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Whole Foods Market - Competitive Strategy Analysis

Whole Foods Market - Competitive Strategy Analysis

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Executive Summary ................................ ................................ ................................ ........... 3 Global Organic Food Industry ................................ ................................ ............................ 4 U.S Organic Food Industry ................................ ................................ ................................ . 4 Five Forces Analysis - Organic and natural foods - Industry Analysis ................................ .. 4 Whole Foods Market Inc. ................................ ................................ ................................ .. 4 Strategic Game Board Analysis Whole Foods Market, Inc. ................................ .............. 5

Scenario Analysis Winds of change in the Organic foods industry ................................ ... 6 Whole Foods Market Whole Foods Market SWOT Analysis ................................ ................................ .............. 8 Competitive Strategy Analysis ................................ ....................... 8

Strategy #1: Design solutions with the customer in mind ................................ ............................ 8 Strategy #2: Bigger is better, even in focussed differentiation................................ ................... 10 Strategy #3: Perishables An imperishable source of success ................................ ................... 11 Strategy #4: Inorganic growth in Organic foods market................................ ............................ 13 Strategy #5: Change is the only constant................................ ................................ .................. 15 Strategy #6: Tangibles and Intangibles................................ ................................ ..................... 16

Recommendations ................................ ................................ ................................ .......... 18 Exhibits................................ ................................ ................................ ............................ 19
Exhibit 1: Global Organic Foods Market Value and Forecast ................................ .................. 19 Exhibit 2: Global organic food market segmentation ................................ ................................ 20 Exhibit 3: Key Players in the Global organic foods industry................................ ........................ 21 Exhibit 4: US Organic Foods Market Value and Forecast ................................ ........................ 22 Exhibit 5: U.S organic food market segmentation ................................ ................................ ..... 23 Exhibit 6: Key Players in the U.S organic foods industry................................ ............................. 24 Exhibit 7: Whole Foods - Product Lines / Product Mix - Trademarks and Subsidiaries ................ 27 Exhibit 8: Porter s - Five forces analysis of US Organic foods Industry................................ ........ 28 Exhibit 9: Whole Foods Market - History of Acquisitions ................................ ........................... 31 Exhibit 10: Whole Foods Market - Product Mix ................................ ................................ ......... 35

References ................................ ................................ ................................ ...................... 36

Executive Summar y Whole Foods Market, Inc. is a very interesting and rich study in terms of strategy because there are so many different facets of strategy one could observe in the footnotes of its history. In each segment of analysis starting from analyzing the industry structure in which Whole Foods operates, to analyzing sources of competitive advantages, to identifying the creation of sustainable competitive advantage, to establi shing the strategy behind changes made to counter the growing competition and decreasing consumer confidence on the face of recession, to verifying if geographical diversification to Europe would help, we have tried to link this analysis with our course co ncepts. In trying to do so, we have gained new perspectives which have enabled us to appreciate the power of the tools and techniques taught during this course and learned how to collate and use information from multiple sources.

Detailed analysis in Exhibit 8 Whole Foods Market Inc.Industry Analysis The players in the organic food market are taken to be the producers of organic food for the purpose of the Five Forces Analysis . The revenue for the organic food market in the US was $25.S Organic Food Industry While the market value of the US organic food market has seen a substantial increase in the past few years. and this grew at a 16. however this growth has been at a gradually decelerating rate.S organic foods industry Refer Exhibit 5 for market segmentation Refer Exhibit 6 for key players(excluding Whole foods) in the U. in the next page. Refer Exhibit 4 for the market value and forecast for the U.7 billion in 2009. The turnover for the worldwide organic food market was $60 billion in 2009.8% CAGR (Compound Annual Growth Rate) over the years 2005 y y y 2009. Refer Exhibit 1 for the market value and forecast for Global organic foods industry Refer Exhibit 2 for market segmentation Refer Exhibit 3 for key players(excluding Whole foods) in the global market U. Whole Foods is a leading retailer of natural and organic products.Global Organic Food Industry1 The market value of the global organic food market has seen a substantial increase in the past few years.6% CAGR (Compound Annual Growth Rate) over the years 2005 y y y 2009.Organic and natural foods . and this grew at a 14.S market Five Forces Analysis . It owns and operates a chain of natural and organic foods supermarkets through several wholly -owned 1 Data Monitor: Global Organic Food (Industry profile): Publication date Dec 2009 . the growth rate has been gradually decelerating.

