CASE ANALYSIS

Presentation
Outline
• Company Background
• Industry analysis :
PEST
• SWOT $ TOWS analysis
• Questions
Ø Q1 : chief elements
strategies
Ø Q2: financial analysis
Ø Q3: competitive
analysis
Ø Q4: recommendations
Ø Current trends
 Company
Background
• Whole Foods Market is a chain of grocery stores that sell
natural and organic foods and products.
•
• In 1978,Whole Foods Market was founded in Austin,
Texas, by John Mackey and Renee Lawson Hardy,
owners of Safer Way Natural Foods.
•
• In 1984, Whole Foods Market began its expansion out of
Austin to Houston, Dallas and New Orleans.
• In 1992 Whole foods became a public company.
•
• The company started its third decade with additional
acquisitions. The first was Natural Abilities in 2000.
Cont
…
• In 2002, the company opened its first international store in
Canada, in Toronto, Ontario.
•
• In 2005, Whole Foods opened its 80,000-square-foot (7,400
m2) flagship store in downtown Austin.
•
• In 2007, they had 276 stores in 36 states in US and in
Canada and UK.
•
• Whole Foods Market made it to the Fortune’s “100 Best
Companies To Work For” for 11 consecutive years since
1998. This can be attributed to its highly supportive HR
department.
•
 Mission and
vision
• Mission
• Remained a uniquely mission- driven company-
highly selective about what we sell, dedicated to our core
values and stringent quality standards and committed to
sustainable agriculture.
• Vision
• To become an international brand synonymous not just with

natural and organic food with being the best food retailer in
every community in which whole stores were located.
Company’s
Motto
•
• The Company’s motto is “Whole Foods, Whole People, Whole
Planet”
•

• This is in line with its core values:

– Selling the highest quality natural and organic products
available
– Satisfying and delighting our customers
– Supporting team member happiness and excellence
– Creating wealth through profits & growth
– Caring about our communities & our environment
– Creating ongoing win-win partnerships with our suppliers
 Industry
analysis
§ $62 billion sales in 2007
§ Supplier power dominates the industry
§ Organic and general grocery markets have almost merged
§ Competitive organic differentiation is inevitable
§ Further segmentation beyond organic and non-organic is
needed
• Ex: Health-organic & Social-organic
§ Competitors include Trader Joe’s, Kroger, Wild Oats etc.
PEST analysis
Category Issue Opportunity/
Threat
Political All organic products must meet the Opportunity
requirements of the USDA Organic
Rule
Economic 2008 Economic crisis Threat

Social Healthy and environmentally Opportunity

conscious population
Technology Innovative products and raising opportunity
standards to ensure quality is met.
•
•

Situtational analysis
SWOT and TOWS

Internal environmental analysis

 SWOT
Analysis
Strengths Weaknesses
• •

•Business leader in organic and natural foods. •High premium prices

•High- quality natural and organic goods. •Lack of supplier for organic beef
•large variety product selection
& chicken
•Innovative and interactive store design.

•Reputation.
•
•Knowledgeable and well trained employee.

• Ranked among the most socially responsible

businesses
• High-traffic shopping locations (urban
metropolitan area)
•

Opportunities Threats
•

•Increased Competition
•Double digit growth in sales of natural
•Economic downturn
goods.
•Increasing demand for organic goods. •High expansion costs (new stores).

