2. Whole Foods Current Strategy
Executive Summary
Whole Foods Market, Inc.
25 Years Of Double Digit Revenue Growth
$4.7B Organic Supermarket Industry Leader
Whole Foods Current Strategy
Expand Through New Store Openings
Achieve $12 Billion In Sales By 2010

3. Competitive Strategy Analysis
Executive Summary
Competitive Strategy Analysis
Supplier Power Dominates This Industry
Current Strategy Lacks Aggressiveness
Recommended Strategy
Establish Partnerships With Traditional Supermarkets
Achieve National Brand Equity

4. Overview Porter’s Five Forces Analysis SWOT Analysis of Whole Foods
Recommended Strategy
Questions/Discussion

5. Market Definition Market History
Natural And Organic Food Industry Began About 30 Years Ago
Whole Foods Market Is A “Founding Firm”
USDA Established The “Organic Rule” In 2002
Early adopters were “social-cause” consumers – environmental and animal rights activists – think “hippies chewing on granola”.

6. Market Definition
All Products Sold As “Organic” Must Now Meet The Requirements Of The USDA Organic Rule
Approximately $13 Billion In Sales In 2005

7. Threat To Profits: High Sources Of Internal Rivalry:
Many Sellers In The Market
Differing Cost Structures
Strong Exit Barriers

8. Differing Cost Structures
Internal Rivalry
Differing Cost Structures
Consider A Wal-Mart Supercenter:
> 100,000 Square Feet
Average Supermarket Only 35,000 Square Feet
Significant Economies Of Scale Difference And Wal-Mart Continually Drives Down Prices
Strong Exit Barriers
High Investment In Property, Distribution And Inventories

9. Entry Threat to Profits: Medium
Originally, Health Food
Stores Were Small,
Expensive,
And Unpredictable.
Some Health Stores Grew Into Supermarkets:
Sun Harvest
Whole Foods Market
Some Existing Supermarkets Re-Branded
Wegmanns
HEB: Central Market

10. New Supermarket Entrants
Segment Entry Types
Re-branded Supermarkets
H.E.B. (Texas) Created “Central Market”
Wegmans (New York) Upgraded Locations
New Supermarket Entrants
Growing Health Food Stores (GNC)
New Firms
Now that the market segment has incumbents, consumers have developed expectations and brand loyalty.

11. Barrier New Entrant Re-Branded
Entrant Comparison
Barrier
New Entrant
Re-Branded
Economies of Sales
Strong
Moderate
Government Protection
N/A
Brand Loyalty
Access to Key Inputs
Weak
Experience Curve
Network Externalities
Competition Expectations
Overall Threat:
Low
High
Because the threat of entry of a new entrant is low, we will be focusing on the entry threat of existing super-market leaders.

12. Most Likely Segment Entrants
Based On The Barriers To Entry Analysis, The Most Likely Entrants Into The Organic Segment Of The Supermarket Industry Are Established Firms
Who’s Next?

13. Substitutes And Complements
Health Industry
Health Insurance Companies
Health Care Specialists
Fitness Centers
Wellness Programs
Substitutes
Threat To Profits: Medium
Health Food Stores
Traditional Supermarkets
Supercenters

14. Threat to Profits: High
Supplier Power
Threat to Profits: High
Local Growers, Independent And Family Farmers, Large Corporate Farms, Co-ops And Food Brokers
Organic Supply Chain Underdeveloped
Growing Number Of Organic Food Grocers
Gives growers all the power, organic chain is underdeveloped, there is not enough capacity. Not enough free range to “meat” demand.

15. Threat To Profits: Medium To High Buyers Have Options! Price
Buyer Power
Threat To Profits: Medium To High
Buyers Have Options!
Price
Convenience
Varying Levels Of Health Sensitivity
Mixed Consumer Messages
The buyer has substitutes and options

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

17. Whole Foods, Whole People, Whole Planet
Strengths
Whole Foods, Whole People, Whole Planet
Corporate Culture
Customer Experience
Perishables
Hip Image
Double Digit Growth
Largest Selection

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

19. Whole Financing! Strengths
Strong Cash Flow And Stock Position Provide Capital For Growth In The Most Highly Desired Locations
4.7 Billion Dollar Revenues
Revenue Growth:
21.6 Percent From 2004 To 2005
15.8 Percent From 2005 To 2006
Returning Invested Capital (ROIC): 37%
Capitalization Increased To 6.8 Billion: 6th On The List Of All Grocery Chains t
Because of their stock situation low debt and incoming cash, they can afford to enter the best new locations.

20. Whole Planet? Weak International Operations Low Employee Efficiency
Weaknesses
“Whole Paycheck”
Whole Planet? Weak International Operations
Low Employee Efficiency
Revenue per Employee = $138K versus Industry Average of $309K
Only one int. planned – High level of service- happy employees, low efficiency.

21. Market Leadership in High Demand Segment
Opportunities
Market Leadership in High Demand Segment
2002 USDA Organic Rule – True Differentiation
Organic and Natural Food Industry Focus on Consumer Education
Media Coverage
Health benefits of organic foods
Suspicious of “contaminants” (e.g. hormones, antibiotics, etc.)

22. Private Label Brands Opportunities
“Whole-X”, Where X = Kids, Ranch, Fields, Catch, Creamery, Diary, Treat
Growth Of These Brands Is High Due To Lower Price Versus Contemporary Organic Brands
Potential To Sell These Products In Traditional Supermarkets

23. Increased Competition
Threats
Increased Competition
Re-branding Existing Supermarkets
Wal-Mart
Changes in Government Regulations
Changes in Economic Conditions
Impact of Consumer Spending

24. Whole Foods’ Current Strategy
Corporate Strategy
Whole Foods’ Current Strategy
Expand Through New Store Openings
‘Build’ Versus ‘Buy’ New Stores
Customized Stores To Local Preferences
Open To Acquisition Opportunities
Grow Store Space At A “Controllable” Rate Of 14%
Preserve Corporate Culture
Achieve $12B In Sales By 2010
Whole Foods is a well managed company with a strategy in place.
Their managers may be to close to their market, unable to see the competitive landscape
Store construction is in pipeline at least through 2008.
Will this be enough given the recent changes in the competitive landscape?

25. Coordinated Campaigns To Enter New Markets
Medium Term Strategy
Coordinated Campaigns To Enter New Markets
Prior To Store Opening, Establish Relationships With:
Traditional Supermarkets Willing To Sell “Whole-X” Products
Local Organic Suppliers And Growers
Aggressive Advertising Upon Store Launch:
Emphasize “Whole Foods, Whole People, Whole Planet”

26. Build National Brand Equity
Long Term Strategy
Build National Brand Equity
Extend Partner Relationships Into Current Markets
Increase Advertising Budget From 0.4% To The Industry Average Of 1.5%
Focus On Building Brand Identity With Organics
When Consumers Think “Organic”, They Think “Whole Foods”
Shed The “Whole Paycheck” Image

27. Questions & Discussion