1 TO: John Mackey FROM: Truls Kolstad DATE: 1/29/11 RE: Whole Foods Business Strategy Background: Whole

Foods Market is a pioneer in its niche organics market. It has grown through the Organics Movement and expanded to 292 locations is 38 states. During its fast growth it has been able to hold on to its core values and develop a unique human resource management that today has attracted wealthier consumers who are willing to pay more for a better shopping experience and the best quality produce on the market. Critical Issues: While Whole Foods has had great success in capturing a large market share in the niche Organics market, its growing consumer base have lead to a demand for cheaper organics and the competition of greater names such as Wal-Mart. What differentiates Whole Foods is its emphasis on Health. How can Whole Foods sustain its good brand when expanding? And how should Whole Foods go about expanding internationally? How can Whole Foods keep differentiating and implement pioneering strategic plans? These are a few of the questions that will be answered in this case. Recommendations: Whole Foods needs to start planning for long-term strategies in order to sustain their core competencies. Through an Internal Analysis of Whole Foods Market Inc, I have developed the following recommendations. I believe it is necessary to develop certain, extension, efficiency, recombination, and new market development strategies. These include extending the Whole Foods product line, Investing in Real Estate for long-term growth, creating the Whole Foods Gym pilot program, and expanding to larger international markets like Germany.

Closing: These recommendations are based upon several key analysis methods such as VRIO, SWOT and Core Competence Mapping and Strategy Matrix. Expanding to global markets and creating a Full Health Experience will be key to sustaining Whole Foods competitive advantage with larger companies such as Wal-Mart and Costco. Thank you for your time, and I look forward to seeing you in the board meeting the following Monday January 31.

2 Executive Summary

Whole Foods is becoming a household name for high-quality food products. Its humble operations started as an organic produce store for a very specific target group, however as it has grown and expanded it has entered the Grocery Stores market, now having to compete with giants such as Wal-Mart. In order to expand in a sustainable way certain strategies have to be considered. Through an analytical approach using the VRIO Framework, SWOT Analysis, Core Competence Mapping and Strategy Matrix, I have identified and analyzed the internal factors of Whole Foods Market Inc and distinguished its core competences and competitive advantages in its industry. I have also found areas of improvement that Whole Foods potentially could perform better in. From there I have made recommendations for Whole Foods development locally and globally for new exciting ways for Whole Food to expand while keeping its core values, successful business model and mission.

As Organics food is becoming increasingly more popular, and Whole Foods need to expand to satisfy and delight the growing customer base. Having differentiated itself from other grocery stores has always been key for Whole Foods, and the brand has a healthy connotation as of today. Staying ahead of competitors, as a market innovator when it comes to a healthy lifestyle is vital to the companies continued success. In this recommendation I have suggest several ways for Whole Foods to do this.

Table of Contents
SWOT Analysis.................................................................................................................4 Core Competence Map ....................................................................................................5 Core Competence Strategy ..............................................................................................6 VRIO Frame Work ...........................................................................................................7 Recommendations ...................................................................................................... 8-11 Exhibits ..........................................................................................................................12 References ......................................................................................................................13

Strenghts
Products High quality and wide selection of goods (H) Has humane animal meats available (M) Offers organic pet food (L) Large selection Offer Organic produce Possibility for customers to eat in the store at tables (M) 365 Brand, Whole Foods market brand, whole trade. Business Model Customer loyalty and trust (H) Growing organics consumer consciousness (H) Large market share in Niche market Human Resource Management Corporate values that trickle down to the lower level employees (H) All Team-members are non-union (H) Marketing Excellent brand associated with values and health (H) Low marketing budget (.4% of sales), rely more on word of mouth. (H) Increasing customer base (H) Finance Above industry earnings Net Income growth 2009-2010 : 67%(p. 96 10k) Excess Cash in Money Markets and Securities. (10k p.96) High liquidity ratios (L) (10k) Good 2 years for shareholders. (M) (10K)

Weaknesses
Costs Goods to expensive for the average consumer (H) Cost of goods sold is 67% High occupancy cost for rental (p 36 10k) (H) High price, small profit margin (2.7%)(M) Building improvement costs (p 84 10k) Marketing Brand Vulnerable to food scandals (M) To low marketing budget, consumers need to know more about Whole Foods (M) International Marketing, creating an International Brand. (H) Expansion Wild Oats Acquisition (Bartz), resources held up in FTC Anti-Trust lawsuits (M) International Operations need more marketing and more locations (H) Most of the Whole Foods stores are clustered on East and West Coast (M) Difficulty of expanding to other countries, cultural foods, higher standard of agricultural goods (M)

Opportunities
Expansion Possibilities of opening more stores (H) Getting larger suppliers who operate according to Whole Foods standards. Store Aesthetics are attractive and upscale. (L) Expanding into the global market (H) Customer loyalty and trust Developing more whole foods brand products (H) Licensing Licensing whole foods brand into other grocery stores. (H) Online Marketing Online grocery delivery (M) Engage in Social Networks (M) Marketing campaigns to educate people about healthy living (M) Employee innovation projects (M)