• Private label brand- Potential To Sell these

Products In Traditional Supermarkets •

•
TOWS
analy
sis
• External Opportunities (O)
•

S1 O2
Having the strength as business leader, Whole Foods
Market can expand internationally in other markets because
Internal Strengths
(S)
of increasing demand for organic foods.
S2 O1
High-quality natural and organic goods create loyal and satisfied
customers as they perceive and indulge with their desires being
met. Therefore, Whole Foods Market`s double digit growth in
sales will expand more and more due to its ability to achieve
quality products and hence increase the purchasing power of
consumers.
TOWS
analy
sis
•
• External Threats (T)

S3 T2
During economic downturn, customers still have to buy food
Internal Strengths because it was necessary product. During this condition, WFM
(S) can create competitive advantage by doing price tactics such as
buy 2 and get 1 free, coupons, brand loyalty, discounts for their
wide variety selection of their products.
TOWS
analy
sis
• External Opportunities (O)
•

W1 O2
Even though the price of the organic product is higher
compared to the non-organics products, its demand is still
Internal
Weaknesses
growing because consumer become more educated and
(W) concerned about health. Therefore they are willing to invest
more for their health.
W2 O2
Dueto lack of suppliers for beef and chicken, the increase demand
for organic foods can lead to suppliers joining the organic
industries and produce the needed organic beef and chicken which
creates markets for the farmers.
TOWS
analy
sis
•
•
External Threats (T)

W1 T1
Whole Foods Market even though have high prices, they
should face the increased competition by ensuring that they
Internal compete differently since their main strategy is not cost but
Weaknesses providing good customer service and quality organic
(W) products that will enable them to achieve a sustainable
competitive advantage.
 Internal
environment
factors
•
• Firm structure and systems:
Ø Whole foods market has stores all over 36 states, with
great locations such as urban metropolitan areas
and high traffic shopping.
Ø Their stores are open format with the largest store’s
size to be 60,000 sq. ft.
Ø With 54,000 employees and led by CEO John
Mackey, whole food market has established itself
to be the leader in natural and organic foods
Ø Whole food market is a public traded company.
•
• Firm culture:
Ø Employees are categorized as teams and led by team
leader.
Ø They are empowered to make decisions at store levels
in order to ensure a customer-centric culture.
Ø The reward system for whole food market is under
gain sharing program, stock options and bonuses.
Ø
• Firm resources
Ø Marketing techniques is under PR as they spend less
on advertising hence cutting costs.
Ø They are well financed through equity investment.
Ø Through acquisitions, they owned small, owner stores
as well as wild oats( second competitor of organic
company) and produce procurement canters.
Ø Their human resource is well educated and highly
motivated as well as enthusiastic which ensure
customer service is well achieved.
• Firm leadership
Ø CEO, John Mackey continuously ensures that whole
food market is progressing well and allows a
decentralized decision making approach where
employees are empowered to make decisions in
form of teams at store levels.
Ø They are focused on a customer-centric approach to
achieve customer loyalty and retention.
 Question 1

• Identify and explain the

chief elements of
strategy that Whole
Food Market is
pursuing?
 Chief
Elements of
Strategy
 Chief
Elements of
Strategy
 Whole Food
Market Current
Strategy
•

• Corporate Strategy (Growth)

• Expand through combination of new
store openings and acquisition of
existing chains
•

