Whole Foods Company’s Environment and Strategy

Introduction

Strategic management entails intended and emergent initiatives put in place by an organization’s manager on behalf of the investors, involving proper resource planning with an aim of enhancing the organization’s performance in the context of the external environment.

Analysis of the organization’s external environment

The enactment of the Organic Food Production Act in 1990 led to the setting of national standards for organic products in the United States. The 2002 regulation to enforce labelling to eliminate inconsistencies on what is nationally referred to as ‘organic’ boosted the Whole Foods standing in the market. With the growing demand in non-organic foods, labelling of the packages acted as a marketing strategy because consumers believed in the safety of organic foods and supported the environment-friendly practices employed in farming (Karin 2002, p. 1). In addition, certification of Whole Foods in 2003 by quality assurance international boosted its popularity and acceptance in the market arena.

According to Karin (2002, p. 2), competition from the main supermarket chains that stocked organic foods in bulk and wide array of a variety stalled the growth of whole foods retailers. In addition, the supermarkets had special sections for organic foods considered as non-perishable items in their stores. In 2007, organizations like Kroger and Publix among others had sections for the production of fresh fruits and vegetables. In addition, the supermarkets stocked organic meat (beef and chicken) in most of their outlets. This was a big blow to Whole Foods, which could not find a sufficient supply of organic beef and chicken to stock its retail stores.

Increased demand for organic foods prompted the expansion of supermarkets and retailer outlet’s offerings and selection. Supermarkets interest in the trade of organic foods increased because of annual growth of consumer demand that translated into a ready market for organic products. On the other hand, retail sales were very poor because more consumers preferred eating in hotels instead of cooking at home (Hollie 2002, p. 9). High demand for the organic foods stiffened price competition between supermarkets, thus leading to a drop in the profit margins of the groceries.

Other factors that influenced the growth of the sale of organic foods include the population’s adoption of healthier eating patterns because of enlightenment about proper diet and nutrition. The aged and the rich class were interested in foods that would sustain their health (Hollie 2002, p. 10). Consumer concerns about the safety and health of foods because of the awareness of the presence of toxic and genetically engineered ingredients played to the favour of whole foods that grew their food under proper agriculturally controlled conditions.

The population’s belief that organic farming helped in the sustenance of a green environment worked in favour of Whole Foods (Hollie 2002, p. 10). Several studies at the University of Michigan and the University of Illinois confirmed that organic farming enriched the soil, maintained a good water ecosystem, and promoted the development of good agricultural practices that affect the environment positively. A study of population consumption trends indicated that there was an increase in consumer interest in organic foods from 54% in 2004 to 65% in 2007. The increase in demand in organic foods was associated with avoidance of pesticides, freshness, and health. According to the study, consumers were interested in foods free from genetic modification. The main obstacle to the use of organic foods by the respondents was high prices, availability, and interest in non-organic brands.

Resource and competitive position of Whole Foods

According to Hollie (2002, p. 10), the organization’s slogan that was developed in 1997, “Whole Foods, Whole People, Whole Planet” fully explains its objectives in the market. The organization’s main objective is supporting the well-being and healing of the customers, staff, and the environment. The strategic management to the expansion of Whole Foods was through opening new stores and purchasing well-managed outlets that were in strategic places Because of the difficulty encountered in finding strategically located chain stores, the organization’s management chose to initiate the growth of whole foods through opening 10 to 15 large stores operating on the scale of standard supermarkets in strategic locations annually.

In 2007, Whole Foods purchased its main competitor in natural and organic foods merchandise for $700 million (the Wild Oats). The Wild Oats market had 109 chain stores located in 23 states. Although the federal trade commission contested the step of Whole Foods acquiring Wild Oats basing its argument on the fact that it was going to weaken competition, the United States district court confirmed the acquisition. The process of acquiring wild oats was completed in 2007, opening up 15 new markets for Whole Foods and further spreading its chain stores into five new states. Through proper management strategy to reduce the net purchase price for the new stores, Whole Foods sold some of its newly acquired stores to Smart and Final Food Retailer in Los Angeles. After reviewing its marketing and brand strategy, Whole Foods management chose to close nine of the newly acquired stores considered to be out of the organization’s brand strategy.

