Executive Summary
Whole Foods has captured a unique market segment that has allowed it to stay competitive in its niche. In this segment, the customers are conscious of their health, are concerned about the environment, and care about how and where their food is produced. However, this means that the grocery stores offer higher-priced items that are not attainable to a broad population. This analysis aims to explore the external environment of Whole Foods and offer strategic solutions for the improvement of the company’s competitive capabilities in light of changing consumer demands.
The analysis captures such strategic analysis tools as SWOT, VRIO framework, PESTLE, and Porter’s Five Forces. The core recommendation is for Whole Foods to continue offering a selection of high-quality and high-priced items while also considering the economy pricing strategy by providing a range of affordable and essential items that have become of great importance in the current climate of shifting customer behaviors (Campbell, 2020).
Introduction to the Company
Whole Foods Market was established in Austin, Texas, as a result of the readiness of the natural foods industry to try the supermarket format. The store under the Whole Foods name opened its doors in 1980 with a staff of only nineteen workers (Owles, 2017). Nevertheless, it was a successful endeavor immediately since there were less than a dozen of organic product supermarkets in the US. Starting in 1984, the company began its expansion out of Austin to capture Houston, Dallas, and New Orleans (Green, 2019).
In 1989, Whole Foods Market proceeded with its expansion to the West Coast and opened a store in Palo Alto, California (Whole Foods Market History, 2020). Today, Whole Foods has 487 stores in the United States, seven in the United Kingdom, and twelve in Canada. In 2017, Whole Foods’ net sales were US$16,030 billion as compared to US$9,006 billion in 2010 (Conway, 2017).
Whole Foods’ strategic objectives include global expansion, leading the food industry, and offering high-quality products and services. Products offered by the company include producing, dairy, meat, prepared foods, bread, pantry, supplements, frozen goods, beverages, seafood, alcoholic drinks, beauty, and florals. It offers delivery services as well as Prime membership through Amazon. The purpose of Whole Foods is “to nourish people and the planet. Quality is a state of mind at Whole Foods Market” (Mission & values, 2020).
The company has established six core values that represent a framework of its culture and the way in which it aspires to do business every day. The first value is that Whole Foods aims to sell the highest-quality natural and organic foods by partnering with farmers and suppliers that meet the company’s standards of quality (Our core values, 2020). Second, high standards of quality are essential to satisfy customer needs and expectations. Third, the company promotes team member growth and happiness to build positive relationships with its personnel. Fourth, In its relationships with suppliers, Whole Foods works on developing win-win partnerships through an interdependent business ecosystem (Our core values, 2020). Fifth, the organization uses them to create capital for company growth and job security. Finally, Whole Foods is dedicated to the community and the environment by supporting local experiences, practicing, and advancing environmental stewardship.
Current Business Scenario
Organizational Design and Lifecycle
Whole Foods Market has a divisional organizational design, within which each division of the company has a functional structure. The four-tier hierarchy of the organizational; structure is represented by four levels, which include the global headquarters, the regional offices, facilities, and stores. The vertical lines of authority imply that the facility managers would report to regional presidents of the company while they, in turn, would report to the global headquarters. There are twelve geographic divisions at While Foods, with each regional office responsible for adjusting relevant business activities in accordance with the conditions of regional markets.
Such a division has a positive effect on organizational performance by maximizing the flexibility of the operations in different regions that have unique characteristics and environments. The functional structure in every division corresponds to the business functions, which increases the flexibility of regional operations as every administrative team in its region implements mandates based on the regional market conditions. Finally, teams are also an essential part of the organizational design, with sales teams competing with each other in revenue generation.
For the market of organic products, the life cycle is at the growth stage, with increasing sales and more competitors joining the industry of organic and healthy food products. The lifecycle of Whole Foods as a key player in the healthy foods industry is at the maturing stage. The sales of the company have reached a plateau (see Figure 1), with competition increasing from stores such as Kroger which also offer large selections of organic products.