Threats
International Commodity Markets Rising food prices (H) Increased price of oil, lower disposable income for consumers (H) Fluctuations in the global economy (H) Competitors Sams Club large warehouse produce is cheaper. (M) Wal-mart announced that they would start a five-year plan to increase fresh produce selection. (H) Smaller competitive organics store expanding and taking more of the market. (M) Consumer shift Loosing customers because it gets too big and commercial. (L)

Core Competency Strategy Matrix

Extension
Large Organic Food Selection Create more Whole Foods Brand product such as 365 and Whole Trade to satisfy growing customer base. Be careful to keep offering the higher quality brands to keep the existing customers. Human Resource Management Hire healthy lifestyle individuals who are motivated by the business model of Whole foods. Maintain the formal roles of employees and keep empowering by identifying their role in Whole Foods business. Have team building rewards such as trips or bowling in addition to monetary rewards. This will maintain the low turnover rate. Supplier Relationships Maintain strong relationships with good suppliers and develop more cost efficient logistic systems to cut cost of goods sold.

Recombination
Whole Foods Products Create whole foods drinks to be purchased at other outlets. Partnerships with 24 Fitness or Bally Total Fitness and set up a Whole Foods beverage selection. Whole Foods Cafe More of a caf experience inside their stores, wireless internet etc. With the great aesthetics already in place, Whole Foods can cost efficiently expand their caf to make a shopping break more delightful. Whole Foods Gym Incorporate a gym at certain Whole Foods locations to provide the Full Health Experience. Gym members are likely to shop healthier and can combine groceries while at the gym. Coming from the gym they will have a healthy mindset. Whole Foods Healthy brand will make this desirable.

Efficiency
Investing more in Real Estate Invest more in purchasing land rather than renting it. The real-estate market is good for buyers right now, and in the long run, the company is loosing money through high lease costs. Consumer Education Educating consumers have shown to have a positive effect on both the employees and the consumer loyalty. It helps develop the Healthy brand that Whole Foods have become through word of mouth marketing. Create an interactive online community base where you can read more about different foods and lifestyles.

New Market Development

International Operations Establish some pilot programs in major markets such as Germany and China in cities such as Shanghai where there is a larger middle class that appreciate high quality imports. Imports selection Increase selection of new imports based on customer demand. Have available a desired imports form that customers can fill out. Online Shopping Create a delivery service for online shoppers and charge a fee. This will cater to the upper class individuals who are willing to pay extra for food delivery.

The VRIO Framework

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Recommendations Whole Foods success story is due to its innovative and differentiated business model. Over the years, its market share has grown and it has become the largest company within its niche market, organic groceries. In fact, it has grown so fast that it has expanded to 292 stores in 38 states, and 11 internationally. As Organics has become a household name through media and persuasive documentaries, Whole Foods has gained momentum and become a substantial competitor to companies in a larger industry, Groceries Stores (Yahoo Finance). Even though Whole Foods started as a small company to cater to a niche market, it has become a movement for healthy eating and a healthy lifestyle. This brand recognition is one of the companys core competencies and provides a sustainable competitive advantage.

To become more competitive in its industry, I recommend of creating more of its own 365 products to reach a greater consumer base. A strategy to become more competitive and gain more loyal customers is to implement a price strategy where people always have the choice between an economy class organics selection, and a business class selection. Whole Foods is known for its high-quality and higher prices, which is not an issue, people should pay more for better quality, and they certainly do in all other industries. However, with more choice they can shop more in one location. Some consumers are indifferent in the quality of some goods, while they care a lot about the quality of other goods. Expanding the 365 product line would give them the choice, and have them shop more.

When looking for new real estate, they should look for larger square-footage than previously, the reason for this should be a new pilot program. This program should incorporate a gym attached to the Whole Foods Market Facility. Whole foods Market are in the healthy living business and a gym could be successfully incorporated. The gym would promote the healthy living brand, and also draw more customers. After working out at the Whole Foods gym people will naturally want to shop healthier. In Argentina, McDonalds has incorporated a gym in one of their locations, in order to attain a healthier image. Whole Foods would become a pioneer in the U.S to combine healthy food and a gym together. Whole Foods team members could get a free membership to the gym. Having skilled nutritionists working in the gym, Whole Foods could further their education of healthy nutrition and the importance of combined with exercise. The gym would not meant to be a large cash generator, but an entry portal for new loyal customers and also meant to strengthen the Whole Foods brand. In cities where Whole Foods are already established they should establish a partnership with 24 Fitness or Bally Total Fitness to sell custom made whole foods health drinks and protein bars. If this proves successful, they should expand to other grocery stores and wholesale markets. This strategy would get Whole Foods own products in other outlets and more available to consumers, while at the same time strengthening the brand.

