Description: A business analysis for the company Whole Foods Market done from a strategic management point of view. Written for as term paper for the course Business Strategy & Policy.

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1. Which of the general environmental segments are most relevant to Whole Foods Market? Why?

Whole Foods Market is basically a food retailer that centers in selling organic natural products. Their food base ranges from seafood to baked goods to even pet food. It is single handedly the largest and most popular organic food retailer in the business. Whole Foods has lead the way for all other organic and natural food retailers and for years has been able to conquer over their competition. With the success of this company it is obvious that they have been successful in gathering the needed information and has been able to create a success strategy. Part of gathering the information is also to understand the general environment segments. The general environmental segments are divided into six dimensions that essential “…influence an industry and the firms within it” (Hitt). The six segments in the general environment are as follows: demographic, global, technological, economic, political, and sociocultural. Out of these six dimensions there are only three that are directly relevant to Whole Foods Market. These three out of six are the segments relevant to Whole Foods Market: political, sociocultural, and demographic dimensions.

The demographic segment is “…concerned with a population’s size, age structure, geographic distribution, ethnic mix, and income distribution” (Hitt). Because of the incredible population changes, there are modifications being made by Whole Foods in order to provide different ethnic oriented organic food. Whole Foods Market, an organic food distributor, is now targeting young children as their new base.  In fact Whole Foods Market has gone as far as to develop “…an organic line intended just for children, with products such as peanut butter and applesauce” (Sandberg). The important of getting children healthy is now a major issue and that certainly gives Whole Foods an advantage. As the world’s largest foods retailer they have to be on top of this new raised awareness and are obviously looked for to provide healthy food.  This in turn ties into the sociocultural segment of general environment table. The sociocultural segment is “…concerned with a society’s attitudes and cultural values” (Hitt). Whole Foods is interrelated with the consumers’ feelings on organic food and so understanding their views helps them create strategies to sway them. Organic food for children has taken a sharp interest in the U.S. and this is just another area where Whole Foods can take advantage. Back last year when the pet food scandal hit the fan and family pets started dying, Whole Foods has organic dog food to showcase. Basically the sociocultural segment is the significant trends that the consumer is looking for. The sociocultural segment is important and relevant to Whole Foods Market because it relates to concern for the environment. Growing concerns to ‘go green’ have helped in the growing success of Whole Foods. People are now flocking to get healthy and to ways to help cleanse the environment, so how does Whole Foods deal with that? They support what their consumers do. And then there is the political segment, which is the “…arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding the interactions among nations” (Hitt). This segment is very important to Whole Foods, as well as any other organic food retailer. It is important because all products have to pass FDA approval, if not then there goes waste of time and money. Whole Foods Market has been able to understand this segment, and by doing so has created their own policies when processing foods. This action not only adds creditability, but also assures that government regulations will be followed thoroughly.

2. Define and describe the industry environment taking into consideration the dominant characteristics such as market size, growth rate, scope of rivalry, product/service differentiation.

The organic and natural food industry is a relatively large and popular one that continues to grow with every passing day. In the organic industry the “…range of competitors include chain and independent supermarkets; mass merchandisers and super centers; convenience stores; wholesale clubs; restaurants and fast food chains; natural food stores; local farmers’ markets, and internet grocers” (Lytel). Global growth of organic agriculture has gained much popularity, which continues to accumulate attention. The reason for that is simple, it is because this industry…

“…can be a profitable, sustainable business for those producers interested in going through the certification process necessary to enter this market. Organics have grown at a rate of nearly 20 percent per year for the last seven years, and industry experts are forecasting continued growth. One study, undertaken by the Organic Trade Association, surveyed industry leaders about the trends in organics and where they saw the next 20 years taking them. They forecasted that overall; the everyday use of organic products of all kinds will be both accepted and routine by the year 2025″ (“Organic Food Trends”).

The continuation of market size and growth is expected to continue strong and currently in the U.S. it is a “…$32 billion industry and a subset of a $450 billion conventional food industry” (Southworth). Without question, the organic food industry is experiencing hasty consolidation but it still faces immense competition in these upcoming years from supermarkets who are falling into the organic trend.

