Porter’s generic strategy of Low-Cost Leadership stipulates that organizational managements strive to minimize all forms of costs to the point of incurring the lowest average cost per unit as compared….
Whole Foods Strategy
The company I will be presenting is Whole Foods, case number seven. Whole Foods is a supermarket chain based in Austin, Texas which emphasizes natural and organic products. As of September 2009[update], the company operates 302 stores: 291 stores in 38 U. S. states and the District of Columbia; six stores in Canada; and five stores in the United Kingdom. External assessment: There are over one hundred thousand grocery stores in the United States, with a wide variety of types. Stores range from very small neighborhood stores, to huge two hundred thousand square foot stores.
Currently, the only major competitor to Whole Foods is Trader Joe’s. As of 2008, they had roughly 300 stores in twenty five states are still growing. Most of their stores are located in California and the upper east coast, and some single stores spread out across the United States. Trader Joes usually has lower prices than Whole Foods, but their stores are generally smaller in size and in selection. Another supermarket that is new to the industry, but growing at a rapid pace is a Wegmans.
With over 70 stores in the New York area, this store had 4. billion dollars in sales in 2008. Wegmans is consistently rated near the top of Fortunes annual list of the 100 best companies to work for. With the organic foods market growing at such a fast pace, new stores, small and large are always popping up. A couple examples include the Fresh Market chain which has 86 stores in 17 states, and the Central Markets which have 8 stores in Texas. In addition to the unique, organic centered grocery stores, companies such as Walmart, with over 100 billion dollars in sales, compete for the same customers that Whole Foods does.
Kroger and Safeway round out the list of the highest grossing grocery stores in the country. Due to the economic downturn, Whole Foods has tried to lower some of its pricing to compete with all of the other growing stores in the market. SWOT: Strengths: Despite the economic downturn, Whole foods has a strong financial performance. Revenues have grown by a rate of 17 percent over last year and this increase was driven by 14 percent square footage growth, excluding the recently acquired Wild Oats locations.
Whole Foods recorded sales per gross square foot of $923,an increase of approximately 7 percent over last ear. The Strong revenue growth has helped the company to pursue its expansion plans and improve its bargaining power in the market. The company has also grown through mergers and acquisitions, with approximately 32 percent of its existing square footage coming from take-over’s. In August 2007, Whole Foods merged with Wild Oats markets. Since the organic foods retailing industry is mostly comprised of small local chains, mergers have provided the company access to locations and they have retained experienced team members.
The company offers a broad product selection in all its stores and its larger stores, also have catering services where customers can purchase made-to-order foods. Whole Foods emphasis on fresh food gives the company an edge over its competitors who usually just offer packaged foods; this large product portfolio allows the company to address multiple customer segments. Weaknesses: The company has a weak international operation with just three stores in Canada, and six in the UK.
The company’s operations in the UK and Canada are not yet large enough in purchasing and distribution, resulting in relatively high product prices. Also, Whole Foods relies heavily on word-of-mouth publicity, which is a disadvantage in comparison to its competitors who use print, television and online media. The company spends small amounts on advertising and marketing compared to its competitors. In 2007, the company spent 0. 5% of its total revenues on advertising. Opportunities: Natural and organic food products are one of the fastest growing categories in food retailing.
There is growth in the demand for organic foods because of the increasing preferences among consumers for healthy food. The US organic food market grew by 12. 3% last year to reach a value of $15. 9 billion and is expected to hit 24 billion this year. Although organic products represent just about 2% of the total food and beverage sales in the US, the market is growing approximately 20% annually. More consumers are preferring natural, fat-free and healthy food products. Food items containing trans-fat are losing market share to low calorie, low fat, natural and organic products.
Increasing customer preference for organic foods is likely to impact the company’s sales, given its leading market position in the organic grocery segment. Threats: Whole Foods’ competitors include natural foods supermarkets, specialty supermarkets, warehouse membership stores, small specialty stores and restaurants. In addition, some traditional and specialty supermarkets are also expanding more aggressively in marketing a range of organic foods, thereby competing directly with Whole Foods for products, customers and locations.
For example, Wal-Mart announced that it will focus on the organic segment. They aim to become the low-price leader in organics, not just in food but clothing, electronics and other household products. Wal-Mart has already doubled its organic range in fresh produce, dairy and dry food items during 2006. Some of these competitors have greater financial or marketing resources than Whole Foods, and may be able to provide greater resources to promoting and selling their products.
Increased competition may have an adverse effect on profitability as the result of lower sales, lower gross profits and/or greater operating costs such as marketing. Discussion of Strategic Alternatives: Faced with unprecedented economic challenges and numerous competitors, Whole Foods needs to take an aggressive approach to offset any challenges. By anticipating continued interest in healthy eating, Whole Foods should target children as their new customer base with the development of an organic line of products designed for children.
With increased competition and economic conditions in the state they are, Whole Foods needs to expand their marketing strategy towards a more broader, interactive one. The use of Facebook and Twitter could be useful tools on the local, and global level to communicate with current and future customers. Whole Foods needs to also continue its commitment to the environment. Expanding on already in place programs, such as eliminating disposable plastic bags, charitable donations and green power use, Whole Foods should take part in programs that promote animal welfare on farms and ranches.
Value perception is one of the most important strategies that needs to be focused on if Whole Foods is going to overcome competing with low cost competition . Providing coupons, budget conscious recipes, and money saving tips are what customers value. A in store value guide can help customers locate the best deals in the store. Along with a friendly and educated staff, these strategic alternatives can provide Whole Foods with the tools necessary to overcome the challenges it currently faces.