Strategic Management

1
Strategic Management
Jorge Mellado Alan Bell Jose Rodriguez James Le

• Human beings, once their need for food and
  safety was met, would aspire to fulfill their
  needs for belonging, community and beauty.

2
The Company

• Largest specialist natural foods chain
• 10 share of the natural foods market
• 144 stores in the US and 1 store in Canada
• Stores range between 35,000 to 55,000 square feet
• Natural and organic products, 20,000 SKUs
• 66 of total sales were perishable products in
  2003

3
The Company

• Sales in 2003 were 3.1 billion
• Net income of 104 million

4
History The Beginning

• John Mackey and Rene Lawson
• Founded SaferWay
• Austin, Texas. 1978.
• Merged with Clarksville Natural Grocery
• First Whole Foods Market
• 1980
• 12,500 square feet
• 19 employees
• Austin Flood
• Caused 400,000 in damage
• Operations resume 24 days later with help from
  community

5
The History - Expansion

• 1984
• Texas
• Houston
• Dallas
• Started Acquiring Stores in New Regions
• Ft. Lauderdale Bread of Life
• New Orleans Whole Food Company
• Los Angeles Mrs. Goochs
• 2002
• Expansion into Canada
• 2004
• Expansion into United Kingdom

6
Mission and Goals

• Sell the Highest Quality Natural and Organic
  Products Available
• Satisfy and Delight Our Customers
• Support Team Member Excellence and Happiness
• Create Wealth Through Profits Growth
• Care About Our Communities Our Environment

7
Strengths

• One of the biggest ranges in product lines
• Store culture
• Sampling, Prepared foods, colorful gondolas of
  fruits and vegetables
• Fresh Produce accounted for 66 of the chains
  total sales in 2003. (Core Competency)
• Consumers shop often impulse buy while they are
  shopping
• Store Location
• Positioned close current target market

8
Strengths

• National Distribution Network
• Control
• Allows for easy integration with acquired stores
• Store Operations highly Decentralized
• Increase efficiency with Teams
• Low employee turnover
• 60 versus the industry average of 90-100
• Named as one of the best companies to work for by
  Fortune

9
Weaknesses

• Narrow Target Segment
• Currently targeting affluent communities
• Advertising efforts
• Only 5 of the total revenue
• Store Size compared to Traditional Food retailers

10
Opportunities

• Continue pushing private labels
• 14 of sales expected to reach 20-25
• Expanding product lines
• Baby food, soy items, etc.
• Animal compassionate initiatives
• Increasing health concerns Obesity
• Further Global Expansion
• Growing Health Concerns in Europe

11
Threats

• Competition with Larger Retailers
• Costco
• Limited of products at low prices
• Kroger
• Variety in store formats (Super Centers,
  Neighborhood perishable-oriented upscale, food/
  drug combo stores)
• Launched a premium quality natural organic
  products
• Saturation of Health Food Retailers
• Trader Joes
• Tight management philosophy culture of buying
  cheap
• Similar target market

12
Chief Executive Officer

• John Mackey
• Served since 1980 (founding of the company)
• Lead Whole Foods successfully through rapid
  growth strategies
• Maintains the spirit of his original store
• SEC Investigation
• Yahoo Finance

13
Porters Five Forces

• Risk of Entry
• Hard to Penetrate
• Saturated Market
• Several Powerhouses
• Kroger (Ralphs, Food 4 Less)
• Vons
• Gelsons
• High Conversion Costs
• Bargaining Power of Suppliers
• Not an overwhelming force
• Several demand alternatives
• Profits are directly linked to sales by the
  retailer
• Relative ease of switching suppliers

14
Porters Five Forces (cont.)

• Bargaining Power of Buyers
• Huge Amount of Power
• End User dictates profits and selection
• Threat of Substitutes
• Several comparable alternatives
• Forces retailers to differentiate
• Intensity of Rivalry
• Extreme

15
Competitive Advantage

• Initially Strong - Differentiation
• Healthier foods
• Community Involvement
• Environmentally Concerned
• National Distribution Network
• Larger selection
• More Accessible

