Whole Foods Market Company’s Strategic Audit

Abstract

This paper is a strategic audit of Whole Foods Market, right from its inception to 2004 where the case study ends. The first part gives a synoptic overview of the company as presented by Wheelen & Hunger (2010). It is then, followed by a comprehensive analysis of the company’s current situation in terms of financial details and strategic posture. A list of board of directors and top management is also provided. Both external and internal environments of the company are thoroughly analyzed as presented in the case study. The company’s strategic factors are analyzed with priority given to strengths, weaknesses and opportunities. Alternative strategic factors are highlighted as recommendations for the above strategic factors, and modes of implementation elucidated. Finally, the paper reviews evaluation and control of pertinent issues in the case study.

Synopsis

John Mackey cofounded Whole Foods Market that dealt in natural organic foods, in a joint venture with Craig Weller and Mark Skiles of Clarksville Natural Grocery, in 1980 in Austin, Texas (Wheelen & Hunger, 2010, p. 28-1). Driven by the desire to make a revenue of $10 billion with 300+ stores, they embarked on an intense acquisitions and mergers that saw the company grow to 172 stores scattered in the United States, Canada, and the United Kingdom in 2004. Currently, the company has seven-member board of directors and five top management officials with Mackey as the chairperson and CEO respectively (Wheelen & Hunger, 2010, 28-2).

The company has been very successful in its operations since its inception. With a philosophy that dictates strict adherence to quality products, good ethical practice, and holistic harmony with the planet, Whole Foods has built an elitist reputation that has made it increase its earning and occupy the number one position of the organic food chains in the world (Wheelen & Hunger, 2010, p. 28-4). Consequently, it has beaten its competitors Trader Joe’s Company and Wild Oats Market in its market share and profits. Its good public image is further enhanced by the conducive work environment it creates to its workers that has made it appear in the Fortune magazine as one of the “100 Best Companies to Work for in America” (Wheelen & Hunger, 2010, p. 28-3).

Current Situation

Whole Foods Market has been earning profits in its fiscal years since 2000, hence has provided job security to its workforce to lay the foundation for the future growth. Over the five years, from 2000-2004, it experienced an 87% growth in sales where sales reached $3.6 billion in 2004. This growth is considered impressive owing to the negative economic environment and recession in the US (Wheelen & Hunger, 2010, p.28-8). Its exponential expansion rate is given as the reason for its growth in net income in 2002 (24.47%), 2003 (22.7%), and 2004 (27.94%).

Reviewing the company’s performance history of stock since its IPO reveals that the trend is likely to maintain its upward growth. The 10-year price trend showed it growing from $10 per share to over $100 per share, which is an increase of over 1000%. The company’s share price of $136 with 65.3 million shares gave it an outstanding market valuation of 48.8 billion (Wheelen & Hunger, 29010, p. 28-9). This trend is likely to continue with the company realizing more profits in future.

The company’s is committed to providing excellent services to and high quality products to its customers, as well as a quality work environment for its staff. This is “reflected in its mission statement, which is to be selective in what it sells, dedicated to stringent quality standards, and remaining committed to sustainable agriculture” (Wheelen & Hunger, 2010, p. 28-3). Accordingly, they believe in a virtuous cycle of food chain, human beings, and the Mother Earth; summarized as: “Whole Foods, Whole People, Whole Planet” (Wheelen & Hunger, 2010, p. 28-8). It is therefore, the policy of Whole Foods Market to stick to providing high quality products and services.

John Mackey, Whole Foods’ current CEO, has employed acquisition and merger strategies to expand the market share for it was only through this that the company could meet its objectives as a profitable natural organic food chain ranked number one in the world. These acquisitions added to the company’s eight distribution centers, seven regional bake houses, and four commissaries giving it a total of 172 stores scattered in the US, the UK, and Canada, with an average store size of 32,000 square feet (Wheelen & Hunter, 2010, p. 28-1).

Strategic Managers

Whole Foods’ has seven board of director with a tenure of twelve-year limit. They are composed of high learned and experienced Americans, most of them being entrepreneurs. They include: “John Mackey as the Chairman and CEO, David Dupree, Dr. John Elstrott, Gabrielle Greene, Linda Mason, Morris Siegel, and Dr. Ralph Sorenson” (Wheelen & Hunger, 2010, p 28-2). Highly resourceful Americans, with expertise and experience, also occupy the company’s top management. They are Glenda Flanagan, A.C. Galloxs, Walter Robb, and James Sud (Wheelen & Hunger, 2010, p. 28-2).

