Executive Summary

Whole Foods Market, Inc.
± Founded in 1980
‡ operates 284 stores; 273 in 38 U.S. states and the District of Columbia; six stores in Canada; and five stores in the United Kingdom ‡ $8 Billion Organic Supermarket Industry Leader

± Current Strategy
‡ Expand Through New Store Openings ‡ Whole Foods Market Private Label offerings

Whole Foods Market Whole Foods: Foods Reputation: Healthy. Holds Off Commoditization Whole People People: Whole Planet Planet: . Local Food Branding For Affluent And Health Conscious Positive Employee Environment Environmentalist Reputation Encourages Brand Loyalty.

although insulated.Executive Summary Economic Indicators ± Economic Downturn greatly affected domestic market in 2008 ± 2009 ± Food Market. needed time to adapt to new consumer sensitivity Recommended Strategy ± Maintain Focus on Core Values ± Private Label Expansion .

Overview ‡ ‡ ‡ ‡ Industry Overview Economic Indicators Recommended Strategy Questions/Discussion .

± compared with $29.9 billion (5.5% of total supermarket sales.394 supermarkets operated within the United States.5%) by independents . and other kinds of retailers ± Approximately 35.Industry Overview ± Primary NAICS code 4451: Grocery Stores. ‡ Chain supermarkets generated sales of $517. warehouse clubs.2 billion or 94. ± Face competition from supercenters.

Current Environment ‡ Supermarket retailers increased pricing competition in the first half of 2009 in an effort to ± protect market their share in a weak economic environment. ‡ Food retailers benefited from increased traffic into stores as consumers choose less costly products. ± This resulted in a shift away from the higher priced specialty items .

Regardless of how the economy is doing. ± Supermarket chains typically sell staple products. their business is generally noncyclical. resulting in greater sales of general merchandise. accounting for the majority of supercenter industry sales. followed by Target Corp. ‡ Wal-Mart is the major player in this arena. retail chains act as intermediaries that bring producers and consumers together. and KMart Corp . people need to eat. supercenters generate heavy store traffic by virtue of their size. which has higher margins.Internal Rivalry ‡ Operation ± Today. ‡ Industry Trends ± Profit margins on grocery items are not high.

Internal Trends ‡ ‡ ‡ ‡ Catering to New Tastes Ethnic Focus Growth in Organic Food Popularity Private Label Brands Create Loyalty .

Competitor Summary ‡ Wal-Mart ± Largest Chain ± Everyday Low Price Strategy ‡ Krogers ± Second Largest Chain ± Multi-Format Strategy ‡ SuperValu ± Third Largest Supermarket Chain ± Acquisition of Albertsons .

Natural ± Private Label Brands ± ³Whole Paycheck´ .Positioning ‡ Industry Positioning ± Supercenters ± Multi-Format Stores ± Private Label Brands ‡ Whole Foods Market ± Organic.

Porter·s Five Forces Summary Porter¶s Five Forces Internal Rivalry Entry Substitutes/Complements Supplier Power Buyer Power Threat to Future Profits High Medium Medium High Medium to High .

Economic Indicators ‡ The following information will look at the ± ± ± ± ± ± ± ± ± Real Gross Domestic Product Unemployment Rate Disposable Personal Income Consumer Price Index Inflation in Consumer Prices Retail Sales Producers Price Index Inventory Ratios Compared to Retail Sales Interest Rates using the 30 year T-Bill Rate .

Real Gross Domestic Product Real growth in gross domestic product (GDP) is reported quarterly by the U. . adjusted for inflation. real GDP measures the change in the nation¶s output of goods and services. Department of Commerce.S. the pace of economic growth can affect sales growth and margins. Although the supermarket industry is viewed as fairly recession-resistant.

Unemployment Rate The unemployment rate measures the fraction of the workforce that is out of work and looking for a job or expecting a recall from a layoff. . the economy loses about 2% of output for each 1% that the unemployment exceeds the natural rate. According to Okun¶s law.

chained (2005) dollars (in billions) This statistic measures growth in the average consumer¶s income after taxes. the volume of sales tends to remain relatively steady during good times and bad .Disposable Personal Income Disposable personal income. chained (2005) dollars (in billions) 6 5 4 3 2 1 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Disposable personal income. Because products sold at supermarkets are considered necessities. adjusted for inflation.

Analysts should focus on the CPI¶s foodat-home category to gain insight as to whether supermarket operators have any pricing power. or deflation. . The so-called core CPI excludes volatile food and energy costs. of various products.Consumer Price Index The CPI tracks retail price inflation. the inflation rate for food prices influences food pricing. Because most companies generally try to pass on cost increases to consumers.

inflation dropped rapidly between 2007 ± 2008. There is no direct loss of output from inflation. A falling inflation rate means that prices will be rising at a slower rate. As can be seen from this data. . as there is from unemployment.Inflation In Consumer Prices Inflation is the rate of change in prices. during the economic downturn.

Retail Sales (Total. While retail sales in grocery stores remain relatively constant and trend only slightly upward. during the economic down turn retail sales dipped dramatically. is relatively insulated from fluctuations in the economy and the market as a whole. This is used to show that food is a necessity. Non-Food and Food) The one piece of information to be gleaned from this data is that retail sales are volatile. .

. pressuring margins if price increases cannot be passed along to consumers. overall cost pressures facing U. firms have been generally benign and have posed little threat in the near term. In the past few years.S.Production Price Index A rise in the PPI can force supermarket chains to pay more for inventory. while individual components of the index have been volatile.

one sent´ system. . through increases in technology supermarkets have been able to dramatically reduce their inventory costs by using a ³one sold.Inventory/Ratio Compared to Retail Sales This data is used simply to show the trend away from inventory holding. It also shows that even with a slight drop in sales. inventory cost increased dramatically.

8% in 2007. their spending also can be limited by higher interest rates.3% in 2008 from 4.S. as indicated by 30-year U. Long-term rates. declined to 4. Treasury bonds.Inventory/Ratio Compared to Retail Sales Although consumers pay cash for most supermarket purchases. Interest rates currently are relatively low. .

Industry Recommendations ‡ Industry Recommendations ± Private Brands Extension ± Category Management ± One Size Does Not Fit All ± Cost Controls ± Technology Improvements .

Whole Foods Market Recommendations ‡ Whole Foods Market Recommendations ± Private Brands Extension ± Category Management ± One Size Does Not Fit All ± Cost Controls ± Technology Improvements ± Organic Supply Chain Underdeveloped ± Growing Number Of Organic Food Grocers .

Questions & Discussion .

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