16
Competitive Advantage

• Becoming Unsustainable
• Saturation
• Health food retailers copying core competencies
• Economy
• Recession Less luxury food purchases

17
Competitive Advantage

• Identify your mission and have a good game plan
• Whole Foods sets out to give customers a unique
  shopping experience
• Whole Foods created a market niche where they
  target the educated and affluent people

18
Competitive Advantage

• Differentiation
• Market Strategy
• Achieving Superior Innovation
• Infrastructure
• Economies of Scale

19
Differentiation

• Whole Foods sets out to be different by being
  environmentally friendly
• Rainforest Alliance Certified
• Environmentally Friendly Equipment

20
Differentiation

• Animal Compassion Foundation
• All Animals were Naturally Fed
• Whole Foods Market has the Highest Meat Standards
  in the Industry.

21
Market Strategy

• Unique customer shopping experience
• User friendly store layouts
• Unique features not found in conventional
  supermarkets

22
Achieving Superior Innovation

• High Tech innovations in the stores
• User Friendly Electronics for better Service
• Convenient and Innovative Parking

23
Infrastructure

• 270 Store Locations
• Whole Foods Market Subsidiaries

24
Economies of Scale

• Whole Foods Market buys from local farms to
  reduce transportation costs
• Local Producer Loan Program
• Specialization of Organic food

25
Technology Paradigm Shift

• Motto Whole Foods, Whole People, Whole Planet
• Use green energy as the answer for energy crisis
  and environmental friendly
• From biomass, geothermal, small hydro, solar, and
  wind sources generated 463.1 million kilowatts
  hours for Whole Foods Markets
• Whole Foods Market Berkeley
  solar panels

26
Psychology Paradigm Shift

• Change consumer shopping behavior from general
  food to organic healthy food
• Well educated and health conscious consumers
• Consumer trend moves toward high quality natural
  and healthy food
• no artificial flavors, sweeteners, colors,
  preservatives, hydrogenated fats
• Whole Foods Market is the answer

27
Globalization

• 189 stores in North America and
• Five Fresh Wild shops in the United Kingdom
• Realizing cost economies from economies of scale
• Purchasing power over contracting farms
• Low cost pressure
• Store-based program

28
Globalization

• Low pressure for local responsiveness
• Satisfy different customer tastes and preferences
• Similar infrastructure
• Wholly owned subsidiaries
• Opened six stores in Canada
• Acquired Fresh Wild shops in UK
• Tight control over daily operations abroad

29
Corporate Level Strategy

• Big emphasis on perishable food products
• This accounted 66 of the companys total sales
  in 2003
• Very profitable department in the store
• The company came up with customers needed
  products
• They were placed in heavily traffic areas
• This boost up sales and increased the number of
  items a customer will buy

30
Corporate Level Strategy

• Making the store more appealing to the customers
• Fresh products displays were improved
• Food sampling was offered throughout the stores
• Creation of its own distribution network
• The company aligned with local smaller suppliers
• Regional mangers have the ability to choose their
  vendors and variety of products

31
Corporate Level Strategy

• Whole Foods creates its own private labels to
  sell in the stores
• Allegro, Whole Foods, 365, Whole Kids and
  Authentic Food Artisan label (AFA)
• Regional managers have the option to put local
  items under these private brands
• By 2003, 14 in sales from private labels
• Expected to reach 25 by 2004

32
Business Ethics

• The company announces a campaign called Animal
  Compassionate Standard
• The company plays a leading role in defining food
  standards
• Placements of signs by checkout areas
• Clear labeling in all the products sold in the
  stores

33
Questions

• Identify the SWOT analysis for Whole Foods.
• What factors make Whole Foods stand above its
  competitors?
• To keep Whole Foods one-step ahead of their
  competitors, what must they constantly do?
• Are Whole Foods strategies for growth
  sustainable?
• Explain the paradigm shift Whole Foods is trying
  to implement. Will other industries follow?