Assignment #2 - Competitive Forces and SWOT Analysis.

Students are required to conduct an analysis of a company situation Case #1 Whole Foods Market (p. C-2) and prepare a 4-8 page report to complete the following: 1.Discuss the trends in retailing of organic foods and the impact of these trends on Whole Foods Market. 2.Evaluate the competitive environment of the firm: Apply Porters model and analyze each factor relative to the company. 3.Discuss which environmental factor poses the most significant threat to Whole Food and what the company can do to combat it. 4.Complete a SWOT analysis and identify significant opportunities and threats facing the organization. 5.Discuss how Whole Foods can use it strengths and opportunities to achieve a sustained competitive advantage in the marketplace. The format of the report is to be as follows: Typed, double spaced, Times New Roman font (size 12), one inch margins on all sides, APA format. Type the question followed by your answer to the question. In addition to the 4-8 pages required, a title page is to be included. The title page is to contain the title of the assignment, your name, the instructors name, the course title, and the date. NOTE: One of the criteria that you will be graded on is the quality of your answers, the logic/organization of the report, your language skills, and your writing skills.

1. By 2006, Whole Foods Market had evolved into the worlds largest retail chain of natural and organic foods supermarkets. Their rapid growth and success is primarily due to being highly selective about what they sell, as well as being dedicated quality standards and core values. Whole Foods stated mission statement was to promote vitality and well-being for all individuals by offering the highest quality, least processed, most flavorful natural and naturally preserved foods available. Whole Foods Markets ultimate strategy is to sell the highest quality of natural organic products by making their sole objective that customers need comes first. Since, the company is market leader not only in USA but, in the entire global market of natural and organic foods. The company has more than 270 stores in North America and UK. The companys motto is not just to make money but, to provide healthy foods. The company has tried to set such a high standard in product and customer services and the company has thus provided best possible standard Whole Foods strategy since 2002 has been to open its own large stores, 50,000 square feet and larger, rather than acquiring small chain stores ranging from 5,000- 20,000 square feet.

http://www.organic-center.org/reportfiles/IFT_Dimatteo_Exerpt.pdf. This might act as a big threat to Home Foods because the exponential growth of organic and natural foods grown in developing countries might finds its way into countries like USA, UK at much cheaper rates than Home Foods can grow. The driving concept behind their merchandising strategy was to create and inviting and interactive store atmosphere that turned shopping for food into a fun, pleasurable experience. Whole Foods wanted customers to think of the store as a third place outside of home and work, where they could relax as well as interact with others in a colorful environment. 2. Competitive environment is such that Whole Foods clearly emerges as a market leader in its segment. Natural and organic food category is new and emerging concept and there are few players. In this industry, there are majority of small players catering to the ever growing need of people demanding organic foods. Home foods is market leader, it has to defend its position aggressively in the future. There are tem large players in this industry, followed by many small players. (a) Intensity of rivalry might get tough due to lack of differentiation among organic and natural foods. Such kind of competition ultimately leads to price competition. But, Home Foods market could be protected due to its brand image. (b) Threat of new entrants would be highest especially among small players. Among large players, chain of retail outlets would work in their favor. Home foods being a network of large retail network would be in better position to ward of threat of new entrants. Due to economies of scale, it is in better position to keep the treat of new entrants in its category at low ebb. Differentiation of product can be made not only functional but, emotional theme of being largest provider. Access to large distribution, and retail networks etc would certainly work in its favor in keeping the potential threat at low level.

(c) Bargaining power of suppliers would be less due to bulk purchasing capability of raw foods and the company can also outsource the raw agricultural food items from third world countries. It can also integrate backward to enter into tie-ups with large land holding farmers to procure supply of desired quality of raw items. Since, there is no single big supplier and it consists of large numbers of farmers big and small, who cannot dominate the supply position. (d) The numbers of buyers are growing at a very fast pace due to awareness and importance of organic foods. The supply position is still weak compared to the growth in demand. So, the bargaining power of home foods is strong compared to small niche players in this industry. (e) Lastly, the biggest threat is the availability of substitute that is organic and natural food items. Any firm supplying such food items can be substituted for this item. The items are not manufactured in a factory and so other substitute item can replace the existing item. For that matter all forms of organic and natural food items are easily substitutable compared to other kinds of FMCG or consumer durable items. 3. Biggest threat for Whole Foods comes from Social and cultural factors which people world wide have started realizing that organic foods reduces the health risks posed by costly chemical pesticides and fertilizers. It maintains an ecological balance of entire environment. This threat further boosted by improved earnings in income of developing nations like China, India, Brazil etc, where people have started earning more to secure better standard of living. In China alone the hectares of land under organic farming has increased from around 5000 hectares in 2004 to more than 50000 hectares of land. 4. One of Whole Foods strengths is their passion for food and high standards for quality products. They guaranteed 100 percent satisfaction on all items purchased.