900 people. (Company profile): Aug 2009 . seafood processing facilities and a confectionary. Canada and UK. employing close to 52. amongst others. Product mix. Strategic Game Board Analysis Whole Foods Market. 2 3 Data Monitor: Whole Foods Market Inc. Texas.5 Data Monitor: Whole Foods Market Inc. (Company profile): Aug 2009 Page 4. 2 Headquartered in Austin. Inc. 275 retail stores are operated. commissary kitchens. regional bake house facilities. produce procurement centres.subsidiaries. product categories. trademarks and subsidiaries are listed in Exhibit 7. and five stores in the UK. 3 Supporting its store operations are its Austin headquarters and 11 regional offices. it operates in the US. six stores in Canada. of which there are 264 stores in 38 US states and the District of Columbia.

where it was produced. The consumers had no idea where their food came from. the world was quite a different place. Lindsay Hutt . toxicity of fertilizers.Scenario Analysis Winds of change in the Organic foods industry4 When Whole foods market opened its first store in 1981. what was used to produce it. Inc. and the farming/harvesting/growing methods use to produce the foods. and preserving agents came into the limelight 4 MarketBuster Whole Foods Market. pesticides. There were few government and FDA regulations which required publishing this information to the consumer. Some factors which affected the growth of the organic and natural foods industry were y y Incidence and awareness of Mad Cow disease Information and perceived threat of genetically modified crops / animals.

and no reputed brands in this space at this time. coffee and tea. seafood. Even if they realized. the smaller size of this segment may have proved a detrimental effect in the major players consideration of extending to this segment. y . no nationwide chains. So people who wished could spend more on getting foods which were perceived healthier. The big players in the foods industry who supplied groceries / meat / fresh produce to the consumer did not realize the potential of this market right away. Although this market was growing at a rapid pace. grocery. But none of these players carried more than a couple of categories of these products.y The median income for the US household grew during this period. Relatively smaller size of this segment. bakery. There had always been small players who sold different types of organic and natural products like farm produce. they made no effort to cater to this segment. meat and poultry. the capabilities required to cater to this class of customers were very different from the average Joe these supermarkets were aimed at and therefore. vitamins. no organized retail. The organic and natural food market was quite fragmented during this period. y Development of a whole new network of reliable suppliers to cater to the organic and natural foods market (suppliers who could produce organic and natural foods) would have been an entry barrier and would have required quite a significant investment. The shops were small and were identified niche. fashion and body care products. and nutritional supplements. There were no big players. y It is also possible that the existing vegetable/fruits /meats/dairy produce supermarkets did not realize the potential of this growing segment.

customi e d layouts Extensi e Pri ate label product lines In-store prepared food OPPORTUNITIES Increase in US household median salary Strategic opportunities for acqiusition and merger. conventional wisdom would have indicated that he go after a particular type of the produce (fresh produce or groceries or organic meat etc. However.WHOLE FOODS MARKET INC. Customer s point of view: This is a fictional statement intended for illustration 5 MarketBuster Whole Foods Market.As it so often happens in business. especially with the recession exacerbating the financial woes of several targets Growing awareness of healthy food options among the US and global consumers ¥ ¦ £¢ ¦ ¡  ¡¤ WEAKNESSES Recession changing customer's perception and buying power Weak foray into international markets THREATS Competitors like Wal-Mart entering into the fray Brand Image tarnished because of store sales promoting low-cost deals Decentrali e d operations as the firm grows larger Change in top management (CEO) after 30 years ¥ Whole Foods Market Competitive Strategy Analysis Strategy #1: Design solutions with the customer in mind 5 Once John Mackey decided to enter the organic foods business. Lindsay Hutt . Inc. He gained first-mover advantage. someone understood there was a growing market segment waiting to be tapped. Whole Foods Market SWOT Analysis SWOT ANALYSIS . However. STRENGTHS Peri l es Focus Hi employee and customer satisfaction Pioneer in Organic and natural foods supermarkets Focussed differentiation Brand Image Store sites. the challenge of catering to this market segme nt was manifold and the strategy involved behind some of the major decisions/operational tactics are quite interesting.). John Mackey decided to defy conventional wisdom and think about it from the customer point of view.. as this was the way in which the existing players catering to this customer operated.

a o h o n Sn hav o av n o an d  ¨ © § ¨ §¨ ©   © § %  § §§  ! §%  §  © ©   #  © poa h d gg § §  §¨   h h on a F Rang Ch n avou o §%  §¨ ©  §%  ¨ © §   §%  §  §§   ¨ §% § §§  F Rang Ch n o bu . 5 4 develop the concept of Org nic and Natural Foods Supermarket.ang h n and o gan gg o a oa d h and n ¨ ¨ §§  ©  ! § &% © ©© ¨ ¨ §  ¨¨ §     § ¨ ¨ # ¨§ ¨ ¨ © § ¨ © § ¨ h ou h a o h o n o bu h o gan u ha Ja a o n d o go o n and on ¨ § © § ¨ ¨ §§    © #  §   §%  © $ ! §§   § ¨ § ¨  © §   ¨ ¨ o op o u a h n d o a o a a ad n d o av 10 ¨  ¨ ¨ §§  § §# " ! §¨ § ¨ © ¨§ § §    ¨ na u a § p odu d v g ab u a oh o v n d opu n a o o o     © ¨ §¨¨    ¨ § ¨  © ©  § ©  § § ©    B h a ¨§  © © © an o gan p odu on u a o d o u ng o gan a and  . He opened his first store ) 3 0 ) ) 2 2 1 0 )( John c ey s v s on nd bility to thin from the customer s point of vie led him to '   ©   ¨   ¨ § © § ¨   §   © po o bu ng on h b o gan and na u a ood o a §     © ¨§  § ¨§ ©   § ¨  § § ¨  © © © ¨§ ¨ §  ¨ ¨ §§  © © ¨ © ¨§ d on and o d n o og a h o hav o o po ¨ § §    ©  § ¨ ¨§  §  ! # ¨§ ¨ ¨ © § ¨ § ¨ ¨ §  © o a d 15 o h no h. ft supermarket in Austin Texas. business ideas and often times as it does here it leads to a radically new pr 4 4 4 6 Hoovers Company Records Whole Foods Inc.an 11000 sq.6 This ability to think from the customer s needs and wants(latent and explicit) point of view is at the forefront of most successful oduct/service.

