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Executive

Summary

Whole Foods Market, Inc.


25 Years Of Double Digit Revenue Growth
$4.7B Organic Supermarket Industry Leader

Whole Foods Current Strategy


Expand Through New Store Openings
Achieve $12 Billion In Sales By 2010

Executive
Summary

Competitive Strategy Analysis


Supplier Power Dominates This Industry
Current Strategy Lacks Aggressiveness

Recommended Strategy
Establish Partnerships With Traditional
Supermarkets
Achieve National Brand Equity

Overview

Porters Five Forces Analysis


SWOT Analysis of Whole Foods
Recommended Strategy
Questions/Discussion

Market
Definition

Market History
Natural And Organic
Food Industry Began
About 30 Years Ago
Whole Foods Market Is
A Founding Firm
USDA Established The
Organic Rule In 2002

Market
Definition

All Products Sold As


Organic Must Now
Meet The
Requirements Of The
USDA Organic Rule
Approximately $13
Billion In Sales In 2005

Internal
Rivalry
Threat To Profits: High
Sources Of Internal
Rivalry:
Many Sellers In The
Market
Differing Cost Structures
Strong Exit Barriers

Internal
Rivalry
Differing Cost Structures
Consider A Wal-Mart Supercenter:
> 100,000 Square Feet
Average Supermarket Only 35,000 Square Feet
Significant Economies Of Scale Difference And Wal-Mart
Continually Drives Down Prices

Strong Exit Barriers


High Investment In Property, Distribution And Inventories

Entry
Threat to Profits: Medium
Originally, Health Food
Stores Were Small,
Expensive,
And Unpredictable.

Some Health Stores Grew Into Supermarkets:


Sun Harvest
Whole Foods Market
Some Existing Supermarkets Re-Branded
Wegmanns
HEB: Central Market

Segment
Entry Types

Re-branded Supermarkets
H.E.B. (Texas) Created Central Market
Wegmans (New York) Upgraded Locations

New Supermarket Entrants


Growing Health Food Stores (GNC)
New Firms

Entrant
Comparison
Barrier

New Entrant

Re-Branded

Strong

Moderate

N/A

N/A

Moderate

Moderate

Access to Key Inputs

Strong

Weak

Experience Curve

Strong

Weak

Network Externalities

Strong

Moderate

Competition Expectations

Strong

Moderate

Economies of Sales
Government Protection
Brand Loyalty

Overall Threat:

Low

High

Most Likely
Segment Entrants

Based On The Barriers To Entry Analysis, The Most


Likely Entrants Into The Organic Segment Of The
Supermarket Industry Are Established Firms

Whos Next?

Substitutes
And Complements

Substitutes
Threat To Profits:
Medium
Health Food Stores
Traditional
Supermarkets
Supercenters

Complements
Health Industry
Health Insurance
Companies
Health Care Specialists
Fitness Centers
Wellness Programs

Supplier Power

Threat to Profits: High


Local Growers, Independent And Family
Farmers, Large Corporate Farms, Co-ops
And Food Brokers
Organic Supply Chain Underdeveloped
Growing Number Of Organic Food Grocers

Buyer Power

Threat To Profits: Medium To High


Buyers Have Options!

Price
Convenience
Varying Levels Of Health Sensitivity
Mixed Consumer Messages

Porters Five
Forces Summary

Porters Five Forces


Internal Rivalry

Threat to Future Profits


High

Entry

Medium

Substitutes/Complements

Medium

Supplier Power
Buyer Power

High
Medium to High

Strengths
Whole Foods, Whole People, Whole Planet

Corporate Culture
Customer Experience
Perishables
Hip Image
Double Digit Growth
Largest Selection

Strengths

Whole Foods:
Foods

Reputation:
Healthy, Local Food

Whole People:
People

Branding For Affluent


And Health Conscious
Positive Employee Environment

Whole Planet:
Planet

Environmentalist Reputation
Encourages Brand Loyalty, Holds
Off Commoditization

Strengths

Whole Financing!
Strong Cash Flow And Stock Position Provide Capital
For Growth In The Most Highly Desired Locations
t

4.7 Billion Dollar Revenues


Revenue Growth:
21.6 Percent From 2004 To 2005
15.8 Percent From 2005 To 2006
Returning Invested Capital (ROIC): 37%
Capitalization Increased To 6.8 Billion:
6th On The List Of All Grocery Chains

Weaknesses

Whole Paycheck
Whole Planet? Weak International Operations
Low Employee Efficiency
Revenue per Employee = $138K versus Industry
Average of $309K

Opportunities

Market Leadership in High Demand Segment


2002 USDA Organic Rule True Differentiation
Organic and Natural Food Industry Focus on
Consumer Education
Media Coverage
Health benefits of organic foods
Suspicious of contaminants (e.g. hormones,
antibiotics, etc.)

Opportunities

Private Label Brands


Whole-X, Where X = Kids, Ranch, Fields,
Catch, Creamery, Diary, Treat
Growth Of These Brands Is High Due To Lower
Price Versus Contemporary Organic Brands
Potential To Sell These Products In Traditional
Supermarkets

Threats

Increased Competition
Re-branding Existing Supermarkets
Wal-Mart

Changes in Government Regulations


Changes in Economic Conditions
Impact of Consumer Spending

Corporate
Strategy

Whole Foods Current Strategy


Expand Through New Store Openings
Build Versus Buy New Stores
Customized Stores To Local Preferences
Open To Acquisition Opportunities

Grow Store Space At A Controllable Rate Of


14%
Preserve Corporate Culture

Achieve $12B In Sales By 2010

Medium Term
Strategy

Coordinated Campaigns To Enter New Markets


Prior To Store Opening, Establish Relationships
With:
Traditional Supermarkets Willing To Sell Whole-X
Products
Local Organic Suppliers And Growers

Aggressive Advertising Upon Store Launch:


Emphasize Whole Foods, Whole People, Whole
Planet

Long Term
Strategy

Build National Brand Equity


Extend Partner Relationships Into Current
Markets
Increase Advertising Budget From 0.4% To The
Industry Average Of 1.5%
Focus On Building Brand Identity With Organics
When Consumers Think Organic, They Think Whole
Foods
Shed The Whole Paycheck Image

Questions &
Discussion