They have a competitive advantage when it comes to the size of their stores. Very few natural foods stores have stores larger than 20,000 square foot. Each Whole Foods store had a customized layout to fit the particular site and building to show off particular products for their target customers in that area. Another strength within the Whole Foods corporation is that they offer an economic value added management and incentive system for employees. This system worked well for team members to use in finalizing decisions that created sustainable shareholder value. In 2004 54% of US population used to purchase or organic foods which has increased to 64% in 2005 and the trend is showing upward. There is strong growth of the industry in developed nations with Whole Foods as a market leader. One of Whole Foods weaknesses would have to be their high prices. The costs of growing and marketing organic foods are about 25-75% more than conventionally grown items. Opportunities and Threats The key opportunities for Whole Foods include: increasing attractiveness of the health/organic food industry, growth through acquisition, and enhancing their brand image/loyalty through community service. Whole Foods has already bought its largest competitor, Wild Oats, which has shown to be profitable. By promoting organic foods Whole Foods can increase sales and attract new customers by introducing them to the Whole Foods experience. Whole Foods would benefit not only by promoting itself but the industry in general. In addition to promoting organic foods, they could enhance their brand image and loyalty by continuing their community service efforts. If the industry continues to grow and they continue to bring about brand awareness and loyalty, Whole Foods could strengthen its market share and profitability. The key threats that Whole Foods faces include: local grocers increasing their organic food options, the size of Whole Foods stores deterring customers, and the price of organic foods.

Local grocers could potentially take away from Whole Foods sales by stealing the customers that want to get in and get out. If customers can get the organic foods they want at a smaller grocery store, some customers may switch to them. This is where the size of Whole Foods stores becomes a threat to themselves. If they continue to buy and build large stores they could potentially deter some of their consumers to the smaller grocers in the area. Also what is a threat now is the high price of organic foods. Consumers must pay a premium for these items because they cost more to produce. Whole Foods must keep the customers they have now loyal or they could lose them to non-organic foods that are cheaper. 5. After reading the case and reporting the financial numbers the profit margins from year 2005 have been decreasing each year. The costs of goods sold are on the rise over the past three years and debt over the past three years has risen dramatically to all time highs. Compared to the competitors Whole Foods Market has extremely low revenues and also low EPS. (www.hoovers.com) Assessment of Marketing: In 2005 sales were 1.3 million and rose to 1.7 million in 2007 showing for a increase in sales over the three year time period. As stated in the financial analysis the profit margins have been decreasing each year. According to yahoo financials the market capitalization has been on the rise. Assessment of Finance: Stock price according to yahoo financials is 33.69 but has drastically reduced since 2005. The P/E ratio in comparison is well above the industry average. The prices of whole foods are well above the industry average. Assessment of physical resources:

The companys stores some can be up to eight years of age which is fairly young for the grocery industry. These stores average about 30,000sq.ft. As of 2006, 113 of the companys 180 stores were 30,000sq.ft. or larger. The stores only get newer as the company looks to build new large stores in the larger metropolitan areas. Over the next five years the company will need to continue to match the competition with stores that fit what the consumer market is looking for at the current time. Assessment of human resources: The employees are very well trained, knowledgeable and experienced in the grocery industry products making for a better customer experience. The payroll, bonus and other benefits increased from 2004 to 2005 almost $26,000,000 but if well below the competitors payroll. Kroger is 571million in 2004 and dropped to 547million which shows one of two things there are more employees and possibly better pay for the workers. The management believed its team members were inspired by the companys mission because it complemented their own views about the benefits of a natural and organic foods diet. In managements view, the team members feel good about their job because they feel like that contributes to the welfare of society and to the companys customers by selling clean and nutritious foods. http://persianoad.wordpress.com/2008/06/25/examine-the-organic-food-global-industry-guide/ http://www.schoolsucks.com/paper/Whole-Foods-Market-Case/14041.html http://motivesf.com/KM_Whole_Foods_Market_files/Motive_WFM_Case.pdf