Marketing
The current marketing strategies that concern Whole Foods include segmentation, targeting, and positioning. The organization’s only operating segment is the natural and organic food supermarket industry, which is estimated at US$100 billion, with a yearly growth of 9% (Whole Foods Market history, 2020). In this segment, the customers are conscious of their health, are concerned about the environment, and care about how and where their food is produced. Segmentation, which is the key competitive advantage source.
Whole Foods focuses on a specific area, the organic and natural food supermarkets, competing with such companies as Trader-Joes and Sprouts Market. Compared to such competitors as Target, Walmart, Kroger, and Sprouts Target Market, Trader Joe’s, Whole Foods remains the most expensive grocery store despite the fact that customers are currently looking for less costly options (Bogost, 2020). Below are the graphs showing the revenues of Whole Foods, Sprouts Farmers Market, and Kroger:
Targeting is an essential strategy as the organization targets a specific group of customers, which is predominantly of an income higher than the national average, leads an extremely healthy lifestyle, and is environmentally conscious (Vennamaneni, 2017). Most of Whole Foods customers live in upscale or metropolitan areas as well as have high education (Kashino, 2015).
Another important target group of the supermarkets includes wealthy customers who do need discounts, deals, or coupons to purchase food products – they usually buy expensive and high-end items of top quality (Vennamaneni, 2017). Besides, the target group of millennials is also appealing to Whole Foods because of their progressive and liberal values, especially in terms of environmental sustainability. While this group does not purchase the most expensive items, they visit Whole Foods to buy selected items that have been ethically and sustainably produced.
In terms of positioning, Whole Foods Market presents itself as the most reliable store to find the largest selection of organic food that is healthy and natural. The company has willingly certified its stores as “Certified Organic,” which allows it to differentiate itself as a reliable provider of products that meet the high standards of quality. In addition, it is certified by California Certified Organic Farmers, which enables the organization to handle its organic products in accordance with the most rigidly-defined USDA guidelines (Vennamaneni, 2017). The supply chain that Whole Foods has developed includes both local and international manufacturers and guarantees that all items that are being sold at stores have been produced without violating labor, human, or animal rights.
VRIO Analysis
The VRIO analysis is vital to apply to the exploration of the current business scenario at Whole Foods because it will evaluate the company’s resources and the competitive advantage. In the “Valuable” area, the financial resources are highly important for Whole Foods because they are necessary for investing in external opportunities that can arise while also helping the company combat external threats. In addition, local food products are a valuable resource to the company because they offer significant differentiation in the selection from which customers can choose. The cost structure is not valuable to the company because the variation in production costs affects the overall firm profits, which means that it creates a competitive disadvantage to the company. In addition, research and development is not a valuable resource as it leads to more significant expenses for the company.
The financial resources available to Whole Foods are rare because few companies in the industry only possess a strong economic position. Local food products are not rare because they are easily attained due to the high levels of competition among farmers. Both the distribution network and the patents available to Whole Foods Market because they are not easily attainable. Besides, human resources are rare because of the need to ensure that stores only employ competent and skilled workers (Lai et al., 2020).
The financial resources are expensive to imitate because the company has been working on acquiring them through prolonged time periods. New market entrants and competitors require similar profits in order to accumulate significant financial resources. However, local food products and employee resources are easy and less costly to imitate, which means that they offer a limited and time-restricted competitive advantage.
The patents that the company holds are highly costly and difficult to replicate because of legal restrictions, and the same can be pointed out about the distribution network of the company because it has been gradually developing. In terms of the organization aspect, the financial resources are organized for value capturing and can be used as strategic benefits that allow the company to invest in the right areas. However, the patents that the company owns are not well-organized, which means that Whole Foods does not use them to their full potential. Yet, the company has worked on its distribution network for decades, which enabled to develop a reliable system.
According to the Porter’s Five Forces framework, the competitive rivalry within the grocery store industry has a strong force. The external factors contributing to such strength are a high number of firms, their high aggressiveness, and low switching costs, all of which have strong force. The bargaining power of customers within the segment is strong due to such factors as the high quality of information available to customers, low switching costs, which have strong forces, and a small volume of individual purchases, which has a weak force.
