Marketplace Analysis of Whole Foods

Whole Foods Market’s first retail location was in Austin, Texas. Today there are 342 stores in the United States, Canada and the United Kingdom. The growth of this health conscious conglomerate happened over the years by strategic acquisitions of profitable independent stores throughout United States. Mackey’s idealism and respect is exhibited in his openness about the contributions of these retailers to the success of WFM, as the website provides an in depth summary of each acquisition and its contribution to promoting healthier food choices (Whole Foods Market History, 2014). After four years in Austin, Texas WFM branched out into the city of Houston when it purchased the Whole Foods Company, and shortly after, on the west coast, a new store was built in Palo Alto, California. Subsequently WFM began aggressive acquisitions over the next few years, which help to accelerate the growth rate of WFM in other geographical locations. In 2002 WFM opened in Canada and in 2004 through the acquisition of United Kingdom’s grocery chain Fresh & Wild, it opened seven stores. Holistic eating is a worldwide affair that WFM is taking advantage

The organic food industry has seen a huge spike in growth that is expected to continue into the future due to an increase in consumption. This will provide Whole Foods Market with huge opportunities. In addition, a wave of ethical and responsible consumption has swept across America. Whole Foods’ decision to pursue sustainable activities will certainly give consumers an added incentive to purchase its organic products.

Whole Foods is a retailer that specializes in organic foods and it has done an excellent job of determining its target market and how to position itself. Instead of going head to head with large food retailers such as Wal-Mart, Whole Foods has found a niche market that works perfectly for itself. This niche market is one that prides itself on being health conscious and environmentally responsible and Whole Foods has done a great job of positioning itself in the same way through its environmentally safe actions and its use of the local community to stock its stores. However, as Whole Foods grows and expands, a person has to wonder if the company will be able to maintain this same position or will have to make

Every retail location carries a variety of products that distinguishes it from other stores in the same chain. Not surprisingly, it is difficult to achieve economies of scale. Supply Chain Mackey describes his consumers as being “part of a cult”. Whole Foods believes that the company’s emphasis on perishables and locally-sourced produce differentiates their stores from run-of-the-mill supermarkets and attracts loyal and devoted customers. However, “fresh produce” is one of the most challenging product categories to operate due to limited product shelf life and high cost of spoilage. Whole Foods has tried to circumvent most of the problems inherent in supplying fresh produce to its stores by sourcing locally and having short and flexible supply chains. In the case of fruits and vegetables, Whole Foods has buying relationships with local farmers who supply the store with seasonal produce. Thus, if one farmer is unable to produce a sufficient amount of yellow corn or heirloom tomatoes, the shortfall can be made up by another farmer. Although challenging to perfect, these short supply chains are agile and difficult for other big retailers to duplicate.

Whole Foods, just like any other retailer right now, has been struggling with the economy. The external environment has been changing in uphill and downhill motions daily, something that Whole Foods has never experienced before. Not only is there pressure on the financials of the corporation, but also there is the pressure to go green.

As our short-term objectives evolve with Whole Foods Market and Trader Joe’s, it is important to identify and clearly state our objectives the long run.

The Whole Foods (WF) annual report for 2010 states “Our growth strategy is to expand primarily through new store openings. We have a disciplined, opportunistic real estate strategy, opening stores in existing trade areas as well as new areas, including international locations. Our new stores typically are located on premium real estate sites and range in size between 35,000 and 50,000 square feet which we believe is appropriate in most circumstances to maximize return on invested capital and Economic Value Added (“EVA®”). Our growth strategy includes opening new stores in existing and new areas and operating those stores successfully.” (Flanagan, G. 2010). This means they are growing and spreading their wings out into a large variety of regions. The report also stated in order to meet those goals “many of our competitors went back and forth on their pricing strategies, we stayed true to our goal of offering a clear value choice in every department through compelling prices on known value items, as well as targeted pricing and promotional strategies” (Flanagan, G. 2010).