Hoovers . 7 Strategy #2: Bigger is better. big 7 Whole Foods Market. Conventional strategy teaches that in cases where firms cater to niche segments of customers. exclusivity does not lend itself well to supermarkets.This concept has been persisted with ever since Whole foods began its operations. Given above are the profitability ratios of Whole foods. in the for m of a supermarket? Would it not bring customer delight? By doing this. Measures that promote sense of exclusivity are pursued to create a sense of pride and belonging. Profile .) under the same roof. usually they charge premium prices.. y Provide a platform to convert audience who wanted to buy only a specific type of product (organic or normal) to buy organic and natural produce which would in turn improve both sales and profitability. Inc. so to speak. and create prestigious affinities to promote the product. why not bring the entire gamut of organic and natural items (produce / meats / dairy / vegetables / fruits / fashion and body care/vitamins etc. The numbers are the proof of the pudding . because it entailed travel / trouble / accessibility. create demand through limited supply. he was able to achieve several things at once y Capture all the organic/natural item needs of the organically inclined customer. who would otherwise be less inclined to buy all the organic and natural items he/she wanted to. its competitors and the industry as a whole for the past 5 years. Developing brand loyalties are heavily invested on. even in focussed differentiation The concept of organic and natural foods supermarket is understood by answering this question: Instead of limiting the type of natural and organic products that it carries. By nature.

Our sales have grown rapidly through new store openings. whereas the existing providers serviced only certain product categories. Competition is one of the most important factors of profit. Since this consumer was and is still a minority. excluding the effect of pooling-of-interests transactions completed since 1991. ranking number 324 on the 2009 list. a compounded annual growth rate of approximately 28%. profits are generally more. from approximately $92 million in fiscal year 1991. based on organic and natural foods. Inc. John Mackey cleverly provided the exclusivity / brand image to a supermarket format by identifying the Whole Foods stores with Organic and natural foods .0 billion in fiscal year 2009. acquisitions and comparable store sales growth.stores etc. However. Capabilities which are rare/unique 8 FORM 10-K. Fiscal year 2009 Page 4 . provided demand for the service / product is present. Also note that supermarkets by their format of providing most things together in the same space do not have an exclusive flavour to them. which is a much more difficult type of product to handle and sell. Where competition is lesser. This provided John Mackey with the following opportunities y There was virtually no competition because he had developed a supermarket for organic and natural foods. 8 Strategy #3: Perishables An imperishable source of success Whole foods market has a distinct advantage in terms of handling perishables. to approximately $8. Whole Foods Market. We are a Fortune 500 company. that image transfers itself to the supermarket associated with only Organic and Natural foods . y Whole Foods could charge premium prices as there were customers who were willing to pay a premium to get membership to this exclusive club of counterculture.

Whole Foods Market Inc. Capability / resource matrix evaluation is as follows. Perishable products are by nature difficult to handle as there is a strict time sensitivity of handling for these products..9 We o er a broad and d eren a ed produ selection with a strong emphasis on perishable foods designed to appeal to all shoppers. Fiscal year 2009 Page 8 FORM 10.. Fiscal year 2009 Pages 8 14 15 B B B B BA BA . Difficult to Imitate (?) 100 Capabilities Handling Perishables Valuable (?) 100 Rare / Unique (?) 100 Sustainable(?) 100 9 10 FORM 10.and difficult to imitate should be leveraged by a firm to maximize profits and to create a sustainable competitive advantage.. Please refer Exhibit 10 for product mix.Whole Foods Market Inc.. 2/3rd of the revenues of Whole foods market is through sale of perishable products. The following statements in the annual report re-affirm the importance of perishables as a category for competitive advantage. We believe our heav emphasis on perishable products differentiates us from other supermarkets and helps us attract a broader customer @ @ 89 8 78 7 66 66 base We believe it is our strength of execution in perishables that has attracted man of 10 @ our most lo al customers.

