Whole Foods Case Study

Whole Foods

In 1980, Whole Foods opened their first store located in Austin, Texas and have grown to be the largest organic food retailer today. Today, Whole Foods has over 300 locations across the United States and the United Kingdom. Over the years, the organic food industry has continued to grow and change. Over the past ten years, organic food and beverage sales have grown tremendously from $1 billion in 1990 to $24.8 billion in 2009. Sales increased 5.1 percent increase from 2008 with fruits and vegetables having the largest increase in sales of 11.4 percent. Total organic product sales, perishable and nonperishable totaled $26.6 billion in 2009 which is an increase of 5.3 percent from 2008. Mainstream retailers sold 54 percent of organic food in 2009 with natural retailers, such as Whole Foods, selling at 38 percent. In 2008, mainstream retailers accounted for 45 percent of organic sales and natural retailers accounted for 43 percent of organic sales. With the mainstream retailers picking up more organic products to accommodate their customer needs and remain competitive, the natural retailer sales have suffered.

Despite the fierce competition and higher prices, demand for organic products remains high. Once a niche market, several factors in the market have forced organic products to become one of the fastest growing segments of U.S. Foods sales. The factors include:

* Healthier eating patterns as consumers become better educated;

* Increasing consumer concerns over purity safety of food due to the presence of pesticides in food;

* Wellness and health consciousness among people

* Growing belief that organic farming has positive environmental effects, specifically for soil and water.

In 2006, of the leading supermarket chains, Whole Foods was ranked number 24th in the market with Wal-Mart ranking number one. Whole Foods total revenues in 2006 were $5.6 billion which is only a fraction of the sales from a couple of their largest competitors. Wal-Mart being the largest competitor reported $209.9 billion in sales which accounts for 9.4 percent of the total grocery sales. Kroger being the second largest retailer reported $66.1 billion in sales which accounts for 7.8 percent of the total grocery sales. Whole Foods held 0.7 percent of the total grocery sales in 2006. However, if you take out the big competitors, Whole Foods is known as the leader in organic and natural foods as they offered the largest selection of organic products.

As part of Whole Foods mission and objectives, they were looking to improve the health of the planet and grow their customer base by creating a gateway experience. Whole Foods knew if they grew at a modest pace, their existing customer base would continue to be their customers when a location opened near them. Whole foods core growth strategy was to expand by opening new stores, but also by acquiring small, owner managed chains that were located in desirable markets. This proved to be difficult as many of the owner operated retailers that sold organic products, were one store operations.

Whole Foods modified their strategy by driving growth to open 10 to 15 larger stores in the major metropolitan areas between the years of 2002 and 2006. They also were looking to open larger stores to that were on the same scale as Wal-Mart or Kroger supermarkets. Whole Foods market grew from 135 stores in 2002 to 276 locations in 2007. In 2007, Whole Foods also acquired Wild Oats Market, one their biggest competitors. This acquisition introduced Whole Foods into 15 different new markets and 5 new states. It was also believed that the acquisition of Wild Oats Market would give Whole Foods more bargaining power with the suppliers, more efficiently utilize its facilities, and all costs to be reduced significantly. After the acquisition of Wild Oats Market, Whole Foods next biggest competitors were Fresh Market, Trader Joe's, Sunflower Farmer's Market, Fresh and Easy Neighborhood Market, and Independent Natural Health Food grocers.

Fresh Markets earned $350 million in 2007 and have the same growth strategy of Whole Foods, meaning they planned to open 10 to 15 new stores annually. Fresh Markets size and geographical locations are also similar to Whole Foods customer base, locating itself near educated and affluent residents. Their product line and offering are also similar to that of Whole Foods. Fresh Foods set themselves apart from everyone else, by providing superlative service; attractive fresh produce displays; appealing meats and seafood selections; and "upscale boutique" items such as pick & pack spices, gourmet coffees, chocolates, New York cheesecake, H&H Bagels and other special condiments. One downfall for Fresh Market, they had high labor costs, more than the average supermarket chain, partly due to the benefits package employees were eligible for from day one. Fresh Markets, like Trader Joe's, is a viable threat in the market. Their strategies are similar and they continue to expand with 100 stores in 20 different states.

Sunflower Farmers Markets have a warehouse style store with discounts for buying in bulk. Their mission statement has a four-pronged strategy:

* Always offer the best quality food at the lowest prices in town

o Better than supermarket quality at better than supermarket prices

* Keep overhead low

o Just regular people looking for the best deal

* Buy big

o Source directly; pay vendors quickly; and buy almost everything by the pallet or truckload which translates into big savings for the customers

* Keep it simple

Sunflowers tagline is a mockery from Mark Gilliand, partner and former founder of Wild Oats Market. He states, "Serious Food....Silly prices, the last thing they want is to be another wanna-be Whole Foods." Sunflower's product focus was on organic, natural, and minimally processed food items. Each store stocked fresh produce, meats, seafood, cereals, nutrition bars, trail mixes, health drinks , salads, cheese, bread, coffee, nuts, candy, soaps, shampoo, and natural remedies. They also offered Double Ad day on Wednesdays. I don't see Sunflower Fresh Markets as a real threat to Whole Foods. They have more of a Costco or Sam's Club approach. Not everyone is willing to buy products in bulk, especially organic items. However, I can see where they could gain some alliances by working together in the community.

Whole

...