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Whole Foods Analysis

In: Business and Management

Submitted By xoarielxo7
Words 2171
Pages 9
Employee Name: Date: 9/27/11
Company: Whole Foods 10-K Annual Report 2010

PESTEL

1.Political pg. 5: We have encouraged innovative animal production practices to improve the quality and safety of the meat and poultry sold in our stores while also supporting humane living conditions for the animals. * Whole Foods has taken a stance on a long debated political issue of the treatment of animals used as livestock. Taking an interest in the living conditions of animals appeases their client base that believes strongly in this issue, and the company also gets the benefit of knowing that the animal products they place on their shelves have come from cleaner and safer environments.
2.Economic pg. 9: Created in 2005, the Whole Planet Foundation is an independent, non-profit organization whose mission is to empower the poor through microcredit, with a focus on developing-world communities that supply our stores with product. * Developing the economy in developing-world areas is necessary to create new capital markets. Microcredit initiatives are an excellent way to start the process, and Whole Foods is using this foundation to help perpetuate the development of the products they sell. Having product made in a country where production is cheaper, while also aiding the growth of a poorer country’s economy can only be beneficial to the company in the long run.
3.Sociocultural pg. 9: We are providing a revolutionary educational program in our stores to encourage healthier lifestyle. * Society in the United States is making a shift towards making more health conscious decisions. Food is the biggest contender in this movement and Whole Foods is making sure they are able to be at the forefront. Their program, Health Starts Here, is designed to make learning about wholesome eating habits an easy transition. Not only do they provide cooking seminars at some stores, but they also make sure that their staff members are well versed in all things organic and natural, so that customers always have a resource available. As making the switch to natural and organic foods continues to gain popularity, Whole Foods’ focus on the socio-cultural impact they have is a key competitive advantage.
4.Technological pg. 10: We believe our website provides us with an opportunity to further our relationships with customers, suppliers and investors; educate them on a variety of issues; and improve our service levels. * While advances in cutting edge technology is not in the overall strategic mission, the company still uses the Internet and social media to interact with customers. Using such mediums can help provide a more consistent and diverse flow of feedback, ultimately aiding management, as well as those at the local level, in better serving their customer base.
5.Legal pg. 10: The FFDC Act has been revised in recent years with respect to dietary supplements by the Nutrition Labeling and Education Act and by the Dietary Supplement Health and Education Act. * As a grocery store, adherence to new laws and regulations is something that affects all aspects of the business. More stringent standards can place a strain on employees or even suppliers. With each regulation, there is the possibility of having to alter procedure in a way that disrupts the normal flow of business. Items such as labeling are very important, and require accurate attention from management.
6.Environmental pg. 9: We are committed to supporting wise environmental practices and being a leader in environmental stewardship. * Whole Foods has made it a priority to be a leader in the green movement. Their stores are designed to maximize efficiency and minimize the adverse effect on the environment. Plastic bag use has been phased out of all stores, and the company also passes on this environmental responsibility to their suppliers. They recently began a program that lets customers know whether or not their fish was caught in an environmentally friendly manner.

