BELLRINGER

Explain in complete sentences what are economic principles of using natural food

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

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

Overview

• Porter’s Five Forces Analysis

• SWOT Analysis of Whole Foods

• Recommended Strategy

• Questions/Discussion

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

• All Products Sold As “Organic” Must Now Meet The Requirements Of The USDA Organic Rule

• Approximately $13 Billion In Sales In 2005

Market Definition

Internal Rivalry

Threat To Profits: High

Sources Of Internal Rivalry:– Many Sellers In The

Market– Differing Cost Structures– Strong Exit Barriers

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

Internal Rivalry

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

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

Barrier New Entrant Re-Branded

Economies of Sales Strong Moderate

Government Protection N/A N/A

Brand Loyalty Moderate Moderate

Access to Key Inputs Strong Weak

Experience Curve Strong Weak

Network Externalities Strong Moderate

Competition Expectations Strong Moderate

Overall Threat: Low High

Entrant Comparison

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

Who’s Next?Who’s Next?

Substitutes And Complements

Substitutes– Threat To Profits:

Medium– Health Food Stores– Traditional

Supermarkets– Supercenters

Complements– Health Industry– Health Insurance

Companies– Health Care Specialists – Fitness Centers – Wellness Programs

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

Supplier Power

Buyer Power

Threat To Profits: Medium To High Buyers Have Options!

• Price • Convenience• Varying Levels Of Health Sensitivity• Mixed Consumer Messages

Porter’s FiveForces Summary

Porter’s Five Forces Threat to Future Profits

Internal Rivalry High

Entry Medium

Substitutes/Complements Medium

Supplier Power High

Buyer Power Medium to High

Whole Foods, Whole People, Whole Planet

• Corporate Culture

• Customer Experience

• Perishables

• Hip Image

• Double Digit Growth

• Largest Selection

Strengths

Strengths

WholeWhole FoodsFoods:Reputation:

Healthy, Local Food

Whole PeopleWhole People: Branding For Affluent And Health Conscious

Positive Employee Environment

Whole PlanetWhole Planet:Environmentalist Reputation

Encourages Brand Loyalty, Holds Off Commoditization

Whole Financing!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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Strengths

Weaknesses

• “Whole Paycheck”

• Whole Planet? Weak International Operations

• Low Employee Efficiency– Revenue per Employee = $138K versus Industry

Average of $309K

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.)

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

Threats

Increased Competition– Re-branding Existing Supermarkets– Wal-Mart

Changes in Government Regulations

Changes in Economic Conditions– Impact of Consumer Spending

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

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”

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