External Environment

Dealing in natural organic foods, Whole Foods faced a major threat the scarcity of organic products across the US. Organic crops yielded a lower quantity of input and were rarer, only accounting for 3% of US farmland usage (Wheelen & Hunger, 2010, p. 28-12). The government imposed strict requirements that were costly, time-consuming, and labor intensive. Moreover, the threat of competition from the mainstream supermarkets getting into organic foods business could eat into its market and make the demand outreach the limited supply (Wheelen & Hunger, 2010, 28-12). This was a serious threat that would affect the company’s earnings.

The sociocultural environment posed many opportunities for Whole Foods Market to grow and increase its earning. The exponential growth of the organic food market in the US and Europe presented Whole Foods with growth opportunities. People became conscious of the health risks posed by non-organic foods hence abandoned them for organic food. Traditional grocery products were also abandoned for organic foods. Consequently, the sales for organic products grew and were expected to continue at the rate of 8 – 10% per year (Wheelen & Hunger, 2010, 28-7). The second opportunity presented by the market was the shift in the demographics of aging Baby Boomer generation, who together with urban singles, had extra disposable income as their children grew up and started their families (Wheelen & Hunger, 2010, p. 28-6). This shift expanded the luxury store group while slowing the growth in the discount retail market.

There were several competitors in the industry such as Trader Joe’s Company, Wild Oats Market, and mainstream supermarkets that dealt in organic products. They all scrambled for the lucrative market of organic products and given that there was limited threat to entry, thus mainstream supermarkets found it easy to enter the market and compete, further intensifying rivalry. Whole Foods did not have powerful suppliers, but it did have powerful buyers: the urban affluent with college degree; who were scarce and posed a big threat for the company’s future earnings (Wheelen & Hunger, 2010, p. 28-12).

Internal Environment

The corporate structure of Whole Foods Market consists of seven board members and five top management organ headed by a CEO, who is also the chairperson of the board (Wheelen & Hunger, 2010, p.28-2). The two institutions run the entire chain with the top management engaging in day-to-day management of the company. The organizational structure is perhaps a professional bureaucracy, which combines standardization with decentralization. Given that local stores are independent of what they do, the company uses management by objective where each team leader (manager) and his team (workers) decide on how to operate (Wheelen & Hunger, 2010, p. 28-3).

Whole Foods Market has a variety of resources that it has used over the period get to it position as the best organic and natural food company in the United States. Mackey the CEO has entrepreneurial skills that has taken the company this far. He was driven by a lofty desire to see his company make a revenue of $10 billion with 300 stores by the year 2010. Moreover, the conglomeration of think-tanks in the company’s board of directors such as David W. Dupree, Dr. John B. Elstrott, Gabrielle E. Greene, Linda A. Mason, among others, is indicative of the rarefied competence with which the company operates (Wheelen & Hunger, 2010, p. 28-2).

The acquisition of Pigeon Cove seafood processing facility by the Whole Foods Market was a great achievement, and a product of wise management. Located in Gloucester, Massachusetts, Pigeon Cove was a waterfront seafood facility that gave Whole Foods Market the exclusive right as the first and the only organic and natural food company to own and operate such a facility in the United States (Wheelen & Hunger, 2010, p. 28-2). Whole Foods’ choice for location was strategic and it ensured that many people have access to the stores, which were located primarily in cities and chosen for their large space and human traffic. In fact, an estimated 88% of the company’s stores were in the top 50 statistical metropolitan areas (Wheelen & Hunger, 2010, p. 28-5).

Another equally important resource for Whole Foods Market is its elitist reputation that endears it to its clients. The company’s philosophy clearly spells out its vision and mission that advocates dedication to stringent quality standards and remaining committed to sustainable agriculture. By sticking to high quality products at the heights of competition, customers will always remain loyal, more so when they are delighted in every interaction (Wheelen & Hunger, 2010, p. 28-3). Lastly, the free working environment created by the company that has made it one of the 100 best companies to work for in the US according to Fortune publication, boosts its public image. Whole Foods Market endeavored to maintain its reputation as the world’s number one natural food chain in the highly competitive natural food industry (Wheelen & Hunger, 2010, p. 28-4).