As with other superstores, Whole Foods offers a variety of products to their customers. These products include organic and natural foods of all sorts, body care items, and household care items (“Grocery”, n.d.). As with other grocery stores, these products are organized based on the category they fall into, as well as if they fit a certain dietary requirement (e.g. dairy, meat, cleaning products, vegan, gluten-free, etc.). The output efficiency is measured as with most companies by the profit brought in by each division. This past year (2013), sales improved to $1.29B from $1.17B in 2012, net profit improved from $466K to $551K with the net profit ratio improving from 3.98% to 4.26% (Yahoo! Finance, 2014). Additionally, Whole Foods’ return on assets improved to 4.26% from 3.98% in 2012 (Yahoo! Finance, 2014). All of these numbers show that Whole Foods is capitalizing on its momentum and continuing the success they’ve had in previous years. Another performance

Since going public in 1991, Whole Foods has focused on acquiring other small owner-managed natural and organic food stores as well as opening new stores of their own. However in 2002-2006, they decided that instead of making acquisitions, Whole Foods growth strategy would be based on opening new stores. Whole Foods chooses upscale, urban metropolitan areas to place their stores. These locations are high traffic shopping locations, some are freestanding, some are in strip centers, and some are in high-density mixed-use projects. By the end of 1991 fiscal year Whole Foods had 10 stores and by the end of 2007 they had 276 stores. By 2008, Whole Foods had stores in 36 states.

As of September 2015 Whole Foods Incorporated had 431 stores in the United States, Britain and Scotland. Over the years since its inception Whole Foods Incorporated has grown steadily recording high revenues that have made it to be recognized as a Fortune 500 company. It has accomplished this by sticking to its original mission of retailing organic foods in a market where other retail stores mainly retail processed foods that are high in calories and hydrogenated fats. During the 2008 recession, revenues in Whole Foods Inc. dropped as this company struggled to meet its operation costs with a receding number of shoppers, this caused the company to close some of its stores in Britain for failing to meet is profitability targets (Market, 2008).

The company’s greatest goal is to provide customers with food that is free of preservatives, oil, sugar and other ingredients that are often found in processed foods. Whole Foods can also attribute much of its success to strategic acquisitions. Whole Foods bought a lot of companies and we went into cities where we would be successful. Such acquisitions included companies like North Carolina-based Wellspring Grocery, Massachusetts-based Nature’s Heartland and Boulder-based Wild Oats Market. The biggest challenge Whole Foods faces in the future is to continue innovating ahead of the competition. (Hendee, N.d.) Although contrary to the previous growth strategy this shows that Whole Foods is not subject to maintain the new store openings rather than acquisition idea. This option is available and necessary for different regions.

Whole Foods' utilizes a differentiated strategy, focused on organic and natural foods. This distinguishes them from mainstream grocery competitors, and puts them into competition with other specialized grocery outlets (Urani, 2008). This differentiation, combined with more traditional grocery industry size and operations, gives the company an advantage over most of its competitors.

Marketed as ‘America’s healthiest grocery store’ the company has successfully grown to 408 stores across the world with sales of $14 billion in 2014 (Whole Foods Market, 2015). The firm is positioned as an upmarket grocery due to the emphasis on natural, organic origins, and as a result are able to charge a premium for their products. Through efficiently running its operations and stores, Whole Foods are able to maintain healthy 4.02% profit margins (Financial Times, 2015) and operating margins well above the American grocery store industry average at 6.58% (Bloomberg, 2015). Looking at 2015’s quarter 1 figures it is clear to see that Whole Foods have had a hugely successful year with sales of $4.7 billion, up 10% from the same period last year. Furthermore, they opened 9 new stores and have signed a further 11 new leases.

Whole Foods Market has expanded by a mixture of opening its own new stores and acquiring already existing stores. Today WFM does not follow this strategy, instead their motivation is to open its own large stores. This is due to noticeable sales differences in larger stores as opposed to smaller stores. WFM locates these newer stores in upscale areas of urban metropolitan centers and high-traffic shopping locations. Not all WFMs are isolated structures; some are located in strip malls. WFM offers a larger selection of natural and organic foods than any other grocery store. WFMs marketing expenditure is extremely small. They spend a measly 0.5% of their revenues on advertising. Their chief marketing strategy relies on word-of-mouth. WFM strives to meet or exceed customer expectations. This is so customers receive competent, knowledgeable, and friendly service and become advocates of WFM. The employees here have a decentralized team approach for store operations. This is so some personnel, merchandising, and operating

Whole Foods Market began in 1970 as a local supermarket. Over the past 31 years, Whole Foods Market has grown from a single store in Austin, Texas, to becoming one of the worldwide leaders in providing consumers with natural and organic foods. They have grown to over 300 stores in both North America and the United Kingdom. (Whole Foods Market, Inc., 2011) This report examines the chief elements of the strategy that Whole Foods Market has put into place. Also, it uses past financial data to provide an assessment of the condition of the company going forward. Those assessments include recommendations of future actions, along with concerns I have about the way the company is currently operating and some difficulties that may be on the way.