Business strategy
•

• Focused product differentiation strategy

Question 2
• How well is Whole Foods
Market performing from a
financial Perspective? Do
some number-crunching
using given data to support
your answer. Use financial
ratios as a basis for doing
your assessment of the
company's financial
statements and financial
condition.
 Financial
Situation
• Since becoming a public company in 1991 WF market had been
profitable in every year except in 2000. There was a net loss of
$8.5 million.
• Company’s net income had risen at a rate of 17.6% from fiscal year
2003 to 2007.
• Net income fell in 2007 by 21 million from 2006.
• In 2006 gross profit increased by 34.9% from 2005 and in 2007 it had
been increased by 34. 8% from 2006.
• Store contribution has been increased by 26% in 2006 and 8.8% in
2007.It is an indication that their store expense had increased
during 2006 and 2007 due to acquisition and development of new
stores.
• Income before tax had been increased in 2006 by 43% but decrease by
10% in 2007.
 Cont
…
•
• Net income had been increased by 49% in 2006 but decrease by 10% in 2007.Due
to payment of interest on debt taken to finance the new stores and acquisition of
new stored had been rose the net income decreased by 10% in 2007.
• Sales growth increased by 17% in 2003 , 22% in 2004 , 21% in 2005 and 19% in
2006 on the other hand wild oats sales growth increased by 54% in 2003, 81% in
2004, 72% in 2005 and 53% in 2006. the growth of wild oats made whole food
market to take the decision for acquisition of Wild oats in 2008 to stop the
competition .
• The industry average for the past five years is about .30. In general gross profit
stayed the same over the past five years Because general and administrative and
direct store expense has been relatively stable for the past five years.
• Planning for expansion and moving towards local supplier gives Whole Food
economic of scale and better bargaining power which maximize net income as
a percent of total sales at 3.57%.
•
 Common
size
analysis
COMMON SIZE ANALYSIS
INCOME STATEMENT FOR WHOLE FOODS MARKET
  2007 2006
Sales 100 100 . 0
COGS & Acquiring costs 65 . 2 65 . 1
Gross Profit 34 . 8 34 . 9
Direct Store Expenses 26 25 . 4
Store Contribution 8.8 9.5
General & Admin Expenses 3.3 3.3
Preopening & Relocating 1.1 0.7
Operating Income 4.4 5.5
Interest Expenses - 0 . 089 0.0
Investment & Other Income 0 . 24 0.4
Income Before Tax 4.6 5.9
Provision For Taxation 1.8 2.4
Net Income 2.8 3.5
 Financial
ratios
Profitability ratios

Profitability Ratios 2006 2007 Difference

Gross profit 34.95% 34.84% Decreased 0.09

margin %
Operating profit 5.69% 4.51% Decreased 1.18%
margin
Net profit margin 3.63% 2.77% Decreased 0.86%

Return on assets 10% 6% Decreased 4%

Return on equity 15% 13% Decreased 3%

Earnings per share 1.46 1.31 Decreased 0.86%

 Leverage ratios
Leverage Ratios 2006 2007 Difference

Long term Debt to 8% 40% Decreased 32%

capital ratio

Debt to Equity Ratio 0.45 1.20 Increased 0.75

 Activity ratios
Activity Ratios 2006 2007 Difference

Inventory Turnover 17.91 14.91 Decreased 3

Ratio

Days of Inventory 20.39 24.48 Increased 4.09

Average Collection 5.35 5.83 Increased 0.48

Period
 Liquidity ratios
Liquidity Ratios 2006 2007 Difference

Current Ratio 1.22 0.85 Decreased 0.37

Quick Ratio 0.82 0.48 Decreased 0.34

Working Capital $ 114211 $ (116530) (2319)

 Other important financial ratio

2006 2007 Difference

Dividend payout ratio 1.67% 0.66% Decreased 1.01%

Summary of financial ratios
•
• Whole Foods Market’s profitability has gone down in 2007,
with Gross Profit Margin going down 0.11% to 34.84%
from the previous yr, Operating Profit Margin down to
4.51% and Net Profit Margin to 2.77%, which resulted in
low after-tax profits for the company.
• The activity of Whole Foods Market has also become of
concern in 2007, with the inventory turnover decreasing to
14.91 from 17.91 in the previous yr, consequently affecting
the days of inventory which increased to 24.48 days and the
average collection period also increasing a bit to 5.83 from
5.35 previously.
•
•
• The long-term debt to capital ratio has jumped from 8% to a
shocking 40% in 2007, clearly indicating the large percentage
of capital investment that is financed by creditors, further
weakening the balance sheet strength of the company.
• The Plan for expansion and as well as for moving towards the
local suppliers will give Whole Food economies of scale and
better bargaining power which can maximize the net income
as a percent of total sales up to 3.57%.
• The inventory turnover was good until 2006 but this value was
slightly declining in 2007 and the company should take care
of it.
• The current working capital turnover is negative because of the
loan and debts they acquired in opening up new stores in
2007.
• The profitability ratio reveals that an increase in Return On
Sales increases profitability and efficiency of operating
activities.
•