there are many factors for an acquisition or merger to be successful. Whole Foods has been growing primarily through inorganic means. Whole Foods Market. when Whole foods wanted to move into a new territory or wanted to expand to a new product. . Inc.Since we have a product category where Whole foods execution offers all of the above attributes. This reduces the lead-in time for expansion in a particular market / service. We suspect this led to increase in bargaining power for Whole food s. thereby enabling them to pursue some good value deals. So. 23% of their existing store space was acquired with mergers/acquisitions. Some thought tests that would provide us with relevant answers are o Attractiveness Test: Is the organic and natural foods market attractive? Will it remain attractive? o Test of Fit (Synergy): Will the acquisition/merger provide Whole foods with business advantages that will be more than the sum of parts? o Better-Off test: Will this acquisition/merger make me better-off financially? As mentioned in their annual report. 11 Refer Exhibit 9 for a list of all acquisitions thru 2009. y However. we can expect them to further continue with their strategy of mergers and acquisitions in the future. 12 y The organic and natural foods market is still highly fragmented. this is a source of competitive advantage for Whole foods market. During the last few years. Inc. they have also strived to grow through expansion of their stores. There were many potential targets to pick from. they can actively scour the market for potential acquisitions in that space. Strategy #4: Inorganic growth in Organic foods market Firms can grow through organic means (opening new stores/store expansions) or inorganic means (through mergers and acquisitions). Fiscal year 2009 Page 11 Mergent Online: Whole Foods Market. 11 12 FORM 10-K.

82 million sq to 10. E y The number of stores has grown from 163 to 275 in the space of 5 years (68 growth). r locations and experienced team members. Because the food retailing industry is highly fragmented and comprised of many smaller local and regional chains.We have also grown through acquisitions. The total gross footage has grown from 5.56 million -ft E sq-ft (81 E growth).65 billion to $2. we may continue to pursue acquisitions of smalle chains that provide access to desirable areas. The gross profit has grown from $1.75 billion (66 growth) 13 14 G G GF GF FORM 10FORM 10- Whole Foods Market Inc.existing square footage coming from acquisitions. with approximately 23 C Whole Foods Market s growth strateg is to expand primarily through new store of our . A major part of the growth between 2007 and 2008 can be attributed to one big acquisition of Wild Oats Inc. Fiscal year 2009 Page 11 -12 D openings . 13 The impact of acquisitions on the total gross footage and the number of stores in operation 14 over the past 5 years can be drawn as below . Fiscal year 2009 Page 11 Whole Foods Market Inc.

recognizing the needs of the ho ur. Inc. To improve sales volumes and profitability during this period. aimed at informing customers of the value proposition that Whole foods delivers at low prices.000 .000 -27 7 5. their intended reasons and their consequences are discussed below 15 y During the past 5 years. Inc.000 5. the improvement in gross profitability seems to be a function of number of stores.000 -10 56.000 51.00 .000 -27 9. Who oo s ark I c.. 5. 10.000 . it has bounced back strongly compared to its competitors and the market. Inc. 5 66 . S or s S or s in develo ent verage size (gross s are feet) Total gross footage in develo ent oY change in footage develo ent Source: Form 10-K. Some strategic changes. o It ran promotions advertising it as Whole Paycheck .000 2. One main reason is that they have made quite a few changes to their strategy. Inc. Strategy #5: Change is the only constant Although Whole foods market has had some setbacks during the recession.29 . Profile Hoovers d b W dXW XX W d X Xb b d b b W d W b b VU VU I S T a ` SI VU R Q I P H I 2009 2008 2007 2006 2005 65 55. US consumers suffered a confidence crisis and they searched for the best bargains that they could get. gross footage.626. Stores are usually located in premium real estate sites and hence cost of unutilized or inefficient sizing is high.000 y 17 During the recession in years 2008 and 2009. Instead their store si zes are being reducing by the year.Annual Report 2009 17 Whole Foods Market. Whole foods market. Whole Foods has focussed towards right sized stores 16 instead of building bigger stores. This drove them to stores like Wal-Mart which advertises low prices on all items.As we see from the above data. 15 16 Whole Foods Market. Profile Hoovers Whole Food. This is basically aimed at cutting operating costs.000 0 S Y c . Whole foods market had to build the value and price perception to suit that of the consumers.

private label extensions typically carry the same promise as the parent brand and therefore.This was also a response to Wal-Mart gaining traction in the natural and organic foods business. o It introduced the concept of Value Guru who would lead store searches for best bargains. This move was aimed at promoting the low cost perception among the consumers. Whole foods market o ffers private labels at all pricing points. It also meant improved customer loyalty and improved perception about prices... These products are designed to cover the full spectrum of category needs: from the highest quality.. 18 The strategic advantage of private label brands is as follows  When there is a strong brand loyalty. Whole Foods Market. Inc. o In their own words An extension of our leadership position in the natural and organic foods industry is our strong family of private label brands. lead to greater margins at the lower pricing points for the customers. value entry-point products to super premium. Voluntary third Party inspections on Quality of Expected Benefits Consumers are happy to pay the higher prices for the highest quality certified products.. Strategy #6: Tangibles and Intangibles Attribute Quality Certifications and Assurance 18 Strategic Initiatives / Tactics First grocer in the US to be certified 'Organic'. unique offerings that cater to true food aficionados.  Interestingly. Fiscal year 2009 Page 10 . Therefore. ability to charge premium prices and therefore improve FORM 10-K. helping them capture consumer surplus and minimize the money left on the table .

