STRATEGIC AUDIT FOR:

Georgia State University

MBA 8820

April 18, 2006

by: Renee Werner, Taylor Tisdale, Andrew Pequinot, Robert Harper

Worlds Leading Natural and Organic Foods Supermarket

Organic Food Industry Overview

19% growth over last 5 years

In 1990s, growth rate of 23.4%

Compared to 4% growth for grocery industry

Sales: 1997-$4.2B 2000-$7.9B 2005-$15B

Whats driving growth?

Consumer demand for healthier food

1999 19% growth of organic food in grocery stores

Knowledge of food production, distribution,
enhancements, safety, genetic engineering
Low power very limited choice for organic food
availability
Worlds Leading Natural and Organic Foods Supermarket

Porters 5 Forces Analysis

Suppliers

Food product moderate power

Few organic farmers due to strict production rules

Local farmers to international food producers
Small batches of highly differentiated food
More farmers entering highly profitable industry

Labor force- moderate power

Firms use professional workers for differentiation

Non-specialized workers could unionize; increase power

Worlds Leading Natural and Organic Foods Supermarket

Porters 5 Forces Analysis

Barriers to Entry High

Government regulation of organic food

USDA Certification required for organic label

High capital requirement to obtain food

Strict guidelines for store layout

Organic food must be shipped, stored, sold separate

Each actor in supply chain must adhere to rules

Worlds Leading Natural and Organic Foods Supermarket

Porters 5 Forces Analysis

Substitutes low power

Grocery and organic food industry can coexist

Grocery industry growth flat 3%-5%
Initially, industry considered gateway to organics
Consumer demand for organics driving low power

Competitive Landscape

Few players: one large firm, few smaller

Firms compete on differentiation strategy

Pricing strategy doesnt offer range of products

Worlds Leading Natural and Organic Foods Supermarket

PORTERS VALUE CHAIN ANALYSIS

Firm Infrastructure: emphasis on team culture helps appropriate returns to
Whole Foods and not staff
Human Resources: recruitment of team members that have passion for
philosophy & products of Whole Foods creates highly knowledgeable and
motivated staff
Technology:
Procurement: developed relationships w/ farmers of organic foods to learn
which products could feasibly be made available
Inbound
Logistics:

Operations:
Quality
Standards
Team
implemented
to ensure
quality
requirements

Outbound
Logistics:
Dist. network
incl. packing,
storage, and
shipping
ensures
quality of
products
from farmer
to store

Marketing &
Sales:
Charity
events
create
goodwill w/
community;
turns
customers
into
advocates

Service:
Excellent
cust. srvc
and retail
innovations
create value
through
pleasurable
shopping
environment

Worlds Leading Natural and Organic Foods Supermarket

MARGINS

RENT EARNING POTENTIAL

Superior
Customer
Service

Extent of
Competitive Adv

Sustainability of
Competitive Adv

Appropriability of
Competitive Adv

limited number of
knowledgeable staff

capability is durable;
reputation is built
Over time

team philosophy
recognizes team
over individuals

creates value for

customers; enhances
shopping exp

can steal staff, but

the capability is also
part of WFs system

relative
bargaining power

time advantage for

WF; incorporated
into their framework

none

Worlds Leading Natural and Organic Foods Supermarket

RENT EARNING POTENTIAL

Distribution
Network

Extent of
Competitive Adv

Sustainability of
Competitive Adv

Appropriability of
Competitive Adv

scarcity

network is durable;
learn over time

system is embedded
into organization

very relevant to
ensuring the quality
of products

not without acquiring

the company

relative
bargaining power

is replicable, but WF
has time & learning
curve advantage

none

Worlds Leading Natural and Organic Foods Supermarket

Wal-Marts Entry Into Organic Foods

We know that customers at all ends of the

income spectrum want organic and natural
foods. But, frankly, most of them just cant
afford the high prices the specialty stores
charge. Well, we dont think you should have
to have a lot of money to feed your family
organic foods. Lee Scott, Wal-Marts CEO

Worlds Leading Natural and Organic Foods Supermarket

Short-Term Impact on Whole Foods

Wal-Marts low prices should have little shortterm impact.

Demand is still outpacing supply.

Whole Foods differentiation strategy

Whole Foods offers a vast selection of organic products.

Quality foods
In-store experience

Location Wal-Mart v. Whole Foods

Worlds Leading Natural and Organic Foods Supermarket

Long-Term Impact on Whole Foods

Wal-Marts entry a sign of maturity on the

horizon?

Price competition, decreased margins.

Profits derived from scale efficiency and low input
costs.
Quality and branding become more important.

Worlds Leading Natural and Organic Foods Supermarket

Scenario Analysis

Consumer trends toward healthier eating

continue.
Increased government regulation.
Evolving standard for organic/natural foods.
More knowledgeable consumers

Both health factors and cost factors

Differentiation competitors

Trader Joes
Worlds Leading Natural and Organic Foods Supermarket

Recommendations

Continue to build the core competencies

critical in a mature market.

Quality quality foods

Branding unique customer experience

Continue to meet the evolving demands of its consumer

base.

Backward vertical integration

Increase supplier power

More quality.
Lower prices.
Worlds Leading Natural and Organic Foods Supermarket