Executive Summary Whole Foods Market, Inc. –25 Years Of Double Digit Revenue Growth –$4.7B...
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Transcript of Executive Summary Whole Foods Market, Inc. –25 Years Of Double Digit Revenue Growth –$4.7B...
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
• Porter’s 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
• All Products Sold As “Organic” Must Now Meet The Requirements Of The USDA Organic Rule
• Approximately $13 Billion In Sales In 2005
Market Definition
Internal Rivalry
Threat To Profits: High
Sources Of Internal Rivalry:– Many Sellers In The
Market– Differing Cost Structures– Strong Exit Barriers
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
Internal Rivalry
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
Barrier New Entrant Re-Branded
Economies of Sales Strong Moderate
Government Protection N/A N/A
Brand Loyalty Moderate Moderate
Access to Key Inputs Strong Weak
Experience Curve Strong Weak
Network Externalities Strong Moderate
Competition Expectations Strong Moderate
Overall Threat: Low High
Entrant Comparison
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
Who’s Next?Who’s 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
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
Supplier Power
Buyer Power
Threat To Profits: Medium To High Buyers Have Options!
• Price • Convenience• Varying Levels Of Health Sensitivity• Mixed Consumer Messages
Porter’s FiveForces Summary
Porter’s Five Forces Threat to Future Profits
Internal Rivalry High
Entry Medium
Substitutes/Complements Medium
Supplier Power High
Buyer Power Medium to High
Whole Foods, Whole People, Whole Planet
• Corporate Culture
• Customer Experience
• Perishables
• Hip Image
• Double Digit Growth
• Largest Selection
Strengths
Strengths
WholeWhole FoodsFoods:Reputation:
Healthy, Local Food
Whole PeopleWhole People: Branding For Affluent And Health Conscious
Positive Employee Environment
Whole PlanetWhole Planet:Environmentalist Reputation
Encourages Brand Loyalty, Holds Off Commoditization
Whole Financing!Strong Cash Flow And Stock Position Provide Capital
For Growth In The Most Highly Desired Locations
– 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
t
Strengths
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
CorporateStrategy
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 TermStrategy
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 TermStrategy
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