While Whole Foods is a known name here in the U.S, it is not well known is Asia or Europe at all. I would recommend opening a pilot store in Berlin, Germany and Shanghai, China. The reason for these locations is that these are places with a

10 sophisticated consumer behavior and a large middle and upper class with greater purchasing power. While only 12.4% of the average Americans paycheck is spent on food, Europeans spend closer to 20% of their annual paycheck on food (USDL). The EU has stricter quality standards than the USDA, and finding good suppliers will not be hard. With global expansion, global branding needs to be taken into consideration. Keeping the core values of Whole Foods will be essential, but further marketing is needed to successfully establish the brand abroad. More media exposure and local participation will be needed in order to get the same following as in the U.S. I would suggest sponsoring some local sports teams and to get exposure through green events. The best mode of entry to a country like Germany, I think would be to establish a licensing agreement with some stores and start selling Whole Foods products there with the Organic label. Opening a Flagship store could also be a good move for whole foods because then the customers could get the true Whole Foods Experience rather than just certain products.

Whole Foods main core competences lies in its large organics selection, core values, human capital and brand. In order to sustain these I believe it is necessary to develop certain, extension, efficiency, recombination, and new market development strategies. These include extending the Whole Foods product line, Investing in Real Estate for long-term growth, creating the Whole Foods Gym pilot program, and expanding to larger international markets like Germany.

11 Human Resources Staffing Key Executives John Elstrott Title: Chairman Dr. John B. Elstrott, Ph.D., is Chairman of the Board and has served as a Director of Whole Foods Markets, Inc. since February 1995. He was Lead Director from 2001 to 2009. Dr. Elstrott is a Clinical Professor of Entrepreneurship and the founding Director of the Levy-Rosenblum Institute for Entrepreneurship at Tulane Universitys Freeman School of Business, which was started in 1991. A.C. Gallo Title: Chief Operating Officer A.C. Gallo, was appointed as President and Chief Operating Officer of Whole Foods Market, Inc. on May 12, 2010. Mr. Gallo served as Co-President of Whole Foods Market, Inc. from September 2004 to May 12, 2010 and as Chief Operating Officer from December 2003 to May 12, 2010. Mr. Gallo has held various positions with Whole Foods Market, Inc. and with Bread & Circus, Inc., which was acquired by Whole Foods Market, Inc. in October 1992, including Vice President and President of the North Atlantic Region, and Executive Vice President of Operations. John Mackey Title: Co-Chief Executive Officer John P. Mackey, was appointed as Co-Chief Executive Officer of Whole Foods Market, Inc. on May 12, 2010. Co-founder of Whole Foods Market, Inc., served as Chief Executive Officer from1978 to May 12, 2010. Mr. Mackey also served as Chairman of the Board from 1978 through December 2009 and as President from June 2001 to October 2004. Walter Robb Co-Chief Executive Officer Walter Robb, was elected as Co-Chief Executive Officer and as a Director of Whole Foods Market, Inc. on May 12, 2010. Mr. Robb has served as Co-President of Whole Foods Market, Inc. from September 2004 to May 12, 2010 and as Chief Operating Officer from December 2003 to May 12, 2010. Since joining Whole Foods Market, Inc. in 1991, Mr. Robb has also served as Store Team Leader, President of the Northern Pacific Region, and Executive Vice President of Operations. Glenda Flanagan Chief Financial Officer, Executive Vice President Glenda Flanagan, has been the Executive Vice President and Chief Financial Officer of Whole Foods Market, Inc. since 1988, and prior to that, held various positions in public accounting, retail and businesses consulting. Ms. Chamberlain became a Director of Golfsmith International Holdings Inc. in August 2006. She also serves on the Board of Directors for Credit Acceptance Corporation.

12 References Koehn, Nancy, and Katherine Miller. "John Mackey and Whole Foods Market." Harvard Business Review (2007): n. pag. Web. 28 Jan 2011. Bartz, Diane. "Whole Foods, FTC settle on Wild Oats merger." Reuters (2009): n. pag. Web. 28 Jan 2011. <http://www.reuters.com/article/idUSTRE5253AL20090306>. Stolberg, Sheryl. "Wal-Mart Plans to Make Its House Brand Healthier." New York Times (2011): n. pag. Web. 28 Jan 2011. <http://www.nytimes.com/2011/01/20/business/20walmart.html?_r=1&src =busln>. "Industry: Grocery Stores." Yahoo Finance (2011): n. pag. Web. 31 Jan 2011. <http://finance.yahoo.com/q/in?s=WFMI+Industry>. U.S, Department of Labor. "How the Average U.S Consumer Spent Their Paycheck." Visual Economics (2010): n. pag. Web. 31 Jan 2011. < http://www.visualeconomics.com/how-the-average-us-consumer-spendstheir-paycheck/ >. Whole Foods, . "10K Filing" Mergent Online . Securities and Exchange Commisson, 26 09 2010. Web. 36 Jan 2011.

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