The bargaining power of suppliers is moderate, with a moderate level of supply and a large size of individual suppliers, which have moderate forces, as well as a higher number of suppliers, which has a weak force. The threat of new entrants has a strong force, with the high ease of doing business, low switching costs, which have a strong force, as well as moderate costs of doing business, which has a moderate force.
Environmental Analysis
PESTLE
Political
The political affairs play a significant role in influencing the operations of Whole Foods, including regulations associated with GMO products or trade agreements. Such influen include the overall political stability, the military situation, the levels of corruption in the grocery store industry, wage legislation, employee benefits, intellectual property protection, as well as product labelling (Meyer, 2017).
Economic Factors
The economic environment also has a direct impact on Whole Foods Market; for example, the Great Economic Depression of 2008 reduced the financial stability in the US, causing the company to cut costs. Significant areas of concern include inflation rates, interest rates, labor costs, the stability of the economic system, as well as national markets efficiency (Groysberg et al., 2018).
Social Factors
From the social perspective, Whole Foods experiences the influence on the part of such factors as the increasing emphasis of the population on healthy lifestyles and the increased cultural diversity, both of which represent further opportunities for development. However, the increasing wealth gap is a threat to the company, which calls for the reconsideration of the pricing approach.
Technological Factors
Advancing technologically is also important for Whole Foods as customers have become increasingly reliant on online shopping and mobile technologies while placing offers (How technology is reinventing the supermarket, no date).
Legal Factors
Finally, the legal concerns impacting organizational operations include inadequate employee laws, environmental protection laws, and others. The impact of legal factors is significant because of the need to maintain the assessment of suppliers’ labor practices as well as align with the employment law, health and safety law, and copyright and intellectual property law.
Environmental Factors
The company has to meet the environmental needs of the industry, especially in terms of inadequate waste disposal or pollution (Abdel-Shafy and Mansour, 2018). Whole Foods has been working on achieving business sustainability with the help of environmental innovation.
SWOT
The results of a SWOT analysis applied to Whole Foods Market will help the organization identify whether its core objectives, products, services, as well as any additional projects fit the company’s strategic direction (Gurel, 2017).
Strengths
Brand recognition and the standards of high quality represent the two core points of strength that enable Whole Foods to be successful in their segment. Brand recognition is important for the company because of the values that it holds – Whole Foods has positioned itself as a trustworthy organization that sells products of the highest quality. The recognition of the brand has allowed it to stand out from competitors and convert popularity into increasing revenue from the growth of its customer base, securing its future profitability. High-quality standards go hand-in-hand with the brand recognition because Whole Foods considers the quality of its products a selling point.
Through establishing connections with reliable suppliers that manufacture products that meet the expectations of the company, Whole Foods has been successful at establishing a loyal customer base. Setting the bar of high quality means that the company bans ingredients that are often present in the food products that other retailers sell. For example, Whole Foods does not sell food items that include sweeteners, colorings, artificial flavors, GMOs, as well as hydrogenated fats. In addition, the company will not sell the products of suppliers that do not meet the high standards of fishing, farming, and ranching. Due to the increased environmental awareness of the population and the increased demand for healthy and sustainable products, the company has been able to raise some of the prices and leverage them depending on demand and whether customers are willing to pay more for food of higher quality.
Weaknesses
Consumer perceptions and dependency on American markets are the main weaknesses that the company faces. More than “90% of Whole Foods’ revenue is allocated in the US market,” which does not offer the desired level of sustainability if the American economy encounters any significant challenges such as the recession (Anderson, 2019). Consumer perception challenges may have an adverse impact on Whole Foods because of overpricing and overcharging customers, which has led to much backlash (Anderson, 2019). While the company deliberately targets high-income consumers, the brand image has been weakened by the deliberate inclusion of products that are expensive.
Opportunities
The opportunities that are presented to Whole Foods include international expansion, alliances, and price diversification. In terms of global expansion, the company’s overreliance on the US market can be challenging, which means that expanding to other areas can be beneficial. While it already has stores in the UK and Canada, both Europe and Asia can act as boosters for the company’s revenue. Diversification in the area of the price is essential for targeting new customer segments who cannot afford the high priced-products at Whole Foods. For instance, the 365 Everyday Value range of products cater to a broader demographic through price differentiation (Elliott, 2014). Finally, the alliances that the company has developed with such firms as Amazon make the products accessible online and with international delivery.
