Industry Positioning Analysis of Whole Foods Market
John Mackey and Renee Lawson Hardy established a small store in Austin, Texas in 1980 to sell natural and organic foods. They called the store Whole Foods Market. Today, Whole Foods Market is the leading retailer of natural and organic foods with more than 370 stores across North America and the United Kingdom (University of Oregon Investment Group 2). The business has experienced fast growth and enjoyed high profits. Its fast growth has been facilitated by successful mergers and acquisitions, such as Wild Oats Food chain and Fresh and Wild. The 21st century presents the business with challenges, such as increased competition, rising fuel prices, uncertain economic conditions, and a difficult industry environment. The company must sustain its position at the top of the organic food market industry to continue enjoying high profits and fast growth (Lee 2).
Whole Foods Market aims at providing high quality products to satisfy and delight its customers. The company supports team excellence and caring about the environment and the communities in which it operates. Promoting the health of its stakeholders and maintaining strong partnerships with its suppliers is a priority for the business (University of Oregon Investment Group 3).
Whole Foods Market offers a variety of natural and organic foods, such as seafood, bakery, meat, grocery, poultry, farm produce, body care products, nutritional supplements, prepared food and catering, coffee and tea, floral items, and household products (Lee 4).
5-Forces of Porter’s Model
Threat of New Entrants
It is weak to average. High profits and fast rate of growth in the industry attracts new potential investors creating a growing competition from new entrants. Supermarkets, such as Safeway have begun offering their own line of natural and organic foods. New entrants lack the capital needed to capture a large market share in the high-cost industry. They have smaller stores, variety, volume, and locations of stores making it difficult to compete with existing large players in the industry. Easy accessibility of supermarkets by consumers in places with a growing population creates competition for existing players located far away from these areas (Thompson 66).
Supplier Bargaining Power and Supplier-Seller Collaboration
It is strong. Whole Foods Market promises its customers high quality products to attract and maintain large market share. The company has to make all its suppliers meet its standards of quality. Sometimes uncontrollable weather conditions lead to shortage of supply and smaller margins. In return the sellers increase the price of its offers in exchange for their commitment. A small increase in the prices of the inputs makes the already tight margins tighter. Multinational companies, such as Coca Cola are increasingly purchasing local companies offering organic foods, reducing the number of small suppliers. The company has to purchase organic food from multinational companies at competitive prices. The business faces higher prices on the wholesale side (Thompson 70).
Buyer Bargaining Power and Seller-Buyer Collaboration
It is weak to average. There has been massive consolidation in the natural and organic market industry in the recent years because of increased in urbanization. Everyone has to eat despite the few people engaging in farming activities. Buyers have little power for negotiation on the prices. Consumers are seeking for lower-priced options because of the challenging economic conditions. Lower switching costs of buyers make easy for customers to shift to competitor products. This has created pressure on Whole Foods leading to an increase in its offer for more private label products at lower prices (Thompson 75).
Rivalry among Competing Sellers
It is strong. Whole Foods Market competes directly with local farmers markets, warehouse stores, mainstream grocers, and specialty stores. The industry has other major players, such as New Seasons, Kroger, Wal-Mart, and Trader Joe’s. Major players have the ability to offer similar products to that of Whole Foods and at lower prices. Any of these players has the opportunity to dominate the market share. Whole Foods Market has been able to dominate the market share because it has larger stores and strong customer loyalty and reputation. However, major players in the industry are expanding their operations and keeping their prices low. They are forming mergers and acquisitions with businesses in areas experiencing increased population intensifying competition for market share and profits (University of Oregon Investment Group 5). All players in the industry, including Whole Foods are struggling with declining revenue as a result of a decrease in consumer spending and low prices. This lead Whole Foods increased reliance on economic recovery to expand its sales in the coming years (Thompson 62).
Sellers of Substitute Products
The threat is average to strong. Consumers tend to have high preferences for stores they can do all their shopping. The increase in the number of mainstream grocers offering natural and organic foods has reduced the market share of Whole Foods Market. Moreover, consumers can choose to make purchases at the local farmers markets or just buy regular food (Thompson 69).
Whole Foods Market is making efforts to reduce its costs of operations, especially on inputs. The business its enhancing its production processes to offer the same products that its competitors are offered at lower prices while still maintaining high returns. It is increasing ownership of subsidiaries that serve as its suppliers, such as Pigeon Cove, M&S Seafood, and Allergo Coffee Company to create economies of scale (Thompson 156).
Whole Foods has been in the natural and organic market industry for a long time giving it an early mover advantage. The business differentiates itself from competitors by offering a variety of natural and organic foods in one convenient place and at high quality. All its products have private labels making it easy for customers to differentiate its products from those of competitors. Competitors are increasing the size of their stores and seeking more suppliers to increase the variety of products they offer (Lee 8).
Whole Foods Market has maintained its focus on offering natural and organic foods achieving competitive advantage. The business has created an environment for health conscious and environmentally friendly consumers. This focus has helped decrease the intensity of competition for its offers. Some competitors, such as Wal-Mart have established a line of natural and organic foods, but have not yet reached the level of Whole Foods Market (University of Oregon Investment Group 7).
Conclusion and Recommendations
Whole Foods Market faces strong threat from existing players in the market, supplier bargaining power, and substitute products. Whole Foods has to develop contracts that benefit both sides and form strong relationships with them to maintain their loyalty, especially local farmers. They seek for opportunities that can make it easy for them to negotiate with its suppliers, such as engaging in community development projects. Whole Foods seeks to open mores stores in places with a growing population, especially of college- educated people within a 20 minutes drive. This will help the business target consumers who are more aware and conscious of healthy foods and receiving a higher income. Whole Foods Market should focus on maintaining high profits and sales to open more stores that have the potential of increasing its market share. It should maintain and improve quality in its products to be able to attract and maintain customers willing to pay higher prices.
Lee Adrienne. Whole foods market: a strategic analysis. Spring, 5 Jun. 2009. Web. 7 Nov. 2014. <http://aladinrc.wrlc.org/bitstream/handle/1961/7826/Lee,%20Adrienne,%202009S.pdf?sequence=1>
Thompson, Arthur. Crafting and executing strategy: concepts and cases. 17th ed. New York: The McGraw-Hill Companies, 2010. Print.