Advanced Competitive Position Assignment—Whole Foods Market

Introduction
Whole Foods Market is a retailer in the highly competitive supermarket industry and a powerhouse in the organic
groceries market. But as the market evolves, it faces increasing pressure from competitors entering the market and
from customers demanding higher quality and lower prices. Whole Foods has already launched several initiatives in
response to these changing dynamics, and, as with any firm, there are weaknesses and opportunities in their
competitive position. Below, we’ll explore Whole Food’s competitive landscape, international and diversification
strategy, and their stakeholders.

Competitive Landscape

Wholefoods operates in the highly competitive supermarket industry and positions itself as “America’s Healthiest
Grocery Store”. [1] According to Whole Foods in their 10K they believe that growth in this area is driven by
several key factors: higher awareness of the impact of healthy eating has on long-term wellness, a growing
demographic of educated and wealthy people, influential younger generation that shares the same values as Whole
Foods and increasing concern over the safety of food and the environment. From this data, one can assume that
Whole Foods has a good position but an analysis of the competitive landscape will help determine how the
competitors and industry will evolve.

Generally, the supermarket industry has been in the mature phase in the competitive life cycle, however, there has
been a disruption or a “tectonic shift” in the entire industry as the Whole Foods co-CEO Walter Robb describes.
There is a significant increase in demand for organic food and pressure for lower prices.[2] This disruption causes a
new S-curve to form, and it is currently in an emergent phase as more competitors begin to experiment with their
business models. Kroger and Walmart have expanded their organic food options, and the price is lower than Whole
Foods.[3] (Please refer to Exhibit 1, The Competitive Life Cycle)

In response, Whole Foods is launching a lower price chain of stores called 365 to capture the millennial market, as
well as letting go 1500 employees to save on costs, which they can pass to consumers in the form of lower price.[4]
Whole Foods was well positioned for the organic food demand but not prepared to compete on price. Hence, a
competitive analysis is useful for determining the dynamics of the industry and setting the context for future
strategy.

Internationalization Strategy
In 2002, Whole Foods opened its first international grocery store in Toronto, Canada [1]. The Canadian market was
a logical choice when deciding where to expand. First, Canada was a great market opportunity as consumers were
beginning to trend towards healthier and organic foods. Next, Whole Foods could capitalize on pre-existing
purchasing agreements and supply chains with organic suppliers within North America. As one of the largest
natural and organic grocers in the United States, Whole Foods was in a great position to capitalize on the Canadian
market. Whole Foods initially chose to expand into Canada through “Greenfield” development, building their
flagship store in Toronto’s upscale Yorkville area [2]. However, they have also acquired local companies such as
“Capers” and rebranded them to Whole Foods, so that they could expand more rapidly. As of February 2015, they
have 9 stores in British Columbia and Ontario [3]. Whole Foods also plans to expand operations incrementally to
roughly 40 stores over the next few years [3].

In 2004, Whole Foods entered the UK market through the acquisition of Fresh and Wild, a U.K. organic grocery
store chain [4]. However, they have been unprofitable within the UK thus far. Part of this is due to Whole Food’s
lack of local responsiveness to meet local shopping trends. For example, store sizes are likely too large for UK
customers, who prefer smaller, more compact grocery stores. Co-CEO John Mackey told The Grocer that future
stores would have smaller footprints (roughly 1/3 the size) in order to match local tastes [5]. He also mentions that
the UK organic food market is less mature as compared to the US market, leading to lower sales [5]. However,
Mackey also states “Whole Foods takes a long term view. We will be very patient” thereby indicating his long-term
commitment to the UK market.

Diversification Strategy
According to the company annual report, ‘Whole Foods is the leading retailer of natural and organic foods, and the
first national “Certified Organic” grocer’. [1] On that note, one expects that the firm’s scope should align with the
firm’s definition and values. Indeed, it does. Taking into consideration that Whole Foods owns its stores, it could
potentially diversify its business through horizontal (competitors or small players) or vertical (suppliers)
consolidation.

Horizontal: Whole Foods has a unique culture and value proposition, creating a significant barrier to competitor
acquisition. Therefore, the firm maintain its scope in developing and acquiring real estate locations organically
growing the company.
Vertical: Two main segments divids Whole Foods vertical integration strategy, food supply and food distribution.
Regarding its organic food supply, in fiscal year 2014, exclusive brands accounted for approximately 13% of total
retail sales and 18% of non-perishable sales. [1] The firm’s 365 Everyday Value® brand accounts for approximately
half of exclusive brand items, resulting in significant synergies for the company. Whole Foods’ diversification
strategy was to capitalize on its direct access to consumers of organic food by becoming a niche food producer. The
firm also considered that the ‘organic food producer’ benefits from the same industry attractiveness of an ‘organic
food retailer’ (please refer to Exhibit 2, Diversification Matrix).

