Financial and Managerial Accounting in the Wild Oats and Whole Foods - Case Study Example

FINANCIAL AND MANAGERIAL ACCOUNTING Summary of the case study The case is about the merger of two firms dealing with natural and organic products namely, the Wild Oats and Whole Foods. After all due diligence concerning the merger of the two companies was followed and the board members of respective organizations giving a go ahead to the acquisition of Wild Oats by Whole Foods, a legal battle ensues. The Federal Trade Commission makes a legal suit challenging the manner in which the purchase agreement between the two firms was effected citing antitrust issue and an inherent risk of a monopoly in the market for the companies that were merging were ranked the first and second respectively in that particular market (Aprill, 2008). This implies if a go ahead would be granted for the firms to merge the market risks a situation whereby there is minimal competition with one company controlling pricing since the other players would not match its market penetration together with the customer base that it commands. Apparently the suit came a month after the merger had been completed when nearly all the required transactions had already been sealed. Some of the Wild Oats outlets had been rebranded to Whole Foods while other had been closed down or sold in cases where the two previous companies held concurrent stores. The share capital agreed to this particular merger deal was settled including Whole Foods absorbing the debts that Wild Oats held previously (Aprill, 2008). The suit was heard and determined by the district court where it was decided that all the due diligence required was followed thus giving the merger a clean bill of health to conclude the deal. It was a great relieve for both companies since they would not engage in reverse negotiations in the event the deal was canceled. However contrary to everyone’s expectations the Federal Trade Commission went to the court of appeal to contest the ruling after some stores were found running under the original name of Wild Oats. The CEO of Whole Foods was in a dilemma of whether to continue affecting the remaining process of the merger or wait for the determination of the case in case the previous ruling is overturned in favour of Federal Trade Commission (Aprill, 2008). Characteristics of the organic natural products industry The industry is founded on the trend in which consumers are turning to healthy living by consumption of natural and organic foods to avoid the effects that come along genetically modified foods. Recently a steady rise has been observed in many American households in terms of the number of people suffering from lifestyle diseases a majority of these cases are caused by poor diet and to be specific foods that have been enriched with artificial ingredients. Thus, to avoid such situation the wealthy and educated class of the population who have knowledge on health issue have resorted to natural foods to leverage from their high level health value to ensure they lead long healthy lives (Aprill, 2008). Artificial foods have been gaining negative publicity from the media since a lot of documentaries and exposes have been run on national and paid television channels to warn consumers about the health effects of those kinds of foods. The result of the above action was that consumers had no option but turn to organic foods with nutritional value and no associated health problems. The action by the media has led to an increased number of consumers that opted to natural foods thus increasing the customer base of the industry by making the products to be mainstream in the sense that their demand is complementary to some thus it not prone to selective or seasonal demand (Aprill, 2008). Once the industry realized that it had capitalized on a market niche and gained a position in the foods market share it developed innovative ways in which it would satisfy the needs of its clients in a more fulfilling manner. It resulted in the industry player been keen to support farmers to ensure they cultivate products that are free from any form of artificial pesticides to ensure the safety of their clients is guaranteed at all times. That in spite that, the partnership between natural foods retailers and farmers was aimed at ensuring the sustainability of the industry by making sure the farmers have enough capital continuously to sustain a steady supply of the products to the market. The move was also a sign of commitment to ensure the esteemed customers are safeguarded by being served with the best quality products that have been cultivated under ideal condition to give them the best nutritional value (Aprill, 2008). Response to questions from the case If the merger is successfully completed, it will give Whole Foods a competitive advantage over its rivals since the market penetration of the two firms prior to their major was immense with operations running in other countries. It means that Whole Foods will be riding on the advantage of commanding the single largest market share thus it would have an upper hand in setting issues of pricing in the market. The fact it has many stores spread across the entire region means that it will be competitive enough to enter into a market battle with convenient stores and supercenters like Wal-Mart and Target. Since prior to the merger Whole Foods has implemented the idea of a concept store whereby the its retail stores were transformed to give consumers a new feeling will make them to favorably compete with giants like Wal-Mart that runs similar services (Aprill, 2008). By effecting the merger, Whole Foods will require going back to the drawing board and come up with different growth and operational strategies. It is ideal since the company is no longer dealing with only its clients, but a larger consumer base has been brought on board. That notwithstanding, Wild Oats as a single entity had its strategies concerning the mode of operation and growth, which had seen it become a major competitor of Whole Foods in that particular market. Integrating the approaches from the two firms will ensure that every aspect of growth