According to the organizations chief executive officer, expansion of Whole Foods market would add its bargaining power with the suppliers, enhance proper utilization of the company’s resources, and reduce the company’s expenses. The company employed a price-cutting strategy in most of the items stocked in the Wild Oats stores. This led to a rapid improvement in the sales volume in the new stores in less than three months.

The Whole Foods stores format and location led to the generation of more than $32 million on an annual basis. In addition to opening new stores annually, the company relocated its small stores to strategic locations in consideration of size, visibility, and availability of parking space (Marilyn 2002, p. 3). Before opening a new store, the management analyzed the potential of the target market using indicators like education, population density, and economic status in the area of interest. The management required that the sites had to be promising in terms of returns. In addition, the management took the time to scrutinize other overriding factors that could influence the market, and the newly acquired site was opened after a period of one to two years.

Another strategy employed by Whole Foods to exploit the market to the maximum is stocking a variety of natural and organic products in its stores. The organization’s product line was made up of 30,000 varieties of food and non-food items. In 2007, Whole Foods was the main seller of organic foods in the United States. Growing organic foods is a bit expensive. Considering the cost incurred in growing the organic foods, Whole Foods sold their products at higher prices than supermarkets. The media and price-sensitive customers considered Whole Foods to be extorting consumers. In addition, the exotic products in their stock were very expensive (Marilyn 2002, p. 3). This was associated with the safety of the products as well as the organization’s belief that customers who were willing to invest in their health should be willing to pay more. The organization’s management was thus targeting a new crop of customers.

Whole Foods generic strategy

To achieve a competitive advantage over the supermarkets stocking natural and organic products, Whole Food retailers employed strategies like providing objective information on nutritional health as well as books related to proper nutrition and health care. In addition, some stores offered cooking and nutrition lessons to their clients. In stores where the major products were perishables, the company employed personnel with the capacity to handle the products creatively. Whole Foods management emphasized on perishables like fruits and vegetables, meat, and baked foods because they believed that it attracted more customers and made them different from supermarkets.

Whole Foods management customized the store layout in each site to express the product mix for the target population. This was aimed at creating an inviting and interactive shopping atmosphere in the stores. The attractive display of products convinced the management that it attracted more customers. For instance, in Central Texas, the Austin store was a landmark and a major tourist destination. The store had a village-style layout, several restaurants, and a juice bar. Whole Foods used its merchandising and display as a marketing strategy, winning the hearts of merchandising experts and many customers through its presentation. To maintain creativity in the store’s layouts, the management incorporates ideas from its various stores to come up with an exemplary unique format. The company’s merchandising skills have been critical in attracting customers to come back for exciting experiences. In 2008, Whole Foods sales average was more than $800, a figure double the sales at Kroger and Safeway.

A Sustainable Competitive Advantage Strategy (2012 to 2017)

Achievement of a sustainable competitive advantage forms the basis of a long-term success in an organization. According to Varadarajan and Jayachandran (1999, p. 139), a good marketing strategy in an organization is based on understanding the resources and behaviors that promote the achievement of sustainability in an organization. Bharadwaj, Varadarajan and Fahy (1993, p. 140) assert that an organization can realize competitive advantage through the use of a strategy that is not used by its competitors and through good execution of the commonly used strategy.