Prices are the dominant of this industry. The cost of organic food is the bases of its competition since in truth there is not substitution for organic food. It either is or it isn’t. With that being said, the following “…are rough estimates of percentages of sales at retail:

Natural foods retailers — 37%: Super naturals — 10%: Supermarkets — 28%: Multi-level marketers — 16%: Other (practitioners, mail order, etc.) — 8%” (Southworth).

Clearly organic food retailers are on top right now but supermarkets are slowly closing in, as the organic trends grow stronger in U.S. society. In a survey given to organic and natural food buyers showed that “…better than 75% of current natural food consumers… purchase their natural product through conventional supermarkets” (Southworth). Supermarkets offer relatively lower prices than those organic food retailers and so consumers base their purchase on price. With supermarkets offering organic foods they develop their own store brand natural foods thus once again giving consumers low prices for basically the same product. An example of what is being stated is as follows:

“The larger and more mature supermarket players have natural product private label for commoditized packaged product. Kroger’s private label organic aseptic soymilk has retailed for as low as 99¢ in the Cincinnati marketplace. In the Northeast, Trader Joe’s has sold private label and branded aseptic soymilk for $1.49 to $1.69, and Whole Foods sells their private label at $1.45 and branded starting at $1.79″ (Southworth).

Because there is no ‘difference’ in organic food, price is all consumers really look for when buying their products. In a way, the organic food industry is a game of price and who can attract the most consumers with the best competitive price. This will become more and more of a problem for the organic industry as these supermarkets begin putting more organic products on their shelves.

3. Apply Porter’s Five Forces Model of Competition to the natural and organic foods industry. Is this an attractive industry?

The five forces in the competition model are as follows: threats of new entrants, rivalry among competing firms, and threat of substitute products, bargaining power of buyers, and bargaining power of suppliers. Threats of new entrants are a major concern for the natural and organic food industry. If regular stores and supermarkets start picking up on organic food, the organic food industry will see a struggle. After all if a popular store like Walmart completely picks up on offering organic food then Whole Foods will definitely see a decline. Walmart is able to offer lower prices and is already a large retailer so it would have no problem stealing organic food consumers from Whole Foods. With the popularity of organic food rising, it is only a matter of time before neighborhood markets and common store retailers start stacking up on organic products. However it will still be a while before supermarkets and such start to fully engage in stocking entire sections of organic food. Currently in most supermarkets, like Shoprite, have at most an aisle or two of organic and natural foods. The selection in supermarkets is very limited so full organic retailers till have full advantage in this area. The threat of substitute products is not something that the organic food industry needs to be entirely too worried about until the point where supermarkets will carry full lines of organic products. Essentially there is no other food substitute for organic and natural food so the only thing this industry has to worry about is organic brand substitution. The main cause of substitute threat would be the lower costs being offered by other brands. If stores like Walmart and Shoprite start to offer organic products under store brand names then that will definitely suck some consumers away from solely organic food retailers, like Whole Foods.

Like it was mentioned before, the natural and organic food industry is one that is seeing growth and will obviously continue to see more growth as the years go by. This growth is, like mentioned earlier, bringing about a lot of new competition, but none (besides Whole Foods) have that large of a market power base. Thus far Whole Foods is the largest organic food retailer and has done a remarkable job of staying on top. Whole Foods relies on being to buy out its competition:

“So far, Bread & Circus, Fresh Fields, Merchant of Vino, Mrs. Gooch’s, Bread of Life, and Wellspring Markets have been absorbed. The only competitors that remain are dozens of small natural food co-ops — which have been able to parry Whole Foods’ advances by emphasizing their community ownership and because they can survive on smaller margins — and Wild Oats, which is assaulting Whole Foods by opening a new chain of natural food stores called People’s Market that emphasizes low prices” (Wilson).