• Net income was increased by 49% in 2006 but then it

decreased by 10% in 2007, this was because of payment of
interest on debt taken for financing the new stores and also
acquisition of new stores.
•
• Talking of stockholders, the earnings per share have also
decreased to 1.31 in 2007 from 1.46 in 2006.
•
 Question 3

• How well is Whole Foods

Market performing
from a strategic
perspective? Does
whole foods enjoy a
competitive advantage
over its rivals? Does
the company have a
winning strategy?
Performance
from
Strategic
• Whole food market’s is operating under a differentiation
strategy as the firm seeks quality leadership in their
products and provide 30,000 variety of products.
• The strategic alliances they formed by acquiring wild oats
and other small, owner managed chains helped them
achieve additional bargaining power of suppliers as well
as expansion criteria.
• They have created a company culture which connects with
their team members as they pass that connection to the
shoppers.
• Their quality standards adhere to be free from artificial
preservatives, colors, flavors and sweeteners, which
makes their organic food the true natural qualities.
• With hardworking employees, and many store
outlets across the whole country, whole
foods markets has managed to provide a
good customer base as employees are
empowered and take initiative on their own
in ensuring customers needs are fulfilled.
• The status of WFM has led it to be the industry
leader in organics hence showing that
strategically their performance is excellent
and have distinctive core competencies.
ER ’ S FIVE FORCES MODEL
THREAT OF NEW ENTRANTS
•Threat to profits is medium
•Strong economies of scale
•Threat is low
•Hard to enter for new and small company

ARGAINING POWER OF BUYERS RIVALRY AMONG SELLERS

BARGAINING POWER OF SUPPLIE
•Threat to profits is medium•Threat to profits is high •Threat to profits is high
•Many choices •Many sellers in market
•Different cost structure •Too many farmers
•Convenience
fferent levels of product lines•Strong exit barriers

THREAT OF SUBSTITUTE PRODUCTS

•Threat to profits is medium
•Health food stores
•Traditional supermarket
• Whole foods market are enjoying a
competitive advantage as under porter’s
model, they have bargaining power of sellers
due to existence of many suppliers and
farmers
• substitute products in the market such as non-
organic foods is not seen as a threat since
customers invest in healthier foods.
• Barriers of entry is high as only leading
companies can manage to enter the industry.
 Strategic
group mapping
Key success factor Importance Whole Wild Oats Fresh Traders Joe’
weight Food Market

Strength score Strength score Strength score Strength score

rating rating rating rating
1. Cost Efficiency .2 5 1 6 1.2 7 1.4 8 1.6

2.Quality .2 9 1.8 8 1.6 8 1.6 8 1.6

3.Merchandize Mix .15 9 1.35 8 1.2 7 1.05 8 1.2

4.Store ambiance .1 7 .7 6 .6 9 .9 9 .9

5.Customer service .1 8 .8 6 .6 8 .8 8 .8

6. Brand Image .05 9 .45 7 .35 6 .3 8 .4

7. Availability of stores .05 9 .45 7 .35 6 .3 8 .4

8.Growth .05 10 .5 5 .25 6 .3 7 .35

9.Market Share .05 9 .45 8 .4 7 .35 8 .4
10.CSR .05 10 .5 7 .35 6 .3 6 .3
Total score 8 6.9 7.3 7.95
 Strategic Group
Mapping of Retail
Food Industry
Pric
e/
Qual
ity
/ Whole Food
Imag
e
Low
Traders Joe
Fresh Market
Wild Oats

