Competitive Analysis of Whole Foods, Inc.

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Executive Summary

• Whole Foods Market, Inc.
• 25 Years Of Double Digit Revenue Growth
• 4.7B Organic Supermarket Industry Leader
• Whole Foods Current Strategy
• Expand Through New Store Openings
• Achieve 12 Billion In Sales By 2010

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Executive Summary

• Competitive Strategy Analysis
• Supplier Power Dominates This Industry
• Current Strategy Lacks Aggressiveness
• Recommended Strategy
• Establish Partnerships With Traditional
  Supermarkets
• Achieve National Brand Equity

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Overview

• Porters Five Forces Analysis
• SWOT Analysis of Whole Foods
• Recommended Strategy
• Questions/Discussion

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Market Definition

• Market History
• Natural And Organic Food Industry Began About 30
  Years Ago
• Whole Foods Market Is A Founding Firm
• USDA Established The Organic Rule In 2002

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Market Definition

• All Products Sold As Organic Must Now Meet The
  Requirements Of The USDA Organic Rule
• Approximately 13 Billion In Sales In 2005

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Internal Rivalry

• Threat To Profits High
• Sources Of Internal Rivalry
• Many Sellers In The Market
• Differing Cost Structures
• Strong Exit Barriers

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Internal Rivalry

• Differing Cost Structures
• Consider A Wal-Mart Supercenter
• 100,000 Square Feet
• Average Supermarket Only 35,000 Square Feet
• Significant Economies Of Scale Difference And
  Wal-Mart Continually Drives Down Prices
• Strong Exit Barriers
• High Investment In Property, Distribution And
  Inventories

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Entry

• Threat to Profits Medium
• Originally, Health Food
• Stores Were Small,
• Expensive,
• And Unpredictable.
• Some Health Stores Grew Into Supermarkets
• Sun Harvest
• Whole Foods Market
• Some Existing Supermarkets Re-Branded
• Wegmanns
• HEB Central Market

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Segment Entry Types

• Re-branded Supermarkets
• H.E.B. (Texas) Created Central Market
• Wegmans (New York) Upgraded Locations
• New Supermarket Entrants
• Growing Health Food Stores (GNC)
• New Firms

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Entrant Comparison
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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 Firms

Whos Next?
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Substitutes And Complements

• Complements
• Health Industry
• Health Insurance Companies
• Health Care Specialists
• Fitness Centers
• Wellness Programs

• Substitutes
• Threat To Profits Medium
• Health Food Stores
• Traditional Supermarkets
• Supercenters

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Supplier Power

• Threat to Profits High
• Local Growers, Independent And Family Farmers,
  Large Corporate Farms, Co-ops And Food Brokers
• Organic Supply Chain Underdeveloped
• Growing Number Of Organic Food Grocers

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Buyer Power

• Threat To Profits Medium To High
• Buyers Have Options!
• Price
• Convenience
• Varying Levels Of Health Sensitivity
• Mixed Consumer Messages

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Porters FiveForces Summary
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Whole Foods, Whole People, Whole Planet
Strengths

• Corporate Culture
• Customer Experience
• Perishables
• Hip Image
• Double Digit Growth
• Largest Selection

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Strengths

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Whole Financing!
Strengths

• Strong Cash Flow And Stock Position Provide
  Capital For Growth In The Most Highly Desired
  Locations
• 4.7 Billion Dollar Revenues
• Revenue Growth
• 21.6 Percent From 2004 To 2005
• 15.8 Percent From 2005 To 2006
• Returning Invested Capital (ROIC) 37
• Capitalization Increased To 6.8 Billion 6th On
  The List Of All Grocery Chains

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Weaknesses

• Whole Paycheck
• Whole Planet? Weak International Operations
• Low Employee Efficiency
• Revenue per Employee 138K versus Industry
  Average of 309K

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Opportunities

• Market Leadership in High Demand Segment
• 2002 USDA Organic Rule True Differentiation
• Organic and Natural Food Industry Focus on
  Consumer Education
• Media Coverage
• Health benefits of organic foods
• Suspicious of contaminants (e.g. hormones,
  antibiotics, etc.)

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Opportunities

• Private Label Brands
• Whole-X, Where X Kids, Ranch, Fields, Catch,
  Creamery, Diary, Treat
• Growth Of These Brands Is High Due To Lower Price
  Versus Contemporary Organic Brands
• Potential To Sell These Products In Traditional
  Supermarkets

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Threats

• Increased Competition
• Re-branding Existing Supermarkets
• Wal-Mart
• Changes in Government Regulations
• Changes in Economic Conditions
• Impact of Consumer Spending

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CorporateStrategy

• Whole Foods Current Strategy
• Expand Through New Store Openings
• Build Versus Buy New Stores
• Customized Stores To Local Preferences
• Open To Acquisition Opportunities
• Grow Store Space At A Controllable Rate Of 14
• Preserve Corporate Culture
• Achieve 12B In Sales By 2010

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Medium TermStrategy

• Coordinated Campaigns To Enter New Markets
• Prior To Store Opening, Establish Relationships
  With
• Traditional Supermarkets Willing To Sell
  Whole-X Products
• Local Organic Suppliers And Growers
• Aggressive Advertising Upon Store Launch
• Emphasize Whole Foods, Whole People, Whole
  Planet

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Long TermStrategy

• Build National Brand Equity
• Extend Partner Relationships Into Current Markets
• Increase Advertising Budget From 0.4 To The
  Industry Average Of 1.5
• Focus On Building Brand Identity With Organics
• When Consumers Think Organic, They Think Whole
  Foods
• Shed The Whole Paycheck Image

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Questions Discussion