Although both Whole Foods and Wild Oats have an intense competition, all organic food sellers in general don’t have to worry about competition all too much. There aren’t too many options as mass merchandisers have yet to fully pick up on organic foods. Besides the lack of other organic retailers, “…the organic food segment may be further aided by the recent USDA requirements for organic labeling of products” (Lytel). This increase in the awareness of organic and natural food will likely continue since now the consumers are being educated on the benefits of ‘being all natural’.

The other two forces in Porter’s model are bargaining power of supplies and the bargaining power of buyers.  With the bargaining power of buyers, the firms seek to make the most of returns on their spent capital. Consumers in the organic industry are not really looking for say the best price but instead the best quality. Research has shown that “the retail grocery market is typically considered somewhat resistant to economic downturns, thus, to some degree, consumers’ food budgets are price insensitive” (Lytel). But like mentioned earlier in the paper, there still existents the chance that when stores like Walmart, and other mass merchandisers, start to carry organic food that there will be a decline in income for Whole Foods. In addition, “…while individual consumers typically lack significant buyer power to affect the specific prices of products, collectively, they can exert influence on retailers to sell or not sell specific types of products” (Lytel). The bargaining of supplies, on the other hand, basically deals with “…increasing prices and reducing the quality of their products…” (Hitt). As such the “…organic food suppliers are not highly concentrated, so natural food retailers have some power over them” (Lytel). The fact that there are not any substitutes for organic and natural food greatly helps this industry. In addition to this: “…there is a trend for top conventional food manufacturers to invest in national/organic food companies (examples include HJ Heinz, Kellogg, Kraft & General Mills)” (Lytel). That being said, it equivalents to meaning that in order for a supplier to have little to no influence, there has to be a large number of suppliers in the market.

The natural and organic food industry is a very attractive industry and will be even more so in the upcoming years. People are constantly being surrounded by efforts of promotion to ‘go green’, ‘be healthy’, ‘and to ‘live a healthy life style’. All of these promotions are basically just urging people to go all natural in their product choices and it is working. During the last year threes alone the “…industry grew at an approximate 11% annual rate” (Southworth) and even more of a growth is expected in the years to come. Whole Foods alone has been a very successful player in the organic food industry and that was before the trend of ‘going green’ had even begun.

4. What are Whole Foods Market’s tangible and intangible resources? Which of these will be critical in developing capabilities and core competencies?  

Whole Foods Market tangible resources are divided into three dimensions: financial resources, organizational resources, physical resources, and technological resources. Whole Foods has a variety of different locations where they product their meat, fish, and fruits and vegetables. It has acquired farming capabilities al over the U.S. in order to ensure the best of the best. Whole Foods Market has made it clear to its consumers of its ideal locations and that includes being in neighborhoods with a “…large number of college-educated residents” (“Whole Foods Market”). The reason for that is simple. A lot of the population still remains uneducated about the benefits of organic living and as such don’t seek out organic retailers. The intangible resources of Whole Foods Market are divided into three dimensions: human resource, innovation resource, and reputational resource. The dimension of human resource is one that Whole Foods thoroughly excels in. Even though things such as knowledge cannot really be measured, the amount of customer loyalty should be an indication. By being the largest natural and organic food seller, Whole Foods has managed to win over at of consumers and as such has managed to obtain their trust. Whole Foods is a seller that is trusted because of their care they put in the production of the foods.

Whole Foods has built strong relations with their supplies, which transcends over to their consumer base as well. Not only has that but Whole Foods made a special note to treat all their employees as part of team. When it comes to innovation resources Whole Foods has managed to stay on top of things and the latest trends. The healthy movement across the U.S. to promote a healthy lifestyle in adults, but especially in children has helped attract many consumers over to Whole Foods. Whole Foods Market, like mentioned before, has been the first to provide a line of organic foods made for the tastes of children. Things like peanut butter, cereal, and snacks have all been imagined after children in order to attract them. In terms of reputational resources, Whole Foods has created value for itself by going one step further and sees to each detail of the process of any food being sold. They have a solid belief in making sure, for example, that the meat and poultry has passed not only U.S. Department of Agriculture standards but also their own.  That is why Whole Foods Market is the largest organic food retailer to date, because it has been able to establish (and maintain) a reliable reputation with its consumers.

