WHOLE FOODS MARKETS NATURALLY

Sales of organic and natural foods are a $17 billion market, growing at an 18% annual clip.
No longer just a counter-culture trend, natural food retailing is now attracting aging baby boomers
who want to eat healthier or are frightened by food scares such as mad-cow disease and tainted
spinach. While natural foods account for just 3% of Americans’ grocery bills, they attract higher-
income buyers and yield bigger profits.
Few grocers are as clever at attracting and keeping loyal customers as Whole Foods Markets.
With $4.7 billion in revenue and a 20% profit surge in 2005, Whole Foods handily outpaced
traditional supermarkets, which saw sales grow at an anemic 1 to 2%.
Whole Foods doesn’t sell just groceries—it offers an exciting shopping experience.
Customers are surrounded by colorful fruits and vegetables and preservative-free whole grain breads,
all displayed and lighted in a store designed to make customers feel good. The chain cleverly
downplays the fanatical organic philosophy and emphasizes the gourmet appeal. Side-by-side with
tofu and lentils are T-bone steaks and specialty cheeses. Foods are marketed for their taste appeal and
status image. Research indicates that Whole Foods customers think of themselves as gourmets more
than all-natural eaters.
Co-founder John Mackey built his business by combining the concepts of health-foods store
and gourmet market. Starting with a single Whole Foods store in 1980, the chain has grown by slowly
opening new outlets and using the business equity to buy competitors, including fifteen regional
chains. The company’s strategy is to create a “supernatural” giant retail powerhouse that can compete
with both conventional grocery chains and against the low-price competition from Wal-Mart.
If Whole Foods has a weakness, it’s that occasional shoppers find the stores a bit confusing.
Most national brands aren’t available, and regional purchasing managers have so much leeway in how
they stock shelves that products may be available in one outlet and not in another. Hundreds of the
products Whole Foods sells are made by mom-and-pop producers, brands unfamiliar to casual organic
food shoppers.
Nearly every item is screened for artificial ingredients, but what’s considered “natural” can be
arbitrary. The chain is phasing out all goods with hydrogenated fats (no Goldfish crackers), but it sells
its own chocolates and cheese puffs (organic cocoa and no artificial colors.)
The formula is working. Annual sales per square foot—a key measure of a retailer’s health—
are about $650 at Whole Foods, compared with about $450 for conventional supermarkets. Whole
Foods’ sales have risen more than 20% in each of the past three years, and the chain has plans for a
total of 400 stores by 2010.i

discussion questions

1. How does the Whole Foods total product offer differ from that of most health foods stores?

2. Do you think a Whole Foods outlet would succeed in another country? Why or why not?

3. Would the fact that most national brands are not sold in a Whole Foods store make you less
likely to shop there? Why or why not?

4. What pricing strategy would you use for Whole Foods specialty chocolates?
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Source: Daren Fonda, “Organic Growth”, Time, August 2002. pp. Y1-Y4.