The organization will implement a five-year strategy that aims at achieving a sustainable competitive advantage. This will include concentrating on specialization of suppliers to meet the various consumer demands in the market. The organization will strive toward creating a unique brand of merchandise to create a visible difference from the competitors to the consumers. According to Alderson (1965, p. 35), this achievable through factors like reduction of prices, innovation, and improvement of products, and use of appealing adverts. The organization’s management will creatively bring out a perceivable difference between its products and those of the competitors through the use of attractive packages and lower prices because of the availability of professional designers in the organization’s staff. In addition, the organization’s large resource base will be used as a levelling mechanism in order to fix retail prices slightly lower than those of competitors. Through the use of the professional management, the organization will carry out comparative studies to be conversant with the market (Oliver 1997, p. 700). This will enable valid prediction of competitors’ actions in the market. The information will be used the strategic management of the resources available in the organizations to exploit the competitors gaps and voids and capitalize on them.

The organization will approach the need for creation of a competitive advantage on external focus. Basing a competitive strategy on the organization’s resources without considering what the competitors are doing can lead to huge losses if the strategy does not capture the important market factors. A strategy focusing on competitors triggers creativity through enabling organizations to use the original idea to come up with unique products and designs. Product improvement gives organization’s a competitive advantage in the market. Sustainability of the advantage is achieved if it gives added value to the clients and if it is not duplicated by the competitors. The organization will initiate efforts to get a clear understanding of customer needs so as to create business friendly relationships. According to Treacy and Wiersema (1995, p. 35), the strategy has been employed successfully in companies like Home Depot and Nordstorm.

The organization will also invest in producing items specific to the organization. For example, opening a bakery center that will bake and pack the products in packages branded with the organization’s name. This will make the products rare, unable to be imitated and substituted. Baked products will be of top quality, available only in the organization. According to Dierickx and Cool (1989, p. 1508), resources that are available only in their place of production are bound to the organization and limit exposure to competition.

According to Prahalad and Hamel (1990, p. 82), an organization’s core competencies are realized if there is a good combination of resources and skills, which gives it a market valuable capability. For instance, in service industries asset complexity, specialization, and innovation is critical in the marketing of services if competitive advantage is to be realized (Bharadwaj, Varadarajan & Fahy 1993, p. 92). The organization will also use external intangible resources in adding value to the operations of the organization as well as the sustainability of the competitive advantage. Relational assets will be used to reflect on the relationships between its customers and members of the staff. Examples of resources to be harnessed in this context include brand equity and customer relations to enhance the creation of customized products. On the other hand, intellectual assets entail the information available to the staff of the organization on special customer needs and preferences. The organization will use relational and intellectual needs to create humble working relations with the customers. In the assessment of the organization’s progress toward the achievement of a competitive advantage, customer, and competitor perspectives will be adopted. The indicators of the study will include customer satisfaction and loyalty balance. The organization will use differentiation advantages and segment differences in the performance evaluation.

List of References

Alderson, W 1965, Dynamic marketing behaviour: a functionalist theory of marketing, R.D. Irwin, Homeland.

Bharadwaj, G, Varadarajan, P & Fahy, J 1993, Sustainable competitive advantage in service industries: a conceptual model and research propositions, Journal of Marketing,vol. 57, no. 4, pp. 83-99.

Dierickx, I & Cool, K 1989, Asset stock accumulation and sustainability of competitive advantage, Management Science, 35,1504-1511.

Hollie, S 2002, Retail savvy whole foods opens in Canada, National Post, vol. 6, pp. 9-10.

Karin, S 2002, Texas-based whole foods market makes changes to Cary, N.C., Grocery Store, news and observer. Web.

Marilyn, M 2002, Whole foods markets: Austin, Texas Green grocer relishes atypical sales, Investors Businesss Daily. Web.

Oliver, C 1997, Sustainable competitive advantage: combining institutional and resource-based views, Strategic Management Journal, vol.18, pp. 697-713.

Prahalad, C & Hamel, G 1990, The core competence of the corporation, Harvard Business Review, vol. 68, pp. 79-91.

Treacy, M & Wiersema, F 1995, The discipline of market leaders, Addison-Wesley, New York.

Varadarajan, P & Jayachandran, S 1999, Marketing strategy: an assessment of the state of the filed and outlook, Journal of the Academy of Marketing Science, vol. 27, no. 2, pp. 120-143.