Medi
um

High
Large product mix
limited product mix

Product Line
 Winning
Strategy of
Whole Food
Market
 Question 4

• Recommendations for
whole food
management through
the recession period.
Should the company
cut back on opening so
many new stores?
Should it vigorously
contest the acquisition
of Wild Oats? Are any
Recommend
ation
•
• Recommendations for Recession:
– Use cost reduction strategies especially in the supply chain to
help in surviving the recession.
– During recession reduce amount spent on CSR as this will
allow for the money to be spent in other areas.
– They could brand their products and sell in other supermarkets.
– Lower the price of products to allow people to continue
buying.
– Spend more on advertisement to create brand awareness. They
spend 0.5% of its revenue.
• Should it cut back on opening new stores?
– Yes it should but ensure that they acquire Wild Oats to reduce
aggressive competition.
–
 Cont
…
•
• Should they Contest Wild Oats acquisition?
– Yes they should as it has several advantages especially
during the recession. These Include:
• Allow whole foods to enter five new states and 15
metropolitan markets.
• It will reduce administration costs.
• Increased supplier bargaining power.
• Boost overall utilization of company’s facilities.
– Acquisition of Wild Oats will help in the reduction of
costs and expanding the market. This will be very
beneficial during the recession.
Current trends
• Online shopping : holiday meals, gifts boxes.
• Browse recipes online
• Whole deal value guide brochures
• Pricing tactics used such as:
– Whole deal
– Coupons
– Three under 3$
– Budget-friendly recipes
•

•
• Ship gift boxes free to military addresses overseas.
• Green technology promotion, conserve energy by
using solar power and wind energy ( first to use
wind energy credits)
• Emphasis on the 3 R’s ( Reduce, Reuse and Recycle )
• Partnership with our health partners for diet programs
such as:
– Eat right America ( 28 day program)
– Engine 2 diet (28 day health opportunity)
• Expand to other cities in UK by 2010.
–
 Islamic
Perspective

•
Analysis of Whole
Food Market with
regards to Maqasid
Shariah (objectives
of Shariah).
•
 Maqasid
Shariah

•Maqasid Shariah: These are five religious

•considerations an individual has to make before

•undergoing any economic activity.

1. Religion
2. Life
3. Reason
4. Wealth
5. Future Generations
•
Cont
…
• In relation to religion, Whole foods market is
not an Islamic company but in many aspects
has principles which match the Islamic
religion.
• In relation to protection of life, amongst the
major values of Whole Foods Market is:
Promoting the health of our stakeholders
through healthy eating education.
•
Cont
…
• With regards to protection of reason, Whole foods
Market provides advice on what people should
eat and what not to and this builds reasoning.
• With regards to wealth distribution, Whole foods
market is a fully fledged profit making
institution and distributes part of its profit to the
needy.
• In relation to protection of future generations,
Whole Foods market promotes protecting the
environment for the future generations.
•
 Islamic
Perspective
Conclusion

• In conclusion
• If Whole Foods Market was to open a
branch in an Islamic economy or
Islamic country, it would survive
effectively as it abides to many
principals of the Islamic Shariah.
•
 General
Conclusion
•

ALLAH (S.W) says:

•

‫ما َرَز ۡقن َ ٰـك ۡم‬ َ

• ُ َ ‫ت‬ ِ ‫من طي ّب َ ٰـ‬
َ ِ ‫مُنوا ُڪلوا‬
ْ ُ ْ َ ‫ن َءا‬ ِ ‫أي َّها ٱل‬
َ ‫ذي‬ ّ
‫ن‬
َ ‫دو‬ُ ُ ‫ك ُُروا ْ ل ِل ّهِ ِإن ُڪنت ُ ۡم إ ِّياهُ ت َ ۡعب‬ ‫ٱ ۡش‬
• O you who beleive, Eat of the good
things that WE have provided for for
you and be grateful to ALLAH, if it is
HIM you worship.
• Holy Quran (2:172).

•
Overall recommendations
• Expand to Europe to gain larger market.
• Increase marketing budget to gain more
customer awareness by advertising.
• Invest in R & D such as machinery that helps
give customers nutritional information as
well as dietary arrangements.
• Customer reward program such as gift
vouchers and coupons.
Thank
You