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Whole Foods Analysis

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Whole Foods[a]

External Environment Analysis[b]; General Environment Analysis[c]; Political/legal – The US Dept of Agriculture specifies guidelines for organic and natural foods. These guidelines could become tighter, and supply is already very small (3% of production dedicated to organics).  Technological – No major trends to note. [d]Sociocultural – Health concerns have long driven food purchase, but organics represents a relatively new niche. More women in the workforce presents an opportunity for prepared meals. Economic – WFMI has weathered a tough economy, but should be concerned if economy were to face a significant long-term downturn. Global – Information suggests that there might be potential opportunity outside of US, with WFMI’s moving into UK and Wild Oats in Canada. Demographic – Aging baby boomers and urban singles are both growing demographics with discretionary income and a health conscience that present opportunities for the organics niche. Overall, the general environment presents significant opportunity for growth.[e]

Industry Environment Analysis; Bargaining power of suppliers – A high threat for the industry overall as suppliers are providing a critical supply that is high in demand (and increasing) and short in supply. WFMI’s existing strong relationships with suppliers should offset this threat. Bargaining power of buyers – The buyers are individual consumers. This is not a concentrated buyer group, but there are low switching costs, so buyers do have bargaining power (i.e., a moderate threat). But, WFMI’s brand loyalty should reduce this threat[f]. Threat of new entrants – Very high, as evidenced by the industry-wide competitors coming into the niche. Capital requirements are relatively low (a high threat), but WFMI’s differentiation strategy will maintain customer loyalty. Interfirm rivalry – Historically, interfirm rivalry has been low as this is a young industry and there has been sufficient room for competitors to grow. As the ideal markets are being filled, competitors will begin to encroach on each others’ markets, leading to more competition going forward. Given its strong brand and differentiation strategy, WFMI might be more immune to a price war than its competitors, but it still needs to be cautious as it has high strategic stakes in the organics niche (i.e., it is not diversified). Right now, this industry force is an opportunity, but this is evaporating rather quickly. Threat of product substitutes – Natural foods and general groceries are the main product substitutes. This threat is low for more educated consumers but high and remaining so for the general consumer. The industry is mixed, but is becoming less attractive. WFMI should be well-positioned given its differentiation.  

Competitor Environment; Trader Joe’s – a privately-held firm with more, but smaller stores than WFMI, also enjoying growth but pursuing what appears to be a cost leadership strategy.

Wild Oats – 3rd-largest competitor behind WFMI and Trader Joe’s, Wild Oats is a publicly held firm with stores in the US and Canada that is also enjoying growth. Wild Oats provides both organics and general groceries, and is working to strengthen and streamline its operations. Leadership is less familiar with the organics niche. General grocery stores – Historically not competing in organics niche, these competitors have recently seen the growth and value creation within the niche as very attractive and have begun entering the niche by offering organics in their existing stores. These competitors are much, much larger and often compete on price.

Internal Environment Analysis[g]

Strengths – WFMI has vertically integrated (i.e., bakeries, fisheries, etc.), gaining market power and control over supply and reducing intermediary costs. WFMI was an early mover into the organics niche and has been able to capture a significant footprint before competitors. Also, see value chain below. Weaknesses – CEO Mackey has been a truly entrepreneurial CEO, having the alertness to identify higher-margin products and ways to increase supply control and reduce intermediaries. In addition, he knows how to target his customer niche. See value chain.

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