4% among the lowest in supermarkets. improved customer service. By promoting local producers. Now. mostly college towns. they are gaining the vote of the local people. community service. By starting the stores in counterculture hotbeds.Site Selection Business Strategy Vision.products. Whole Planet" & recently. Employee empowerment and morale boosting resulting in reduced turnover from 23% in 2008 to 12% in 2009. Mission. This helps them build a strong brand and this in turn helps them survive and prosper through good and bad times and also improve profitability. Their business strategy statement emphasizes their outlook towards the world. Spend divided into separate budgets for each store which decides how and which not-for-profit organizations it wants to support Local community customized marketing instead of 'One size fits all' marketing.self managed teams within store. .Donating 5% of after-tax profits to notfor-profit organizations Business & Operational Strategy Employee Empowerment Team approach to store operations . where they have united the consumers who identify with their cause of highest quality. Whole foods was able to start stores where it expected most of its customers lived and thereby increase potential sales and ensure minimum profits. "Most Humane Grocery Store" profitability. stores are situated in high density shopping areas and are in a mall or freestanding Operational Strategy . getting an assured supply of produce and distributing risk.0.7 m in loans to 45 local producers Initially stores were started in college towns primarily. . Business Strategy Supplier Buy-In Promote Locally Grown $2. This is a form of 'Cause. FORTUNE magazine s 100 Best Companies to Work for in America.Marketing'. reducing opposition to stores.12 consecutive years Business Strategy Marketing Marketing spend . Expected to bring 'word of mouth' and more efficient use of marketing spend. improved customer satisfaction resulting in improved sales and profits. Whole People. very low for food retailing industry. Reduced 'Training Costs'. Product mix & pricing decisions at store level made by teams. Consumer & Employee satisfaction "Whole Foods. "Whole Paycheck" .

This is their core competency and major source of competitive advantage in the operations space. therein lays competition too. execution know -how for an Europe based plan. y Whole foods market needs to analyze expanding to overseas markets.2009 Green Choice Award from Natural Health magazine Environmental Protection Agency ( EPA ) Green Power awards from 2005 through 2008 Leadership in Energy and Environmental Design ( LEED ) certification The Green movement has been gaining a strong foothold in the US during the past decade..9% of the global organic foods market. The firm s can diversify its geographical risk if it can enter Europe and gain a foothold. The intangible output is gaining a new set of customers and a stronger brand image leading to all the benefits of a strong brand Recommendations y Whole foods market should continue to invest on improving the efficiency of their execution on the perishables segment of the organic and natural foods market. nature and environment. It will be interesting to track the progress of Whole Foods Market from this point in time. the firm might face quite a few entry barriers in the form of entrenched competition. European markets account for 47. European government regulations etc. creating a supplier/distributor chain (supply chain) from scratch. these initiatives were driven.. To capture this set of customers and to affirm their commitment towards the society. having to build its competitive advantages as they might be based on geography. especially Europe as a potential market. 19 Data Monitor: Global Organic Food (Industry profile): Publication date Dec 2009 . 19 However.Green Choice Natural Products Association s 2009 Socially Responsible Retailer Award . Not a lot of firms can execute this strategy except for maybe established supermarkets like Wal-Mart.

20 Data Monitor: Global Organic Food (Industry profile): Publication date Dec 2009 . the market value is estimated to be $96.7% increase since 2009 at a predicted CAGR of 9.5 billion representing a 60.Exhibits Exhibit 1: Global Organic Foods Market Value and Forecast20 By the end of 2014.9% over the years 2009 2014.

Market Segmentation by Geography: In 2009.7% of the marke t value of the global organic food market was generated by the Americas.5%.4%.Exhibit 2: Global organic food market segmentation 21 Market Segmentation by Category: In 2009. while that of the Prepared food and others segment was 20. 21 Data Monitor: Global Organic Food (Industry profile): Publication date Dec 2009 . the contribution of the fruit and vegetables segment to the global organic food market s revenues was 31. while Europe contributed 47. 48.9%.

