2 Whole Foods Current Strategy Executive SummaryWhole Foods Market, Inc.25 Years Of Double Digit Revenue Growth$4.7B Organic Supermarket Industry LeaderWhole Foods Current StrategyExpand Through New Store OpeningsAchieve $12 Billion In Sales By 2010
3 Competitive Strategy Analysis Executive SummaryCompetitive Strategy AnalysisSupplier Power Dominates This IndustryCurrent Strategy Lacks AggressivenessRecommended StrategyEstablish Partnerships With Traditional SupermarketsAchieve National Brand Equity
4 Overview Porter’s Five Forces Analysis SWOT Analysis of Whole Foods Recommended StrategyQuestions/Discussion
5 Market Definition Market History Natural And Organic Food Industry Began About 30 Years AgoWhole Foods Market Is A “Founding Firm”USDA Established The “Organic Rule” In 2002Early adopters were “social-cause” consumers – environmental and animal rights activists – think “hippies chewing on granola”.
6 Market DefinitionAll Products Sold As “Organic” Must Now Meet The Requirements Of The USDA Organic RuleApproximately $13 Billion In Sales In 2005
7 Threat To Profits: High Sources Of Internal Rivalry: Many Sellers In The MarketDiffering Cost StructuresStrong Exit Barriers
8 Differing Cost Structures Internal RivalryDiffering Cost StructuresConsider A Wal-Mart Supercenter:> 100,000 Square FeetAverage Supermarket Only 35,000 Square FeetSignificant Economies Of Scale Difference And Wal-Mart Continually Drives Down PricesStrong Exit BarriersHigh Investment In Property, Distribution And Inventories
9 Entry Threat to Profits: Medium Originally, Health FoodStores Were Small,Expensive,And Unpredictable.Some Health Stores Grew Into Supermarkets:Sun HarvestWhole Foods MarketSome Existing Supermarkets Re-BrandedWegmannsHEB: Central Market
10 New Supermarket Entrants Segment Entry TypesRe-branded SupermarketsH.E.B. (Texas) Created “Central Market”Wegmans (New York) Upgraded LocationsNew Supermarket EntrantsGrowing Health Food Stores (GNC)New FirmsNow that the market segment has incumbents, consumers have developed expectations and brand loyalty.
11 Barrier New Entrant Re-Branded Entrant ComparisonBarrierNew EntrantRe-BrandedEconomies of SalesStrongModerateGovernment ProtectionN/ABrand LoyaltyAccess to Key InputsWeakExperience CurveNetwork ExternalitiesCompetition ExpectationsOverall Threat:LowHighBecause the threat of entry of a new entrant is low, we will be focusing on the entry threat of existing super-market leaders.
12 Most Likely Segment Entrants Based On The Barriers To Entry Analysis, The Most Likely Entrants Into The Organic Segment Of The Supermarket Industry Are Established FirmsWho’s Next?
13 Substitutes And Complements Health IndustryHealth Insurance CompaniesHealth Care SpecialistsFitness CentersWellness ProgramsSubstitutesThreat To Profits: MediumHealth Food StoresTraditional SupermarketsSupercenters
14 Threat to Profits: High Supplier PowerThreat to Profits: HighLocal Growers, Independent And Family Farmers, Large Corporate Farms, Co-ops And Food BrokersOrganic Supply Chain UnderdevelopedGrowing Number Of Organic Food GrocersGives growers all the power, organic chain is underdeveloped, there is not enough capacity. Not enough free range to “meat” demand.
15 Threat To Profits: Medium To High Buyers Have Options! Price Buyer PowerThreat To Profits: Medium To HighBuyers Have Options!PriceConvenienceVarying Levels Of Health SensitivityMixed Consumer MessagesThe buyer has substitutes and options
16 Porter’s Five Forces Summary Threat to Future ProfitsInternal RivalryHighEntryMediumSubstitutes/ComplementsSupplier PowerBuyer PowerMedium to High
18 Whole Foods: Whole Planet: StrengthsWhole Foods:Reputation: Healthy, Local FoodWhole People:Branding For Affluent And Health ConsciousPositive Employee EnvironmentWhole Planet:Environmentalist Reputation Encourages Brand Loyalty, Holds Off Commoditization
19 Whole Financing! Strengths Strong Cash Flow And Stock Position Provide Capital For Growth In The Most Highly Desired Locations4.7 Billion Dollar RevenuesRevenue Growth:21.6 Percent From 2004 To 200515.8 Percent From 2005 To 2006Returning Invested Capital (ROIC): 37%Capitalization Increased To 6.8 Billion: 6th On The List Of All Grocery ChainstBecause of their stock situation low debt and incoming cash, they can afford to enter the best new locations.
20 Whole Planet? Weak International Operations Low Employee Efficiency Weaknesses“Whole Paycheck”Whole Planet? Weak International OperationsLow Employee EfficiencyRevenue per Employee = $138K versus Industry Average of $309KOnly one int. planned – High level of service- happy employees, low efficiency.
21 Market Leadership in High Demand Segment OpportunitiesMarket Leadership in High Demand Segment2002 USDA Organic Rule – True DifferentiationOrganic and Natural Food Industry Focus on Consumer EducationMedia CoverageHealth benefits of organic foodsSuspicious of “contaminants” (e.g. hormones, antibiotics, etc.)
22 Private Label Brands Opportunities “Whole-X”, Where X = Kids, Ranch, Fields, Catch, Creamery, Diary, TreatGrowth Of These Brands Is High Due To Lower Price Versus Contemporary Organic BrandsPotential To Sell These Products In Traditional Supermarkets
23 Increased Competition ThreatsIncreased CompetitionRe-branding Existing SupermarketsWal-MartChanges in Government RegulationsChanges in Economic ConditionsImpact of Consumer Spending
24 Whole Foods’ Current Strategy Corporate StrategyWhole Foods’ Current StrategyExpand Through New Store Openings‘Build’ Versus ‘Buy’ New StoresCustomized Stores To Local PreferencesOpen To Acquisition OpportunitiesGrow Store Space At A “Controllable” Rate Of 14%Preserve Corporate CultureAchieve $12B In Sales By 2010Whole Foods is a well managed company with a strategy in place.Their managers may be to close to their market, unable to see the competitive landscapeStore construction is in pipeline at least through 2008.Will this be enough given the recent changes in the competitive landscape?
25 Coordinated Campaigns To Enter New Markets Medium Term StrategyCoordinated Campaigns To Enter New MarketsPrior To Store Opening, Establish Relationships With:Traditional Supermarkets Willing To Sell “Whole-X” ProductsLocal Organic Suppliers And GrowersAggressive Advertising Upon Store Launch:Emphasize “Whole Foods, Whole People, Whole Planet”
26 Build National Brand Equity Long Term StrategyBuild National Brand EquityExtend Partner Relationships Into Current MarketsIncrease Advertising Budget From 0.4% To The Industry Average Of 1.5%Focus On Building Brand Identity With OrganicsWhen Consumers Think “Organic”, They Think “Whole Foods”Shed The “Whole Paycheck” Image