 2005, Whole Foods had established a not‐for‐profit Whole Planet Foundation Page | 5
- 6. Store Operations Decentralized team management & process Highly dependent on team members and associates led by team leaders Each product category have different team member for responsible, respectively Store team leaders were paid a salary plus a bonus based on EVA contribution Customizing the looks and product display to best show off the particular product mix for the store’s target clientele Total Quality Management Define quality by evaluating the ingredients, freshness, safety, taste, nutritive value and appearance of all of the products that they carry Maintain the list of unacceptable ingredients (about 81 ingredients) Purchasing and Distribution Whole Foods used regional and national suppliers so the company in a better position to negotiate volume discounts Some perishable product, like seafood, coming from distant supply sources were flown in to stores to ensure maximum freshness The company operated nine regional distribution centers to supply its store Pricing “If people believe that the food is healthier and they are doing something good for themselves, they are willing to invest a bit more, particularly as they get older.” As one analyst said that, it’s a big opportunity for a Whole Foods to sell their premium products at premium prices. Page | 6
- 7. WHOLE FOODS MARKET’S FINANCIAL PERFORMANCE Year 2000 2002 2004 2005 2006 2007 Store 117 135 163 175 186 276 Difference ‐ 18 28 12 11 90 Sales Growth ‐ 10.0% 14.9% 12.8% 11.0% 7.1% Store Contribution 9.4% 9.6% 9.3% 9.6% 9.6% 8.9% The growth of store number between 2006 to 2007 seems like a bad move for Whole Foods, it is only natural that more stores we operate, then we expect more sales growth will be grabbed, but the Whole Foods didn’t find it right, as we could see that the sales growth is dropped below 10% and so the store contribution dropped below 9%. This is the worst ever condition for the last 4 years. From this point of view, we can conclude that between 2006 to 2007 there is a slight concern about declining performance in effectivity and efficiency in store operations respectively. The financial statement is providing more evidence of the in‐effectivity and in‐efficiency of growing more stores. Although the sales is growing 18% more, the direct store expenses and other operating cost are growing more than 18%. Page | 7
- 8. Even in last quarter of 2008, the store expenditure is exceeding its operation cash flow, resulting in $929 million debt, but the company taking action to sell $425 million of preferred stock to bolster its financial position. The expenditure itself occurs from acquisition of Wild Oats Markets and more stores opening. Page | 8
- 9. INDUSTRY ANALYSIS PORTERS’ FIVE FORCES ANALYSIS • • • • • BARGAINING POWER OF SUPPLIERS • Quite limited supplier of natural and organic products • Company can import product from all over the world • The company is become the largest account for many suppliers of natural & organic foods. THREAT OF NEW ENTRANTS High entry barrier, such as: capital requirements, inventory cost, etc. Big economic of scale Government policies Threat from large retailers which can entry this specialization product through subsidiaries High profit margin COMPETITIVE RIVALRY • Natural & organic foods retailer, such as Wild Oats, Fresh Market, Trader Joe’s. • The producers or manufacturers of natural & organic products. • Rival from other retailer such as: grocery store or supermarket BARGAINING POWER OF BUYERS • No switching cost needed • Product Differentiation of Natural and Organic Foods • High attention of customer to healthy and life improvement (low power) • Consumer demand is quite high and growing at around 20% annually THREAT OF SUBSTITUTE • Non‐organic products (grocery store) • Restaurants Page | 9
- 13. assadors. There is no nee ed for any co ost for those kind of amb bassadors. amba What t they only n need to do is that to crea ate a special and unforgettable mom ments or feeli ing caught by the custom mers having a a shopping in n Whole Foo ods Mark ket. For exam mple, provide e more entertainment fo or the custom mers. The stren ngth of word of mouth is really unbelievable, if th he customer is really hap ppy, they can easily sp pread it to th he world (suc ch as forum discussion, m mail groups, socia al communiti ies, etc).” “Make affiliation n or partners ship with hea althy club, gy ym, etc. For e example, foods market t can place a a banner in th hose places f for free, inst tead they Whole f give e a free mem mbership for some month hs for the customers who o buy for certain am mounts.” ting; coopera Doing g ATL market ation with f fitness cente er, hospital; gathe ering with a c community t that need an organic & & natural foo od; partic cipating in a “green” progr ram; reducin ng the price b by discount or bundl ling. Make e website; ab bove the lin ne marketing g strate egy; bundling g produ uct or packag ge promotion; coope eration with T TV Channel; develop member card. Hamdi H Lisa MA ARKETING ST TRATEGY Carter Nikko Create seasonal e events; e monthly fre ee make bookl let/magazine e; promote fresh delivery ucts. produ Build internatio onal brand with strong brand ambassadors ye et without cos st; Affiliation or par rtnership wit th healthy club b, gym, etc. Page | 13
- 14. RECOMMENDED OPERATING STRATEGY • Hamdi’s strategy recommendation for operating : “Purchase wind energy (they did it in January 2006) to reduce the use of nuclear power plant as well as a sales driver.” “They used local farmers to provide inventory for Whole Foods. It’s been a good strategy since they aren’t far from the store itself so that the transportation cost will be inexpensive.” “TQM as a standard of quality in Whole Food.” • Lisa’s strategy recommendation for operating : “Whole Foods can use Sun‐Panel/Solar‐Panel System, which can help reduce electricity power usage and save the environment, supporting the green environment, which close to the one part of company motto: Whole Planet. The use of Solar Panel will reduce the operation building cost of using the electricity, more further, it will provide the electricity for the store and buildings around.” “Since Whole Foods have a strong brand and become the largest account for their suppliers, then the company has a power to pressure suppliers, or negotiate with the suppliers, for lower wholesale price.” • Carter’s strategy recommendation for operating : “Using more technology oriented operation process (green technology if applicable) to reduce operating cost such as online Supply Chain Management, so that Whole Foods can reduce inventory cost and other costs from fast moving and perishable products.” “Outsourcing some areas of operation that are not in the company’s core competency such as cleaning service, delivery & distribution service, etc. so the company can reduce the operating cost of each store globally, and also gaining standardize service in each store.” Page | 14