with Carrefour leading the hypermarket retailer space globally. Metro. and hence has not been elaborated in this section.A: Carrefour has the dual distinction of being the world s second largest retailer after Wal-Mart. 22 y Wal-Mart Stores Inc: As the leading retail company worldwide. Extra and Homeplus. a turnover of $99. a turnover of $401. are some of the retail store formats in the US. y Tesco PLC: Headquartered in the UK. Tesco is a food and grocery retailer with stores in 14 countries globally.204 million was generated.096 million was generated. supermarkets and convenience stores. Sam s clubs etc. For the Financial year ended February 2009. For the Financial year ended December 2008. y Carrefour S. supercenters. For the Financial year ended January 2009. Everyday Low prices are offered at its retail stores.Exhibit 3: Key Players in the Global organic foods industry Key Players in the market Note: Whole Foods Market Inc. Superstore.699 million was generated. Discount stores. The grocery store formats operated include hypermarkets. hard discount. and the leading retailer of groceries and consumer goods in Europe. Wal -Mart has retail stores in numerous formats globally. will be explained in later sections. a turnover of $129. The various store formats operated by it includ e Express. 22 Data Monitor: Global Organic Food (Industry profile): Publication date Dec 2009 .

By the end of 2014.3% increase since 2009 at a predicted CAGR of 10.3% over the years 2009 for the years 2009-2014 is 2014. The market forecast 23 Data Monitor: Global Organic Food (Industry profile): Publication date Dec 2009 .5 billion (corresponding to 37% of the market s value).Exhibit 4: US Organic Foods Market Value and Forecast 23 The largest contributor to the market s overall value in 2009 was the Fruit and Vegetables segment with revenues of $9. the market value is estimated to be $42 billion representing a 63.

42.S organic food market segmentation24 Market Segmentation by Category: In 2009. Market Segmentation by Geography: In 2009. while that of the Prepared food and others segment was 20.7%. 24 Data Monitor: Global Organic Food (Industry profile): Publication date Dec 2009 .9% of the market value of the global organic food market was generated by the United States. the contribution of the fruit and vege tables segment to the US organic food market s revenues was 37%.Exhibit 5: U.9%. while Europe contributed 47.

will be explained in main text. Wal-Mart s US operations contributed 82% of Wal -Mart s operating income with a strong financial performance.204 million was generated. Operating profit was $ 22. Wal-Mart offers a wide variety of products at Everyday Low prices (EDLP) at its retail stores.000 square feet) in 48 US states and 153 neighbourhood markets (average size of 62. For the Financial year ended January 2009. Key financials of the company are as below 25 Data Monitor: Global Organic Food (Industry profile): Publication date Dec 2009 . Sam s clubs etc. Discount stores.000 square feet) in 16 US states. are some of the retail store formats operated by Wal-Mart in the US. Of these. and hence has not been elaborated in this section. y Wal-Mart Stores Inc: Wal-Mart is the world s largest retail company operating in various retail store formats globally. It has 891 discount stores (average size of 108. supercenters.Exhibit 6: Key Players in the U.000 square feet) in 47 states. 106 are owned by Wal -Mart and the remaining by third parties. Wal -Mart operates in all the 50 states. In FY 2009.798 million and Net profit was $ 13. 121 distribution facilities are operated in the US to support Wal -Mart s US retail operations. a turnover of $401.400 million. 2612 supercenters (average size of 260. In the US.S organic foods industry 25 Key Players in the market Note: Whole Foods Market Inc.

a turnover of $1135. New York. During FY2009.y The Kroger Co: As a leading grocery retail chain the US. snacks. Europe and Canada. personal care products. Ralphs. retail classes of trade such as drug stores. on the basis of product divisions. The company categorizes the segment it operates into grocery. In Fiscal 2009. i. by selling its products to specialty and natural food distributors. and other supermarkets. Fred Meyer. 5 With headquarters in Melville. Inc 26: Hain specializes in the manufacture.3 million was generated. 2481 supermarkets and multi -department stores are operated directly/ through subsidiaries. Operating profit was $ 2451 million and Net profit was $ 1249 million. 26 Data Monitor: Global Organic Food (Industry profile): Publication date Dec 2009 . and others. mass-market retailers. a turnover of $76. teas. proteins. and City Market. food service channels etc. Food 4 Less. natural food stores. In 31 US states. In the Financial year ended June 2009. Hain mainly operates in US. marketing and distribution of natural and organic foods and personal care products in over 50 countries around the world. a net loss of $24. King Soopers. Dillons. QFC . in addition to 40 manufacturing plants. In January 2009. Refer key financials of the company given below y The Hain Celestial Group. supermarkets and multidepartment stores are operated by Kroger under numerous banners such as Kroger.000 million was generated. Fry's.e.7 million was reported. Smith's.

Refer Key Financials of the company given below. .in comparison to a net income of $41.2 million in 2008.

