Whole Foods Markets

Abstract

This paper examines the published case study Whole Foods Markets, 2005: Will There Be Enough Organic Food to Satisfy the Growing Demand? (Hitt, Ireland and Hoskisson, 2007, p. C534). Although the published study addresses numerous aspects of Whole Foods Market’s business as a leading international retailer of “natural” organic foods, the analysis provided herein is focused on Whole Foods Market’s ability to meet future growth demands. This paper explores Whole Foods Market’s basic internal environment with subsequent application of Porter’s Five Forces Model of Competition followed by a related Strength-Weakness-Opportunities-Threats (SWOT) breakdown…all used to determine critical market success factors and looming challenges to Whole Foods Market’s strategy formulation.

Case Study: Whole Foods Market, 2005:

Will There Be Enough Food To Satisfy The Growing Demand?

Claiming itself as the “leading retailer of organic foods” Whole Foods Market has staked its claim as the preeminent purveyor of “certified organic” foods with nine major distribution centers and 270 retail locations in North America and the United Kingdom (Whole Foods 1, n.d., para. 9). The aggressive growth strategy that led this small joint venture start-up company to go from 19 employees in 1980 to over 54,000 employees today could be facing greater complexity and challenges as the resource limits of the natural foods market become increasingly strained (Whole Foods 2, n.d., para. 3). To continue such impressive growth, Whole Foods’ strategy must also mitigate the onslaught of new entrants who are directly competing to erode its market share. This competitive environment coupled with product resource limitations and smaller retail outlet expansion opportunities may soon reach critical mass.

Internal Environment

To identify business strategies addressing the concerns in the competitive external markets and to capitalize on potential opportunities, Whole Foods must first consider its own internal core competencies (Hitt, Ireland and Hoskisson, 2007, p. 77). The following is a brief analysis of Whole Foods’ related internal environment.

Tangible Resources

Tangible resources are assets that can be seen and quantified such as financial, organizational, physical and technological resources (Hitt, Ireland and Hoskisson, 2007, p. 79-80).

Financial Resources

With over $7.2 billion in sales, $168 million in earned income and a gross margin of 34.58% over the last 12 months, Whole Foods is a proven and viable business with double-digit growth and sales per square foot reaching $900 and expected sales of over 12 billion by 2010 (MSN Money, 2008, p. 1) and (Nocera, 2006, p. 2). However, the recent acquisition of Wild Oats (a prime North American competitor) and a failing U.S. economy have reduced its dividend returns to less than 2.5% and its stock price is ever plummeting; down by more than 1/3 in the last 6 months. Although the weak dividend may be attributed to acquisition and growth reinvestment, the falling stock price indicates clearly that Whole Foods is not immune to external market forces. Whole Foods’ high-end price/product differentiation strategy is facing a tough challenge as its primary markets tightened their spending habits while looking for the best organic bang for the money. Regardless, the prevailing financial analysts recommend to “hold” Whole Foods’ stock, largely because the company’s growth and earnings estimates are expected to climb higher than its related industry average by more than 5%, or 36.29% respectively by the end of FY09 (MSN Money, 2008, p. 2).

Organizational Resources

Whole Foods uses a flat “grass roots” organizational structure highly dependent on “team members” and associates at the lowest level to conduct daily business to the highest ethical standards. Empowered to sustain operations and meet their immediate customers’ needs, all team members are trained in Whole Foods’ business philosophies and standard practices (Whole Foods 1, n.d., p. 1). Additionally, retail team leaders and all employees following up through the management chain are required to perform periodic audits to ensure compliance regarding adhering to its promise to deliver fresh organic and natural products and the humane treatment of animals where applicable. Whole Foods has also invested in modern information systems which have enabled the company to promote efficient communications (described in more detail below). With a well established and accepted vision, mission and market strategy, Whole Foods’ organization appears cohesive and has maintained its core business focus throughout its remarkable growth and expansion.

Physical Resources

With 270 retail locations each ranging from 45,000 to 75,000 square feet, nine distribution centers, five commissaries, nine regional bake-houses and subsidiaries whose operations encompass coffee production, seafood processing and produce field inspections, Whole Foods has substantial capital investment in plant and property totaling over $1.6 billion (Whole Foods 1, n.d., p. 1) and (MSN Money, 2008, p. 3). Whole Foods also boast a sophisticated distribution system with retail outlets targeting affluent urban areas with higher income and education demographics.

Technical Resources

Whole Foods has made significant investments in technology to support operations and connectivity in all facets of its business units. In 2003, Whole Foods signed a 3-year multi-million dollar contract to upgrade and sustain its telecommunications infrastructure between all production, inspection and retail facilities which included over 18,500 miles of fiber-optic network cable (Internet Retailer, 2003, p. 1). Further, Whole Foods reports substantial investments in alternate energy sources (largely wind-energy credits) and web-based information and data collection capabilities as part of its efforts to inform target consumers of its product offerings, environmental stewardship, ethical business practices, humane treatment of animals and to collect information pertaining to customers’ needs and wants (Whole Foods 4,