Threats
Increasing market competition and bad publicity are the threats that can significantly influence the performance of the company. Despite the unique positioning of Whole Foods, the company faces significant levels of competition from rival supermarket chains. For example, both Target and Walmart use competitive pricing in order to outperform other companies, and the high prices that Whole Foods stores set represent a significant threat. Bad publicity associated with overcharging, to which the company admitted, has had a negative impact on the competitive advantage of the organization (Masunaga, 2015).
Strategy to Overcome Challenges
The high competition in the grocery store market, combined with the declining economy in the light of the COVID-19 pandemic, has enabled companies to attract customers through lower prices (DiResta et al., 2010). In addition, increasing numbers of grocery stores worldwide enables higher expenses for maintenance, and at the time when customers prefer making online purchases, such expenses are unnecessary. However, the strategy implemented by Whole Foods implies that the prices are, on average, noticeably higher compared to the prices set by such competitors as Target, Walmart, Trader Joe’s, and others (Valinsky, 2017).
The company has been hit hard by scandals associated with overpricing and overcharging, failing to hold the same level of dominance that it used to have in the sphere of healthy and organic foods as more grocery stores have substantially increased their offerings of organic and non-GMO foods (Maverick, 2019). Therefore, the critical strategy for improvement must include price differentiation and the offering of lower-cost products that are accessible to a broad population of consumers.
Whole Foods has faced an increasing and lower-priced competition in terms of selling organic food. Today, nearly every grocery chain, including those offering major discounts, have provided extensive selections of organic products (Maverick, 2019). The premium-level prices that the company has set should decrease, and with the acquisition of Whole Foods by Amazon in 2017 initiated the first steps toward reduction (Peterson, 2019).
According to the latest survey carried out by Business Insider, the recent price cuts at Whole Foods had significantly reduced the price gap with Kroger, which is the largest traditional grocer in the country. In addition, the “prices on fresh produce set at Whole Foods were around 7% cheaper” compared to prices at Kroger (Peterson, 2019). Despite the fact that Whole Foods is more expensive overall compared to other grocery stores, the first steps that have initiated a price decrease could save the company in terms of its competitive advantages.
The first strategy tool intended to achieve a competitive advantage for Whole Foods is associated with a differentiation strategy. It is built on the principle that a company needs a clear and unique positioning, providing benefits that add value to consumers. Therefore, the higher quality of products should make up for their higher prices. When setting high prices on products, Whole Foods must ensure that the products should be of superior quality, have strong brand recognition as well as great potential for marketing capabilities, as well as industry-wide distribution across major channels (Geereddy, no date).
Thus, for high-quality products that are expensive to produce and manufacture, Whole Foods should set prices that are proportionate to the value offered. Such a strategy is possible to apply to the segments of premium products that have a strong competitive advantage.
Economy pricing is the second strategy to be implemented at Whole Foods for products that are not expensive to source, produce, market, and put on grocery store shelves. Offers and discounts can be applied to such products, and revenue can be gained by selling large quantities. The 365 range at Whole Foods is an example of such products, and it is important that the company collaborates with local and international suppliers to extend the range or create a new one. The economy pricing strategy can be used for commodity goods such as generic groceries and home goods of everyday use, and their production or marketing does not require significant investment either for suppliers or the company.
Implementation Plan
Both price differentiation and economy pricing should aim to reach a successful strategy that strives toward providing customers with products, the prices of which align with their value. The first step, price differentiation, should be carried out in the next five months. Before setting high prices on valuable products, the company should study the attitude of its potential consumers toward differentiated costs, how different forms of differentiation affect behaviors, as well as whether they are ready to pay a higher price for high-value products.
An anonymous customer survey, which takes between one and two months can reveal whether Whole Foods should continue offering premium products to customers and whether the customers are expected to pay premium prices for them. A positive outcome of price differentiation is that it enables Whole Foods to maintain its reputation as a grocery store that stock high-quality, organic, and high-value goods.