365 Everyday Value. Bread & Circus. Whole Foods. 365 Organic Everyday Value. prepared foods and catering. Wellspring.Aug 2009 Data Monitor: Whole Foods Market. Capers Community Market. Whole Baby. With its private label products amounting to greater than 2300 SKUs (Stock Keeping Units). Inc. 365 Organic and the Whole Brands family are the brands used to market its private label products. Whole Kids Organic. and Whole Trade.Trademarks and Subsidiaries 27 Sourcing majority of its food from natural food vendors. bakery. and household products.Aug 2009 Pg. pet products. Whole People. Wild Oats. seafood. Fresh Fields. while specialty and organic coffee. Harry's Farmers Market. Global Local. Allegro Coffee Company. 4.Product Lines / Product Mix . Mrs. The various trademarks owned by the Company and its subsidiaries are listed below: Whole Foods Market. floral. AFA. the product categories offered by Whole Foods include grocery. Wild Oats Marketplace. Store-made and regionally made fresh products are sold under the Whole Foods Market label.5 . Vine Buys. Inc. (Company profile) . Whole Planet. 365 Everyday Value.Exhibit 7: Whole Foods . Green Miss ion. vitamins. specialty (beer. 28 27 28 Data Monitor: Whole Foods Market. wine and cheese). coffee and tea. Merchant of Vino. tea drinking chocolates are sold through its subsidiary Allegro Coffee Company. meat and poultry. body care and educational products such as books. Gooch's. Fresh & Wild. nutritional supplements. (Company profile) .

as the scale of operations of these suppliers is relatively small. Some suppliers directly sell organic food to the public through farmers markets. meat. thereby strengthening their position. the effort required by the farmer is greater. beverages.Exhibit 8: Porter s . as organic foods are perceived to be healthier and naturally produced. thereby weakening buyer power. as they cultivate organic products. As Organic farming avoids the utilization of chemicals. the bargaining power of buyers is weakened. However. the organic farmers do not have much influence on the market. consumer demand increases. poultry. the dependence of large retailers on organic foods is slowly increasing. Supplier power is strengthened on account of long term contracts entered into between the retailers and suppliers. These farmers supply for the main segments of this market such as fruit & vegetables. as they are from large retail chains such as Wal-Mart. but this also results in an increased influence on the market. they are able to directly reach the end consumers. In the event of direct supply to end consumers. On account of this forward integration. Supplier choice is also limited for a retailer when local produce is to be offered. As the inclination towards healthy eating is growing.Five forces analysis of US Organic foods Industry29 y Buyer Power: As food retail is rather fragmented in the US. (Company Profile) . Retailers and end-consumers (if the distribution channel is eliminated by the player) are the main buyers. buyer power is low.Aug 2009 . rear animals etc. Overall. However. Inc. prepared foods. y Supplier Power: Organic farmers are the main suppliers in the market. fish. Factors which are of great importance to the retailer include the product quality and geographical location. products are increasingly directly sold to the end consumers. dairy etc. Especially in the case of de veloping 29 Data Monitor: Whole Foods Market.

as they command more power and are therefore at an advantage over the small suppliers. strong growth in the markets attracts potential entrants. there is moderate competition between players. large retailers such as Wal-Mart etc. however. key players are dedicated to various standards when dealing with a supplier. dairy & beverages etc. unless capacity is increased. product differentiation in this market is limited. On the whole. thereby increasing competition as players cannot effectively distinguish themselves from others. (Company Profile): Aug 2009 . or a new company set up. and available in greater quantities. y Substitutes: Substitutes include non -organic versions of the products which constitute the main segments of the organic food market. which i s 30 Data Monitor: Whole Foods Market.e. which increases the power of even small suppliers. Hence. Despite the limited product differentiation.. sacrifices are required in terms of non -organic products. the attractiveness of entry is lower. 30 However. On the whole. prepared food. fruit & vegetables. y New Entrants: New entrants to the market include an existing company expanding into organic produce. i. Hence. By and large. While the benefits of these substitutes are not very significant in terms of health when compared to organic products. the threat of new entrants is moderate. Inc. they are more reasonably priced.countries. rivalry is slightly reduced as players offer a wide range of products. Due to limited shelf s pace in retail stores and significant capacity utilisation by non-organic products. they pose a strong threat to the mark et y Competitors: Strong growth in the market reduces the intensity of competition between the players in the market. However. put pressure on the smaller suppliers. Even though the main market segments are quite varied. supplier power is moderate.

.balanced by strong market growth easing rivalry at one end to a lack of differentiation intensifying rivalry on the other end.

common stock. acquired 83. Co.Exhibit 9: Whole Foods Market . On Oct.000 in cash. acquired Mrs.800. In Feb.738 shares of Co. 1995. 200. Co. 10.000 shares of newly issued Company stock. 1997.500. common stock. 1991. acquired Fresh Fields Market. Inc. acquired Wellspring Grocery. 30. Co. at a total cost of $1. plus the assumption of approx. Co. 1993. Inc.000 in newly issued Co. a $100. On Aug. Co.000 shares of outstanding options to purchase common stock. acquired all of the outstanding stock of Bread &Circus.3% of Sourdough: A European Bakery. In Jan. for $2.142. for 2. which operated 22 natural foods supermarkets in exchange for approx.000 in cash plus $6. Subsequent to Apr.200. 399. common stock. 1995.000 in Co. common stock. Inc.970.000 shares).000 note payable and 194. 13.. acquired two natural foods supermarkets in Northern California doing business as Bread of Life and a natural foods supermarket in Florida operating as Unicorn Village Ltd.. acquired a natural foods store in Evanston.000.000 cash and 35.000. in exchange for approx. Co. Co. acquired two stores in South Florida doing business as Bread of Life in exchange for approx. stock (195. Co. 12. In Dec.596 shares of Co. 4. 1993.History of Acquisitions31 In Nov. Inc. doing business as Oak Street Market. for $769. On Sept. Ill. Page 3-5 . 31 Mergent Online : Whole Foods Market. Gooch's Natural Food Markets. 1992. $20. which included $643.000 shares of common sto ck. 1996.394 shares of Co. Inc.

