Sample Assignment Whole Food Market

Business
Growth Strategy
Growth Strategy Analysis: Whole Foods Market

Introduction:

Whole Foods Market is a retailer in the highly competitive supermarket industry. From
early 2010 to September 2015, Whole Foods has pursued an aggressive growth strategy,
primarily through store expansion and acquisition.[1] The total number of store locations
has increased from 289 to 431 over this 5 year period. [2] Whole Foods has also led the
industry with same store sales growth of 8-‐10% per year. [3] These factors have propelled
Whole Foods Market to be the one of the largest organics grocer in North America.

However, Whole Foods faces increasing pressure from competitors such as Wal-‐Mart,
Kroger, and Harris Teeter who would like to capitalize on the growth trends of the organic
foods market. The effects of the competition are apparent: In 2015, Whole Foods same
store sales growth tumbled to 1-‐2% per year. Furthermore, analysts have voiced concerns
regarding Whole Food’s future profitability, thus sending the stock down ~30% in 2015. [3]
Below, we will explore three alternatives of how Whole Foods can grow their business in a
strategic and sound approach.
Analysis:

Scenario Analysis: Trends
Over the past 10 years, there has been a significant growth trend within the organic foods
market. According to the USDA, organic food sales in the United States have increased from
approximately $13 billion in 2005 to an estimated $35 billion in 2014. [4]

Scenario Analysis: Uncertainties
There are many uncertainties regarding the future of the organic foods market. For this
analysis, we will look at a 5-‐year timeframe. The first uncertainty is what the average
household income will look like for organic consumers. Traditionally, consumers of organic
foods within North America have been middle to upper class. However, recent data
suggests organic foods are beginning to catch on with lower income homes. [5]

Another uncertainty is the optimal size footprint for organic food stores. On one hand,
Whole Foods has found success with larger footprint stores with large selections. However,
competitors such as Trader Joe’s have found great success by decreasing their store
footprint and optimizing their selection. Figure 1 shows a 2x2 matrix of the Organic Foods
market uncertainties and various scenarios.

Figure 1: Uncertainties in the Organic Grocer Market

Whole Foods currently occupies Scenario A, operating fairly large stores and focusing on
consumers with the middle to high incomes. A growth strategy for Scenario A would be to
host events to drive consumers to the existing stores. One example is to hold cooking
classes, partnering with local farmers and chefs. This growth strategy is being tried in
certain markets but could be expanded to a larger portion of Whole Foods stores. [6]

Shifting to Scenario B, Whole Foods can continue to target higher income consumers, but
drive growth by developing express shops with smaller footprints. These stores would
benefit from Whole Foods’ strong brand name, but have lower cost due to smaller
footprints. Ideal locations for “Whole Foods Express Markets” would be within airports or
train stations, as these locations are trafficked largely by their core consumer and currently
underserved in terms of organic food options.

Game Theory Analysis
Scenario C and D are more complex, because of the competitive dynamics with other low
cost organic grocers. Specifically, Wal-‐Mart entered the organic foods market in 2014 with
the introduction of the Wild Oats label, hoping to capitalize on growth in organic purchases
with lower income families. To attract lower income consumers, Wal-‐Mart has pursued an
aggressive pricing strategy, pricing the Wild Oats line similarly to nonorganic brand-‐name
goods. [7]

In order to compete with Wal-‐Mart, Whole Foods plans to introduce a new line of low cost
stores under the brand name “365”. These stores will be located in urban areas with high
foot traffic, and be smaller in size compared to traditional Whole Foods Markets. [8] Prices
will be significantly cheaper than current Whole Food product lines, and inline with Wal-‐
Mart’s Wild Oats line. Figure 2 illustrates a payoff matrix to help analyze Whole Food’s
various strategic alternatives.

Figure 2: Low Cost Organic Compeition
Whole Foods vs. Wal-‐Mart

Wal-‐Mart has already entered the low cost organic market in 2014, and Whole
Foods has not yet introduced their 365 stores, thus the market is currently located
in the lower right corner of the payoff matrix. For Whole Foods, it is apparent that
they should move in the direction of the arrow by introducing the 365 store line,
and attempt to gain market share in the low cost organics market. With the
introduction of the 365 stores, Whole Foods is also likely to steal market share from
Wal-‐Mart, thus decreasing Wal-‐Mart’s payoff from + + + to +.

Synthesis of Findings
After conducting a Scenario Analysis, Scenario D (growth in low income, smaller
footprint stores) stands out as an area with high growth potential, while also
matching Whole Foods’ core competencies. Whole Foods is aggressively pursuing
this market with plans to open five “365 brand” stores in target markets by 2016. [9]
This is an example of Real Options Analysis (see Figure 3). These markets will serve
as test grounds: The small scale launch will allow Whole Foods to determine if the
365 store is a viable growth strategy. If the model proves successful, Whole Foods
will likely invest further within the next three to five years. Only time will tell if this
growth strategy will propel Whole Foods back into its dominant position in the
organic foods market.

Figure 3: Options Analysis for Whole Foods 365 Store Launch

References:

1. Whole Foods Market 2009 Annual Report:
https://www.wholefoodsmarket.com/sites/default/files/media/Global/Company%
20Info/PDFs/ar09.pdf

2. Wikipedia: Whole Foods Market
https://en.wikipedia.org/wiki/Whole_Foods_Market

3. Forbes: Is This The End Of Whole Foods' Organic Growth?
http://www.forbes.com/sites/briansolomon/2015/07/30/is-‐this-‐the-‐end-‐of-‐
whole-‐foods-‐organic-‐growth/

4. USDA: Organic Market Overview
http://www.ers.usda.gov/topics/natural-‐resources-‐environment/organic-‐
agriculture/organic-‐market-‐overview.aspx

5. NPR: Can Wal-‐Mart Really Make Organic Food Cheap For Everyone?
http://www.npr.org/sections/thesalt/2014/04/17/304205632/can-‐wal-‐mart-‐
really-‐make-‐organic-‐food-‐cheap-‐for-‐everyone

6. Napes Daily News: Whole Foods launches Blue Zone cooking classes
http://www.naplesnews.com/news/health/blue-‐zone/whole-‐foods-‐launches-‐blue-‐
zone-‐cooking-‐classes-‐ep-‐1256167055-‐335898291.html

7. Food Navigator: Wild Oats organic products now sold in 3800 Wal-‐Mart stores
http://www.foodnavigator-‐usa.com/Markets/Wild-‐Oats-‐organic-‐products-‐are-‐
now-‐sold-‐in-‐3-‐800-‐Walmart-‐stores

8. Motley Fool: Whole Foods Market Thinks Smaller to Drive Future Growth
http://www.fool.com/investing/general/2015/07/08/whole-‐foods-‐market-‐inc-‐
thinks-‐smaller-‐to-‐drive-‐fut.aspx

9. Whole Foods Market: Whole Foods Market announces first 365 by Whole Foods
Market store leases
http://media.wholefoodsmarket.com/news/whole-‐foods-‐market-‐announces-‐first-‐
365-‐by-‐whole-‐foods-‐market-‐store-‐leases

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