Capabilities

Whole Foods has excellent strategies of locating its markets, a reflection of its capabilities. It identified the European market as gushing with organic and natural food consumers and took it as an opportunity for expansion. Using demographics as its target tool, the company targeted locations with 40% or more consumers with college degrees for they were assumed to be aware of nutritional issues (Wheelen & Hunger, 2010, p. 28-1). It used a specific formula based on several metrics, which included income, education, population density, et cetera, to choose its store sites, especially in affluent metropolitan areas (Wheelen & Hunger, 2010, p. 28-5).

Whole Foods’ incorporation of best practices of each location back into the chain is another reflection of its capabilities. Due to this strategy, the company’s stores in different locations have dry goods and perishable produce such as meat, fish, and prepared foods. The management ensured that the lessons learned at a given location were incorporated in all locations, hence making the chain to optimize its effectiveness and efficiency when offering a product line that customers like. With the knowledge that the best tasting and most nutritious food was found in its natural and purest state, the management carefully avoided any adulteration, whatsoever, of its product for it would interfere with the company’s philosophy (Wheelen & Hunger, 2010, 28-3). These skillful strategies eventually ensured that that company was diverse in its line of products offered to customers

Realizing that it lacked nutritional brands with a national identity, Whole Foods used its skillful powers to enter the private-label product business. Accordingly,” they had three private-label product lines: 365 Everyday Value, Whole Kids Organic, and 365 Organic Everyday Value; with a fourth program called authentic Food Artisan” (Wheelen & Hunger, 2010, p. 28-7). The turnover of its fresh produce in these stores was rather higher than conventional stores of fresh produce. This capability helped the company to have high sales volumes that translated into profits (Wheelen & Hunger, 2010, p. 28-9).

Core Competencies

The company’s strict policy on high quality standards of its products is one of its core competencies. By sticking to its core values, Whole Foods does not just put any product on its shelves for a product has to undergo strict test to determine whether they are “Whole Foods material” as its name depicts (Wheelen & Hunger, 2010, p. 28-8). The strict adherence to quality standards endears it to consumers and further enhances its reputation. Its competitors such as Trader Joe’s and Wild Oats cannot match these standards and that is why they trail it in terms of sales and market share.

Whole Foods’ ability to incorporate the best practices of each local location into the chain is another core competency that players in the industry lack. Through this practice, the company’s stores expanded the range of their products from dry goods to fresh produce, to prepared foods. This practice was a result of absorbing the lessons learnt at one location by all, thereby enabling the chain to maximize effectiveness and efficiency in the provision of product lines loved by customers (Wheelen & Hunger, 2010, p. 28-3). The advent of working women that created demand for prepared organic foods, for example, prompted Whole Foods to include that program in its stores (Wheelen & Hunger, 2010, p. 28-6).

Whole Foods purchases most of its products from regional and national suppliers, thus allowing it to leverage its size in order to receive discounts and favorable terms with its vendors. In fact, by permitting stores to buy from local producers, Whole Foods ensures that the stores are aligned with local food trends besides being seen as supporting the community (Wheelen & Hunger, 2010, p.28-7). In so doing, the company enhances its reputation and earns customer loyalty.

Analysis of Strategic Factors

Strengths

Whole Foods has an elitist reputation as the world’s number one natural food chain. This reputation has been made by its strict quality standards that earn it customer loyalty and respect. Consequently, the company has recorded high sales volumes and has also expanded its market share compared to its major competitors, Trader Joe’s and Wild Oats Market. Secondly, the company’s use of management by objective strategy has led to independent management of its stores with motivated staff and good “team leader” (manager) (Wheelen & Hunger, 2010, p.28-3). Motivated team members who internalize the company’s core values ensure that objectives of the Whole Foods are met.

Weaknesses

Whole Food’s advertisement strategy is wanting in an industry where competition is rife. Unlike its competitors, the company was involved in minimal advertisement campaign, preferring to use word of mouth from customers and in-store advertising, thus spending a paltry 0.5% of its total sales on advertising in 2004 (Wheelen & Hunger, 2010, p. 28-6). Secondly, the company tended to price its products highly arguing that the location of its stores was on affluent cities (Wheelen & Hunger, 2010, 28-12). High pricing in an industry where consumers go for products of low prices may give the company a backlash in terms of sales volume and market share (Wheelen & Hunger, 2010, p. 28-5).

