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MGMT 478 - Whole Foods

Industry and internal analysis Whole Foods
by

Pritesh Patel

on 9 October 2010

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Transcript of MGMT 478 - Whole Foods

competitive
analysis

MGMT 478
Logan Dzingle
Sam Kramer
Chris Kielion
Brian McMurray
Pritesh Patel

November 12, 2009
Introduction
the industry
financial considerations
business
&
corporate
strategy

risks

Differentiate: not immune to price wars
Perceptual
"Food as Theater"
Feel Good
Status
Tangible
Food Quality
Customer Service
Support Community/Region
Target Market - The WORLD
(we all need to eat)

Distinctive Competencies that support strategy
o Supplier relationships
o Employee + Customer relationships
o Private label program

Sustainability
o Private label development
o No intention to compete on lowest prices
o Promote the experience instead, make the world better
Maximum Freedom

Minimum Governance
Provide the best overall shopping value
Shoppers
as
Ambassadors
The Business:
The Mission:
Sell the highest quality foods they can find at the most competitive prices possible
“Whole Foods, Whole People, Whole Planet”
Whole Foods
Whole People
Whole Planet
Obtain products locally and from all over the world, often from small, uniquely dedicated food artisans


Strive to offer the highest quality, least processed, most flavorful and naturally preserved foods


Maintain the strictest quality standards in the industry
Empower employees to make many operational decisions, creating a respectful workplace where team members are highly motivated to succeed


Look for team members who are passionate about food


Decentralized, self-directed team culture
Actively support organic farming on a global basis


Actively involved in communities by supporting food banks, sponsoring neighborhood events, and donating to not for-profit organizations


Whole Planet Foundation
Animal Compassion Foundation
Stakeholders
Core Values
Selling the highest quality natural and organic products available

Satisfying and delighting our customers

Supporting team member happiness and excellence

Creating wealth through profits & growth

Caring about our communities & our environment

Creating ongoing win-win partnerships with our suppliers

Promoting the health of our stakeholders through healthy eating education
Communities
Environment
Shareholders
Team
Members
Animals
Vendors
Customers
industry forces
Total Revenues of $719.5 Billion


Compound Annual Growth Rate of 3% from 2003-2007


Industry Performance to decelerate
Size and Growth
Commodity Based


Organic Food Industry
-Trying to differentiate themselves
- Hard to compete with supermarkets
Differentiation, Importance,
Susceptibility
Importance of product is low when in tough economic times
Some consumers will stick with Organic but consumers on the edge will go towards the lower prices (non-organic)
Capacity vs. Demand
Demand higher than Supply

Industry could suffer without better access to organic ingredients
Many new brands are finding their way to shelves
Organic Stores
Supermarkets
Concentrate on smaller markets
Products have shorter shelf lives
High Production Costs

Lease and supplier obligation
Liquidating non-perishable inventory
Profitability
Proprietary
Knowledge
All decisions are made at the lowest level possible


Non disclosure agreements with suppliers


Protect against competition
Societal and Demographic Trends
Government and Environmental Issues
Technology
USA Population
Growth Since 2004
Primary Goal of Organic Agriculture according to National Organic Standards Board (NOSB)


Organic Foods Production Act in 1990
Paved the way for development of national organic standards

National Organic Program
Online retail services

Science is advancing to increase shelf life and limit the use of chemicals

iPhone/iPod App

RFID @ Whole Foods
Operating Profit Margin
Net Profit Margin
recommendations
Competition: suppliers + customers
Unable to meet customer demand
Buying organic is a luxury
Growth strategy is to increase stores
Internal analysis
fragmentation and consolidation
Even the big chains cater towards unique community needs

Many local and regional food stores
Safeway: Many stores in the western part of the nation + Canada and Mexico

Supervalu: Whole east side of the nation. Every state but Nebraska and Hawaii

Kroger: Many stores in 31 states

Wal-Mart: Everywhere, stores are fairly very similar
Competition Size and Capability
Kroger:
2,500 stores
31 states
24 banners

Safeway:
1,739 stores across the US, Canada and Mexico
22 states
8 banners

Wal-Mart:
Over 2.1 million employees
3,538 stores
53 different brands
15 different countries

Supervalu:
2,500 locations
48 states
17 different banners
Differentiation
safeway:
own organic brand line
Specialty Departments- Deli , Bakery, Floral, Pharmacy and Fuel Stations

Kroger:
12 different store formats: supermarkets, multi-department stores, price-impact warehouse stores, convenience and fine jewelry stores

Walmart: everything including low price organic commodities. One stop shop.

Supervalu:
hard discount stores, price superstores and full-service combination food and drug stores.
In-store pharmacies: 900 locations
Fuel Centers: 120 locations
v
scrutinizes every supplier on how it raises, transports, slaughters and processes animals, and audits suppliers every year.
Suppliers
who has the power?
Whole foods Power: suppliers usually come to Whole Foods with their product and have to compete for shelf space.

Supplier Power: limited (but growing) numbers of organic suppliers- lack of competition
Quality: Must have QUALITY
Price: If similar quality, price comes in to play
Sales: store products are decentralized, products expand based on sale levels.
what determines the power
Who has the power?
What determines the power?
Socially Ethic Organic Shoppers
Wealthy
Liberal
Buyers: Can find products elsewhere
Farmers markets
Commodities
Plant it themselves

Whole Foods: Only major organic only store
WTB
Economy
Competition
Potential threats of new entrants and substitute products
OVer 10,000
Loss of market share
Price wars
Differentiation wars
Little growth until economy picks up
Walmart will figure out a way to do it better
Suppliers increase
Less expensive products
General grociers want more organic

Organic differentiation is becoming more commoditized
suppliers will consolidate

Someone else will enter
More Differentiation
Whole Foods Own Suppliers
Become others
May need to find new ones
Whole Foods Buyers
Anti-corperate
Likely to remain socially ethical
Strengths
Core Competencies
Industry best customer service
Strong local and regional supply chain
Democratic/Conscious Capitalism
Private label program
Organic market leader
Good distribution system
Finest quality of goods
Word of mouth advertising
Value price - private label
Well trained staff with specialized skills
Weaknesses
Premium price
Large perishable inventory
High cost in expansion
Shortage of inventory in certain categories
High inventory cost
Geographic limitation due to target segment
Potential distinctive competencies
Non-Food Product Lines
Produce more nonperishables
Commoditize products
deficiencies in any of the support activities
Quality = Higher Price

Localy Grown ≠ Centralization
Sustainable Competitive Advantage
Highest quality and brand perception in the market of the socially responsible shopper niche
to maintain
Stress the differences in production and why it's important

Continue to Be selective on brand choice and expand the top sellers nationally.
Competitors
Safeway
Walmart
Kroger
Supervalu
Major Buyers
Regionally
Nationally
Change in Buyer/Seller relationships
opportunities
Growing market
Diversifying the customer base
Expand shelf life of products
Marketing
Maintain core values
New Stores
Offer more products
Highly Fragmented
Highly Consolidated
Offer more staple goods
Education
Growing Market
Diversifying the
customer base
EXpand Shelf life
of products
Continue to work with suppliers
Formalize supply chain network
Entry and Exit Barriers
Variety
Demand vs. Suppliers
Whole Foods:
276 stores
39 States
Wild Oats
Full transcript