Inc. issued approx. $24. In Dec. contributed its Amrion. which operates four gourmet/natu ral food supermarkets and two specialty wine and gourmet food shops in the greater Detroit metropolitan area. Inc.com. 2000. Co. In Dec.000 shares of common stock to the sharehold ers of Amrion.600. Co. acquired the outstanding stock of Nature's Heartland. Co. acquired 800. In Sept. 1997. subsidiaries to WholePeople. 33. In Feb. Co. Effective Jan. in exchange for approx. 1. or $4. in exchange for 14. In Sept. Co. in exchange for approx. $25..000 in cash.. 1997. California area. 1999.000 shares of convertible preferred stock of WholePeople. acquired Allegro Coffee Company in a stock merger. Co.000 shares of stock of Co. Co. merged with Amrion Inc.000 shares of common stock in exchange for Allegro's outstanding stock. and WholeFoods.000. acquired Merchant of Vino.com. acquired substantially all of the assets of Natural Abilities.500.000 shares of Co. 175. In Apr. . 4.50 per share. Co.530. Co.In Aug. Inc. 14. will issue approx. 2000.com.000 in cash plus the assumption of certain l iabilities.700. which operated four natural foods supermarkets in the greater Boston metropolitan area. The newly issued shares give Co. a 16. 1997. Co.600. which operated three natural foods supermarkets in the Sonoma County. 1999. for approx. Inc. 1997. Inc.4% ownership stake in Real Goods.000 shares of common stock from Real Goods Trading Corporation for $3.100.. stock. acquired the outstanding shares of The Granary Market in exchange for approx.

175.000 in existing debt. common stock.com Inc.000 in cash. 2001.000 plus the assumption of approximately $148.9%. purchased 25. Co. Co. 2007. s old NatureSmart Inc. Inc. 2004.000. In Jan.000. through its wholly owned subsidiary. Co. completed the sale of all of its interest in the NatureSmart business of manufacturing and direct marketing of nutritional supplements for approx. $28.000 in cash plus the assumption of certain liabilities. 2001. Co.000.000. and Co. 000 in Co. acquired all of the outstanding stock of Fresh &Wild Holdings Limited (Fresh &Wild) for a total of approximately $20. 31.1% of Gaiam. by means of a tender offer for all of the outstanding shares of Wild Oats at a price of $18. Gaiam will own 50. acquired certain assets of Select Fish LLC (Select Fish) in exchange for approximately $3. Co.000. 27..com Inc. In May 2001. On Oct.997 common stock of Wild Oats Markets..Effective June 30. 2000. On Aug. and Gaiam Inc.50 per share.000 in cash plus the assumption of certain liabilities. Co. 31.000. On Jan. In Jan. or approximately $565. acquired Fresh &wild. Inc. merged their Internet properties into a newly formed company named Gaiam.735 shares. On Oct. 2003.000. 2004. totalling 238. $36. Following the merger. 28.000 in cash and approximately $16. Co. . in exchange for approx. will own the remaining 49. acquired certain assets of H arry's Farmer's Markets. Co.

2007. to a subsidiary of Smart &Final. . Terms of the transaction were not disclosed. CA distribution centre. Inc. Co. sold all 27 Henry's Farmers Market and eight Sun Harvest store locations and a related Riverside.On Sept. 30.

Exhibit 10: Whole Foods Market .Product Mix h h h h h h h h h uu r Sour e: ole oods I -A u al re ort 2009 g g g g g g g g g Pro uc Category Grocery Pre ared Food Ot e r e rishables w v u q t s i i q p f e 2009 33 80 19 10 47 10 2008 33 20 19 30 47 50 2007 32 00 19 80 48 30 .

MarketBuster www.wholefoodsmarket. Inc. Inc. Jun 2010 In-depth Records Whole Foods Market. Inc. (NMS: WFMI) Whole Food.References Whole Foods Market. Inc.com Lindsay Hunt Mar 2005 . Inc. Inc. Profile Hoover s Company Records Form 10-K Sep 2009 Hoovers Jul 2010 Whole Foods Market. .Annual Report Whole Foods Market. Company Profile Datamonitor Aug 2009 Datamonitor Dec 2009 Organic Food in the United States Industry Profile Mergent Online: Whole Foods Market.

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