Strategic Alternatives

The writer would urge the company to continue operating within the boundaries of its core values that yield quality products. It is this strategy that has given it an admirable public image hence more customers. Sticking to high quality products is very important because it distinguishes a company’s product from the less differentiated products of other players in the competitive market. The writer’s justification evolves from the scramble of natural food companies for the lucrative organic food market in America, where only those providing quality products may reap (Wheelen & Hunger, 2010, p. 28-4).

The writer also recommends the company’s management keep using management by objective strategy that has seen it grow its market share. This strategy is inclusive and gives employees a chance to contribute ideas of developing the company. Employees therefore feel as part of the company and work hard to meet the objectives that they have set by themselves.

The writer’s justification for the above recommendation lies on the importance of motivating the workforce. The company should promote ‘team-leaders’ based on only on their sterling current job performances and also on KASOCs (knowledge, ability, skills, and other characteristics) deemed necessary by the company’s strategy (Wheelen & Hunger, 2010, p 303).

The writer recommends that Whole Foods allocate moderate amount for advertising besides using word-of-mouth from customers and in-store advertising. Its broad presence justifies mass media advertising to enable its successes reach all corners of the US, Canada, and the UK given that it is the world’s number on natural organic food chain (Wheelen & Hunger, 2010, p. 28-). Moreover, the heightened competition in the industry calls for steady and massive advertisement to maintain, and possible, expand market share. Regarding high pricing, the writer recommends using price discrimination strategy to maximize sales and scoop the cream of the market. The reason being, not all Whole Foods stores are in affluent areas and therefore avoiding shifting customer loyalties in low income areas the company should charge lower prices.

With regard to the shifting demographics that present opportunity for growth, the writer recommends that Whole Foods embarks on niche marketing and customize its products so as to ensure that every consumer tastes its products. The market is big and competition if rife, and given the homogeneity of the products, such marketing tactics would help it retain its hold in the market. The company should continue sensitizing people on the benefits of organic foods to their health on the health-conscious magazines (Wheelen & Hunger, 2010, p. 28-6). This helps increase the knowledge on healthy eating and creates more demand for Whole Foods’ natural organic products.

Implementation

The primary aim of strategy implementation is to achieve synergy between and among functions and business units. By aligning its business strategies of two or more stores, Whole Foods will get significant advantage through reducing inter-store competition and further develop a coordinated response to its competitors (Wheelen & Hunger, 2010, p. 278). More of 365 Everyday Value, Whole Kids Organic, and 365 Organic Everyday Value, should be expanded for other stores to further achieve economies of scale (Wheelen & Hunger, 2010, p. 28-7).

The company should improve on its marketing strategies in order to thrive in the competitive market of organic foods. The strategy of choosing locations for stores in affluent urban areas should be continued, but other areas with middle income be considered to avoid losing out to the competitors. With the improved technology in the communication sector, the company must design a website to enable its customers make orders online for their convenience.

As an international company, Whole Foods should form international strategic alliances with its foreign stores in Canada and the UK to enable it expand its market share and increase the earnings of its international stores (Wheelen & Hunger, 2010, p. 292). High quality standards should be maintained despite the scarcity of resources in these new joint ventures, for it is a core competency area that buoys the company’s reputation. The R&D department should not relent in ensuring that only quality products are sold and should do more in developing new product lines.

Evaluation and Control

The company needs to develop information systems that will speedily coordinate all the stores and ensure prompt evaluations and control. Such systems should be tailored to evaluate whether location and the size of Whole Foods stores are in line with the design standards; and also for future planning. The companies that Whole Foods acquired to offer private-label products may not share similar philosophy and code of conduct of the company, and therefore managers should instill these values on employees.

Conclusion

Whole Foods Market can be said to have excellent business strategy that has enabled it to operate with success in the organic foods industry. The company’s top management and board of directors are composed of experienced entrepreneurs who have ensured the company’s top position in its business performance in the industry. Additionally, the company’s competitive advantage that lies on adherence to quality products and employees with expertise has given it an elitist reputation that translates to increased earnings and broad market share.

Reference

Wheelen, T. & Hunger, J. (2010). Strategic management and business policy; Achieving sustainability (12th ed.). Upper Saddle River, NJ: Pearson.