and operation of the organizations are considered to ensure the merger outperforms the predecessors (Aprill, 2008). Methinks that Whole Foods should stick to the initial strategy of branding itself as an outlet that deals exclusively in natural and organic foods without expanding to include other household goods. It will distinguish it from the rest as a firm that specializes in natural and organic foods thus giving it an edge over the rest that incorporates other household goods thus lacking that specify the factor. Most of the consumers of these products are wealthy and knowledgeable individuals who know what they want and specifically the ideal quality (Aprill, 2008). The idea of dealing with one line of products and in this case natural foods will first make the firm stand out from the rest and it will have specialized thus making it easier and convenient for any consumer to readily shop for the goods from its outlets. Expanding in breadth to include household goods will only make Whole Foods like any other convenient store that deals with assorted goods without that aspect of specialization in natural foods hence losing its competitive advantage (Aprill, 2008). Alternatives In this case, Mackey will not be spoilt with many alternatives since they are limited; it is a dilemma in which it is hard to make any particular decision. My recommendation for this case it that since the two companies had undergone the merger process almost to a completion a substantial amount of costs has already been committed to the course. Mackey should dedicate extra money to fight the suit in court even if it means appealing the appeal by FTC if it is not ruled in their favor. It will be financially illogical to reverse the whole process of merger as it has been overtaken by events, and the aftermath will be shareholders losing value for their capital invested in the companies (Aprill, 2008). Analysis Whole Foods having been a key player in the market has established links with the customers for a considerable amount of time. The merger will thus enjoy the opportunity of a ready market where the former Wild Oats and Whole Foods used to operate. Since the merger will be retaining the brand name, it will be easier for previous customers to recognize it and want to be associated with it thus increasing the popularity of the products from Whole Foods outlets. Alternatively the firm will also be faced with threats in equal measure. Un-conducive environment is one of the major threats that the company will face. The Federation of Trade Commission by putting the company in legal battles made it spend a substantial amount of money in the lawsuits and currently the future of the company is in jeopardy as the ruling is set to determine what course the future of the business will take. Porter’s Five Forces Model Using Porter’s five forces model from the case, it is evident that supplier power has a significant influence on the overall market operation because farmers who are the main providers of the natural foods have been integrated into the value chain; thus, will significantly influence the market (Aprill, 2008). The industry does not face any potential threat from substitutes since it came exclusively due to the growth of the need for specialized foods different from the conventional ones. Thus, it is a market segment that serves people with special needs within a particular bracket. The power of the buyers is immense since they have s distinguished taste and preferences as they require certain products in a given condition that must be attained to satisfy them fully. However, despite the demands the consumers are ready to pay premium prices for their taste of goods. Currently, there is no formidable threat by entry of a new firm since the market is already segmented with the main actors owning a substantial share of the market. New businesses will find it hard to enter the market due to unforeseen barriers to entry that is subject to this market (Aprill, 2008). SWOT Analysis (“Health Foods”, n.d.). Strengths Whole Foods as a company possess a number of strengths in including: The company has a strong brand name, in addition to, strong financial capability. For instance, WFM reported revenues of $3.4 billion and earnings per share of $0.41for the third quarter 2014, which represented 10.4% increase from the previous years (“Whole Foods”, 2015). A team of dedicated workforce that is ready to work towards achieving the purpose of the organization. Weaknesses. The company has a unique culture, management and drive that gives the company a competitive edge. The company has innovative and well-designed store outlets and a portfolio of differentiated products that draw loyal customers. Weaknesses The company faces the problem of unstable leadership as was recently experienced with the exit of top management officers; thus, no stable line of control has been in place to implement the objectives of the company effectively. The routine change of senior managers is not healthy for the firm since the different decisions that will be made by various leaders may collide resulting in business failure. WFM is a low employee efficient market The supermarket offers high prices for commodities compared to other groceries reason has been termed ‘whole paycheck’. The supermarket’s supply chain is not swift and given the low underdevelopment of organic food due to lack of government support to farmers, the supermarket cannot meet new demand trends. Threats Increasing competition from other supermarkets offering similar products. Change in government regulations. Change in economic conditions changing the spending habits of consumers. Opportunities Emerging market in the word for demand of organic foods lieu of non-organic foods implying an increased market. References Aprill, C. (2008). Whole foods market and wild oats merger. Charlottesville, Va: Darden Business Publishing, University of Virginia. Health Foods Does good. (n.d.). Retrieved from http://www.wholefoodsmarket.com/ Whole Foods Market Inc (WFM: NASDAQ GS). (2015, Jan. 1). Retrieved from http://www.bloomberg.com/research/stocks/earnings/earnings.asp?ticker=WFM Read More