But it doesn’t just stop with its consumers being satisfied, Whole Foods goes the extra mile to see that their suppliers are satisfied as well. Whole Food and their suppliers have a close-knit relationship that helps the production of their food. They work closely together in order to achieve the best quality and thus developing mutual trust. The dimensions stated above certainly all help develop Whole Foods capabilities but especially it would have to be their human resources and marketing areas that are the most effective. Things such developing their own child line of organic foods certainly helps them develop an advantage over their competition, which in turn develops into a capability for their firm. As stated by Whole Foods Market themselves, their “…five stated core values include:

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  • selling the highest quality natural and organic products available;
  • satisfying and delighting our customers;
  • supporting team member happiness and excellence;
  • creating wealth through profits and growth; and
  • caring about our communities and our environment” (“Whole Foods Market”)

The core values that Whole Foods Market has developed further aids their core competencies and further gives them a competitive advantage above all the rest.

5. What type of business-level strategy has Whole Foods Market adopted to establish and defend their strategic position against competitors? To what extent should Whole Foods Market pursue international expansion?

It is a safe assumption to say that Whole Foods Market is a very unique character in the natural and organic food retailer business. As such it only makes sense that this has come to be because of their ‘unique’ business-level strategy. The business level strategy that Whole Foods has adopted is the differentiation strategy and has thus far been using it successfully. By textbook definition the differentiation strategy is, “…an integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them” (Hitt). Organic food is simply that and there cannot be any substitutes, but it can be presented differently which is partly what Whole Foods does. The phrase, ‘you get what you pay for’, is what Whole Foods is all about. Their strategy markets their foods in the highest of quality and of course if consumers want that high quality they look past the price. But their strategy is not all about their price, it also include the service it is offering to their consumers. Whole Foods has had an active part from the get go as far as setting the standards for organic and natural foods. Whole Foods Market makes it their prime purpose to provide fully organic food and nothing less, thus earning the title of first national retailer to be certified organic. It is efforts like that, that set them apart from all others. In fact there is not one other retailer that fully matches their business description, the only one coming in kind of close would be Wild Oats.

Whole Foods Market has already started to pursue international expansion by establishing themselves in Canada with a total of three years.  But Whole Foods has not stopped there and has developed six stores in the United Kingdom. International expansion is definitely a good idea because people all over the world are getting informed about the benefits of natural and organic foods. But in terms of other countries, Whole Foods should be careful when heading over to countries like Peru where the majority of the people are more concerned with just being able to bring food to the table. So in other words, the countries economic situation should really be researched before Whole Foods Market decided to head over there. Basically international expansion should only occur where there will be a strong consumer base to connect with.

Works Citied

• Hitt, M, Ireland, R., Hoskisson, R. (2007).   Strategic management: Competitiveness and globalization: Concepts (8^th Ed.). New York: Thomson/South-Western.
• Lytel, Kipley J. “Independent Investment Research.” Spelman Research Associates. <http://www.spelmanresearch.com/reports/35.pdf>.
• “Organic Food Trends.” Feb. 2008. <http://www.agmrc.org/agmrc/markets/Food/food+organic.htm>.
• Sandberg, Lisa. “Natural Food Industry Gears Up for Youth Market.” Organic Consumers Association. 22 Nov. 2000. The National Post (Canada). <http://www.organicconsumers.org/Organic/kidsgoorganic.cfm>.
• Southworth, George. “Natural/Organic Industry Outlook.” Cooperative Grocer. Sept.-Oct. 2001. <http://www.cooperativegrocer.coop/articles/index.php?id=333>.
• Whole Foods Market. 7 May 2008 <http://www.wholefoodsmarket.com>.
• Wilson, John K. “Going Whole Hog with Whole Foods.” BankRate. 23 Dec. 1999. <http://www.bankrate.com/brm/news/investing/19991223h.asp?prodtype=advice>.