Whole foods market 2015 annual report

Running Head: WHOLE FOODS 1

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Case Study: Whole Foods

Whole Foods Market Inc. is a grocery store chain that concentrates on offering organic and natural foods. Currently the grocery store has approximately 450 locations. Whole Foods Market Inc. created a high-quality customer experience by focusing on its product niche. Whole Foods Marketing Inc. main strength is having an established economic moat through brand strength. Whole Foods Market is the world’s leading natural and organic foods supermarket. Their mission is to promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome foods available (Whole Foods Market, 2014a). Their aspiration is to become an international brand synonymous with not just natural and organic goods. However the company has also maintaining a reputation of being the best food retailer in every community in which they locate. Perishable product sales accounted for approximately 67% of their total retail sales in fiscal year 2014. Prepared meals are already cooked meals for their customers, this opportunity that allow for the company to charge rich premium prices. This service that is offered represents almost 20 percent of total sales (Whole Foods Market, 2014a). Whole Foods’s business model focuses on providing quality, natural foods for its customers including organic foods, although at a much higher mark-up compared to normal grocery stores.

One of the main benefits of Whole Foods was the ability to provide to its customer’s exclusivity shopper items that couldn’t get anywhere else. Having this service is based and supported by the company’s operating model. The company’s operating model is a highly decentralized structure that enabled store and regional managers to utilize the research required to determine what products to have available for this marker (Mahtani, 2016).. Also, the employees provide the source local and regional products in the area. However, the growth of small organic food businesses like Sprouts, have provided alternative shopping items for customers at lower price alternatives than Whole Foods.

As Whole Foods Market expands its stores into environments that don’t have the resources to obtain the heft cost associated with organic price associated with healthy food supplied (Mahtani, 2016). Whole Foods Market needs to modify their core business and portfolio of providing natural and organic products to their customers. As Whole Foods Market’s facing margin pressures, it will need to think about was to improve its cost restructure but ultimately will need to find growth opportunities as well (Mahtani, 2016).

One avenue Whole Foods Market has determine a solution to that problem that is faced is the launch of the “365″ store brand. The 365 store brand is a lower cost alternative to its leading Whole Foods Market store which more readily supports to the more competitive low-price environment of natural, healthy grocer options and also supports("Sustainability and Our Future", 2016). Whole Foods Markets expansion into lower income markets where a lower price point store is likely to be more competitive than the original Whole Foods Market concept. While the current Whole Foods Market store does not give the company the competitive advantage against existing and new entrants. The Whole Foods Market vision of the “365 store” to provide a new concept of a new store with an operating model that supports a lower cost business model for its customers("Sustainability and Our Future", 2016).

As the grocery environment changes, Whole Foods is at risk of not effectively realigning and adapting their operating model to support a changing grocer retail business model of more low-price for value items for customers (Strom, 2015). Wall Street has similar sentiments that Whole Foods has not properly positioned itself among new competitors such as Costco or Walmart that are now offering cheaper organic and natural food options in their stores (Strom, 2015). Nicknamed “Whole Paycheck” many on Wall Street have sourced on Whole Foods potential to realize operational efficiencies in order to provide lower price points compared to competitors eating away market share. (Strom, 2015)

Whole Foods Market is one of those companies that aims to serve a higher purpose. Take its numerous environmental initiatives, supplier-friendly initiatives, local sourcing of many products, loans to farmers and other suppliers, and efforts to alleviate poverty ("Sustainability and Our Future", 2016). Each store has a separate budget for community philanthropic activities, and Whole Foods dedicates at least 5% of after-tax profits to non-profits every year; in the last three fiscal years, its donations that includes in-kind food donations that have amounted to more than 10% of after-tax profits("Sustainability and Our Future", 2016).

Environmentally, Whole Foods has always been ahead of the curve. It was the first retailer to offset 100% of its energy use with wind credit. , The company released its first Green Mission report, which illustrates how so many of its initiatives and programs make green sense. Providing fresh foods from sustainable farms, Eco-Scale labels, and its many initiatives from waste reduction built into its processes to green building and design make this retailer ahead of the curve to help result in a less polluted, greener planet.

Whole Foods' strong brand identity is likely its greatest source of competitive advantage. The company has established itself as the leader in the organic and natural food segment, and has invested heavily in store quality and customer service (Strom, 2015). These factors differentiate it from other grocers and they have fostered a relatively loyal customer base. To maintain this reputation, the company will have to continue ranking among the industry leaders in facility investment. It will also likely incur high labor expenses to keep customer service up to its high standard. These drags on earnings and cash flow are partially offset by increased pricing power (Strom, 2015). Whole Foods certainly has a competitive moat due to its size and brand power, but it is somewhat confined to its niche. The grocery market is ultimately highly competitive and mature, and the sustainability of Whole Foods' competitive advantage is dependent on its larger competitors' unwillingness or inability to address the organic market.

References

Mahtani, H. (2016). Whole Foods Sets Up Shop in Low-Income Neighborhoods. WSJ. Retrieved 9 October 2016, from http://www.wsj.com/articles/whole-foods-sets-up-shop-in-low-income-neighborhoods-1476010801

Strom, S. (2015). Wall Street Sours on Whole Foods Market. Nytimes.com. Retrieved 9 October 2016, from http://www.nytimes.com/2015/11/03/business/wall-st-sours-on-whole-foods.html?_r=0

Sustainability and Our Future. (2016). Whole Foods Market. Retrieved 9 October 2016, from http://www.wholefoodsmarket.com/mission-values/core-values/sustainability-and-our-future

Whole Foods Market (20014). Whole Foods Annual Report 2014. Retrieved October 09, 2016 from Whole Foods Market: http://www.wholefoodsmarket.com