In terms of food distribution, the industry does not benefits from the same attractiveness as both producers and
retailers, since it is relatively commoditized service compared to non-organic food. Therefore, the firm engages in
strategic partnerships such as the one with United Natural Foods (“UNFI”), their single largest third-party supplier,
accounting for approximately 32% of total purchases in fiscal year 2014. [1] It is a clear strategy to play with Whole
Foods’ strengths while protecting the firm from potential competitors’ move.

Stakeholder analysis
Whole Foods has been able to develop a competitive position that allows it to create value to its key stakeholders.
The company effectively works to satisfy stakeholders’ needs and it is very clear with its commitments. Whole
Food’s competitive position is able to align its values, opportunities and capabilities in a very effective way. The
company clearly projects how it creates value to everybody. Whole Foods’ purpose is not only to create financial
returns but also to help the society as a whole. Exhibit 3, Stakeholder map depicts key stakeholders and the value
proposition that Whole Foods provides to each of them.

Synthesis of Findings
At first glance, Whole Foods seems to be in a relatively strong position. They have been able to capture the growth
in the organic food trend in the industry as both a retailer and producer. However, upon further analysis it appears
that there are some significant vulnerabilities in their business model. While there are increasing customers
purchasing organic food, they are also more price sensitive. The major retailers are growing their organic food
selection and can offer a lower price. Recognizing this trend, they have launched smaller and lower price stores but
it may be too late. Their foray into Canada has been successful, but the UK market has not been as receptive. The
distraction in the UK market might undermine their attempt to fight off competition in the US, which represents a
threat until they can convince the UK market to shop at Whole Foods. Overall, there is going to be an inevitable
price competition in the US, but there is still an opportunity to convince customers that Whole Foods quality is the
best. The investment in the lower cost stores is a good response but only time will tell if the market will accept them.

Addendum of Exhibits
Exhibit 1 - The Competitive Life Cycle
Exhibit 2 - Diversification Matrix
Exhibit 3 - Stakeholder Map
References
Competitive Landscape

1. Form 10-K Whole Foods, September 2014 http://assets.wholefoodsmarket.com/www/company-info/investor-

relations/annual-reports/2014-WFM-10K.pdf

2. Whole Foods CEO: We’re facing a ‘tectonic shift’ http://www.businessinsider.com/whole-foods-ceo-were-facing-

a-tectonic-shift-2015-9

3. Did Kroger eat Whole Foods’ Organic Lunch in Q2? http://news.investors.com/090815-769967-kroger-seen-

keeping-up-double-digit-profit-gains.htm

4. What’s the Matter, Whole Foods? http://www.theatlantic.com/business/archive/2015/09/whats-the-matter-whole-

foods/408208/

Internationalization Strategy

1. Whole Foods expands outside the United States, May 2002

http://media.wholefoodsmarket.com/news/whole-foods-market-expands-outside-the-united-states

2. Whole Foods CEO Confirms Aggressive Canadian Expansion, Retail Insider, November 2014
http://www.retail-insider.com/retail-insider/2014/11/whole-foods

3. Whole Foods CEO says he’s Full Steam Ahead in Canada, The WSJ Canada, Nov. 2014
http://blogs.wsj.com/canadarealtime/2014/11/20/whole-foods-co-ceo-says-its-full-steam-ahead-in-canada/

4. The Whole Foods Market History

http://www.wholefoodsmarket.com/company-info/whole-foods-market-history

5. Whole Foods Market Unveils Smaller Store Strategy for UK, The Grocer, June 2013
http://www.thegrocer.co.uk/channels/supermarkets/whole-foods-market-unveils-smaller-store-strategy-for-
uk/344492.article

Diversification Strategy

1. Whole Foods 10-K, September 2014

http://assets.wholefoodsmarket.com/www/company-info/investor-relations/annual-reports/2014-WFM-10K.pdf

Stakeholder Analysis

1. Whole Foods 10-K, September 2014

http://assets.wholefoodsmarket.com/www/company-info/investor-relations/annual-reports/2014-WFM-10K.pdf
2 The Whole Foods Company Histry
http://www.wholefoodsmarket.com/company-info

2. The Cornupia Institute

http://www.cornucopia.org/