Porter’s Five Forces

7. Current competitors pg. 8: Our competition varies across the Company and includes but is not limited to local, regional, national and international conventional and specialty supermarkets, natural food stores, warehouse membership clubs, smaller specialty stores, farmer’s markets and restaurants” * The annual report addresses the increase in size of the upper middle class as well as the increase in discretionary income. These factors have driven the demand for natural food stores. While Whole Foods remains the industry leader for organic and natural foods, other grocers are attempting to get a piece of the market. Publix has created a rival store called Greenwise, intended to better serve customers who are more concerned with healthy options. Other stores such as Trader Joe’s also are doing their best to be a worthy competitor.
8. Threat of New Entrants pg. 3: We believe the growth in sales of natural and organic foods is being driven by numerous factors * The company lists several reasons in their report that explain the rapid growth of the industry. The rise in popularity of natural and organic foods is an invitation for many new competitors to enter the market, however, high entrance costs may deter some from pursuing the market. Whole Foods has such a strong presence in the industry already that they will have a large advantage over any new entrants.
9. Suppliers pg. 7: The majority of our purchasing, particularly in dry grocery, occurs at the regional and national levels, enabling us to negotiate better volume discounts with major vendors and distributors * The company states that they try their best to create positive, win-win relationships with all of their suppliers. They stress the importance of choosing suppliers that have company values similar to their own, which can further improve relations and possibly create unique opportunities for discounts.
10. Buyers pg. 7: “we remain committed to buying from local producers that meet our high quality standards.” * Decentralization allows the buyers to be at a local level and make more educated choices on what is purchased, and from whom. Buying local positively affects the economy of the surrounding community. Those employees at the local level get the opportunity to develop relationships with members of the community that they are serving, and support smaller farmers.
11. Threat of Substitute Products/Services pg. 4: While some of our store brands yield greater margins than their national brand alternative, their primary purpose is to help differentiate our product selection and provide more value offerings to our customers. * Whole Foods sees themselves as the industry leader, so they do not focus too heavily how well their own brand items do. They want to make sure that they are known for the organic natural produce and meats they provide, along with an exceptional atmosphere and knowledgeable sales staff. Locally grown items don’t pose much of a threat for substitution, as outsourcing to a farther away location would defeat one of their core values.
12. Strengths pg. 7: We strive to provide a strong Company culture featuring a team approach to store operations that we believe is distinctly more empowering of team members than that of the traditional supermarket. * The empowerment of all employees makes a much more cohesive more group, as every person in the company can play a role in the direction and decisions of the company. Allowing employees at the local level to make decisions on what local farms they buy from is a smart strategic move, because those members of the company who are actually part of the local store community will have a higher knowledge base than those higher up the chain. This also helps improve customer service, as employees can make a choice about a customer issue without having to wait for a manager approval. Quick resolution of any issues is an advantage for Whole Foods and this advantage is supplemented by their decentralized company stucture.
13. Weaknesses pg. 8: We spend much less on advertising and marketing than other supermarkets- approximately 0.4% of our total sales in fiscal year 2010. * As a higher end grocer, Whole Foods should consider spending more on advertising. Many consumers are unfamiliar with the store and the values on which it runs. On the other hand, it seems they rely on a word-of-mouth approach that keeps the store community tight-knit and personal. Since grocery shopping is a necessity for almost everyone, there is no need to spend an excessive amount. Maybe running local advertisements where they have stores could increase awareness and not add too much more expenses to their income statement.
14. Opportunities pg. 3: According to a leading trade publication for the industry, sales of natural products across all retail and direct-to-consumer channels grew to approximately $76 billion in 2009, a 5% increase over the prior year. * A growth in the market segment means that the company has the opportunity to obtain a larger share of the market. When demand for the goods that their industry provides increases, Whole Foods can capitalize on this by making sure during periods of growth they continue to pursue expansion opportunities. As a relatively recently booming industry, organic and natural foods have the potential to reach a plethora of demographics. It is in the company’s best interest to make sure they take advantage of industry growth.
15. Threats pg. 10: Our results of operations may be materially impacted by changes in overall economic conditions that impact consumer confidence and spending, including discretionary spending. * This presents the greatest overall threat to the company. In times of economic turmoil, any extra discretionary spending money is typically saved. Given the current business climate over the past few over, higher end goods and services have experienced difficulty maintaining and increasing sales. Whole Foods aims to enhance the grocery shopping experience, and because of this a certain premium must be paid for the outstanding natural products they sell. When money is tight however, consumers tend to choose the most cost effective alternative, which could potentially harm the company in terms of sales. Currently, projects for new stores have been put on hold or cancelled. In order to stay at the top of the industry, growth and expansion is a must, so this lull in the economy poses a significant threat to the long-term success of the company.

Competitive Strategy

Competitive Strategy pg. 6: We strive to transform food shopping from a chore into a dynamic experience by building and designing stores with colorful décor, well-trained team members, an exciting product mix that emphasizes healthy eating and our high quality standards * The strategy Whole Foods has chosen is most prominently differentiation. Due to the vast, unique product variety they have, and their organic and natural ingredients, they are able to charge premium pricing for all of their items. This gives them an edge in the grocery industry, because their margins are higher than other chains that compete based on lower prices. The great lengths Whole Foods goes to in order to create an exceptional shopping experience has helped them grow and maintain a loyal customer base. Focusing on healthy eating not only spreads a positive message to the community, but also shows customers that they are more than just a number to the company, and their vitality is more important than the bottom line. Some may claim that such high prices in a troublesome economic environment cannot be sustainable, a valid concern addressed in a Business Week article titled “ Eating Too Fast at Whole Foods”. The author speculates about as to whether or not Whole Foods can maintain the premium prices and their customer base. So far, their rapid growth continues, and the article discusses the superb business practices that the company employs, such as being able to stay separated and differentiated from up and coming organic grocers like Wegman’s through there appealing stores and excellent products. It seems that while the company thinks it has unlimited room to grow in the market, the author of the article feels that market saturation looms on the horizon. Excessively high prices and overly large stores mean that they will need more of everything to meet demand, meaning the community feel they have built there image on will eventually fall by the wayside. Expansion and growth is an excellent way to gain more of the market, however, being a value driven company means that growth may need to be sacrificed in order to stay in line with the views they were built on. Internally, the decentralized organization gives them an advantage to make more informed decisions at local levels. Their strengths also lie in the strong sense of socio-cultural and environmental responsibility they promote, which resonates heavily with a majority of their customer base. The biggest threats in the long run doesn’t lie entirely in the threat of new or existing competitors, but in making sure their growth strategy doesn’t undermine their core values of providing an exceptional shopping experience with only the best organic and natural products. All in all, Whole Foods seems to have a good strategy that will help them prosper in the future.…...

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