Economy pricing is a strategy that is especially relevant in the current climate, and should be implemented together after the differentiation strategy, over the course of five months. According to Knights (2020), the way in which consumers shop for groceries is changing during the COVID-19 pandemic, with the population having time to consider the products without which they can live and the products that are essential to them. For the essential category of products, economy pricing can bring a significant advantage to Whole Foods because popular products will be purchased in large volumes, thus increasing the company’s revenue.
Offline environments have become less important, with more and more customers choosing to shop online to avoid crowded spaces. With the help of both economy pricing and a differentiation strategy, Whole Foods is recommended to continue furthering the impact of the omnichannel strategy that allows customers to make purchases online and choose from a wide selection of products (Simone and Sabbadin, 2017). It is important that the company increases its digital capabilities with the help of such steps as digital promotions, offers, and product suggestions based on customer preferences. With the lockdown accelerating online shopping behaviors and forcing customers to reexamine their spending habits, despite the limitations, both differentiation and economy pricing strategies provide While Foods with opportunities to expand the customer base and increase revenue.
Leadership
One of the values of Whole Foods is to be dedicated to the community and the environment by supporting local experiences, practicing, and advancing environmental stewardship. In the case of Whole Foods, effective leadership is expected to have a positive influence on fulfilling the corporate and social responsibilities because it enables the influence of the extent to which followers evaluate organizational goals as important (Steinmann, Klug and Maier, 2018). Such a mutual understanding enables employees to develop commitment, loyalty, and passion that helps make fundamental changes in the organization, which can lead to the increased efforts of Corporate Social Responsibility (Korejan and Shahbazi, 2016).
At the organization, leaders are role models of ethical and sustainable behaviors to shape corporate values and characteristics (Gorski, 2017). Leaders can use motivation and collaboration as tools for positive change in the CSR context. Motivating workers is necessary for shaping behaviors that benefit society and the environment (Sarcevic, 2013). Enabling collaboration will create an environment for social innovation fostering goodwill in the reciprocal relations between employees, customers, and the members of the community. Both motivation and collaboration align with the transformational leadership style, which has shown to be beneficial for organizations, the work of which is heavily focused on social exchange, with employees’ knowledge sharing being achieved with the help of a mutual understanding of organizational goals and perspectives (Liu and Li, 2018).
Recommendations
First, In the light of changing consumer behaviors associated with the COVID-19 pandemic, Whole Foods Markets should reconsider the strategy of only catering to the upper-class consumer segment that only purchases expensive groceries. Second, with the help of a transformational leadership approach, it is possible to develop a strategy that considers the needs of target consumers while also motivating workers to unite in promoting the vision and the mission of Whole Foods (DiFranza, 2019). Third, overpricing can no longer be a viable strategy that will attract a large number of customers due to its exclusivity – there is a need to cater to a broader audience that is likely to buy affordable products in larger quantities. Fourth, it is important that Whole Foods continues its work in the area of environmental sustainability as a means to sustain a competitive advantage while also addressing the needs of customers regarding the ethical and sustainable sourcing, production, and distribution. Finally, the company is recommended to continue its global expansion to manage the over-reliance on its domestic market, which is illustrated by the plateau of the company’s profit.
Conclusions
Whole Foods has become a dynamic leader in the business of high-quality food and is a mission-driven company that aims to set high standards for food retailers and manufacturers. It has gained a competitive advantage in the sphere of grocery shopping by offering a selection of premium products that have been ethically and sustainably sourced and produced. Due to the high prices set on the majority of products at Whole Foods, the stores have attracted high-status customers who can afford purchasing expensive groceries.
However, the current customer demands and behaviors are changing, with the shifting focus on affordable items as well as online shopping opportunities. Though price differentiation and the development of an economy pricing strategy, Whole Foods has the potential of meeting the latest demands of the market. Besides, since competitors have already been successful in providing reasonably-priced organic produce, the advantage that the company used to hold is no longer relevant. While Whole Foods can still offer a selection of high-quality and high-priced items, it should consider the economy pricing strategy by providing a range of affordable and essential items that have become of great importance in the current climate of shifting customer behaviors.
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