Marketing Strategies of Whole Foods Market - Case Study Example

Running Head: Whole Foods Market Whole Foods Market [Institute’s Whole Foods Market Introduction This paper attempts to understand various marketing strategies of Whole Foods Market. This paper tries to explore the reason of Whole Foods market’s greatness, leadership, excellence in quality and its double-digit revenue growth for the past 25 years. This analysis would also include the trends of the organic and natural market and the workings of its competitors as well. In addition, the paper also highlights the strengths and opportunities for Whole Foods market and how can they capitalize on them. Moreover, this paper also would identify the weaknesses and threats for Whole Foods market and possible solutions or alternatives. Background of Whole Foods Market For the past few years, the market of natural, organic and health products has been increasingly significantly. As the customers are becoming more and more aware about products and their dynamics, they are becoming increasingly health conscious. John Mackey felt the same three decades ago and came up with his natural grocery store in the year 1978 (Whole Foods, 2010). Unfortunately the store did not perform well and the reasons being the small area of the store, few items for selection specially focusing only on vegetarian foods and insufficient demand from the particular locality. However, Mackey did not give up and teamed up with Craig Weller and Mark Skiles to form Whole Foods Market in Austin, Texas in the year 1980 (Whole Foods, 2010). This marked the golden era in the life of Mackey, and Whole Foods’ market growth was on an exponential trend. They were not only widening their scope of operations but also acquiring new business. In the year 1997, it purchased Allegro Coffee Company and in 1996, Pigeon Cave became a part of Whole Foods market (Whole Foods, 2010). For more than the past 25 years, it has been selling natural and organic foods free from all antibiotics, artificial ingredients, or growth hormones and minimally processed. The company ranks 22nd on the list of Fortune 100 best companies to work for (Whole Foods, 2010). The company owns 279 stores in United States, United Kingdom, and Canada according to last reports in January 2009. Moreover, the company intends to touch the 12 Billion US dollar mark in terms of their sales and reach the level of 400 stores in 2010 (Whole Foods, 2010). Whole Foods market has an interesting mission statement, which focuses on “Whole Foods,” “Whole people,” and “Whole market” (Whole Foods, 2010). Moreover, Whole Foods market has been repeatedly saying that they want to create win/win relationship with suppliers, delighting customers, selling the highest quality products available and consistent commitment of caring about the environment. Organic Food trends and the impact on Whole Foods market Without any doubts, the last decade witnessed a lot of growth in the organic and natural food market. The segment of health conscious and environmentally and ethically responsible people kept on expanding. These people were aware and wanted products who were free from any preservatives, hormones, artificial ingredients, added color, and added taste and grown without the use of insecticides, pesticides, fertilizers or genetic engineering (Kotler & Armstrong, 2005). It was in the year 1990 when the United States government passed an act for establishing national standards for organic and national foods. In order to abolish the remaining monopolies and inconsistent state standards for the same, the United States department for agriculture passed a new regulation and asked all the sellers to label their natural and organic foods in to four categories. The first category of purely organic products (100 percent organic), the second category of ninety-five percent, and the third category of seventy percent organically made and the last category of less than seventy percent organically made which would not have the USDA seal (Whole Foods, 2010). With growing customer interest many companies like Trader Joe’s, Wild Oats, Kraft, General Mills, Groupe Danone, Dean foods, Kellogg, Heinz, Starbucks, Green Mountain Coffee, and Campbell Soup put their efforts to attract the organic customers in some way or the other (Hellriegel & Slocum, 2007). It was in the year 2003 that the Whole Foods Market acquired its official license of being the “first national certified organic” grocer (Whole Foods, 2010). Whole Foods market was very active and efficient in taking the advantage of this trend. Being a “certified supermarket” of organic and natural foods gave the benefit of low prices and high quality to WFM against others (Whole Foods, 2010). Competitive environment The best way to study the competitive environment of is through the famous Porter’s five forces model. Out of these five forces, the first one to affect WFM could be the “threat of new entrants” (Porter, 1985). According to the data available for the year 2005, there were around 14000 independent and small stores concentrating on natural and organic products. Their combined were around 18 billion until the year 2007 (Hellriegel & Slocum, 2007). However, it quite easy to predict that this number would have increase to another level for this present year and the we would witness more growth in this area in the coming years. Since most of these stores are single shop and owner managed enterprises, it is relatively easy to come into the business with this medium. However, this poses a significant threat to WFM since, this way; these small stores would eat away WFM’s market potential and current market share. In fact, there is also a possibility that already established firms in the market may enter in the market. This may include companies like Central market, Wegmans, Winn Dixie, and Publix Super Market. The second factor is about the rivalry amongst the existing firms. This factor poses an alarming level threat to the future profits of WFM. Other supermarkets such as traders “Joe’s, Fresh market, Wild Oats, Sunflower Farmer Market, Fresh and Easy Neighborhood Markets” (Whole Foods, 2010) and others pose a serious threat to WFM. In addition, supermarket leaders like Wal-Mart, Kroger, Costco, Safeway and others also have their eyes on share of WFM. Moreover, there are many restaurants, fast food chains, wholesale clubs, convenience clubs, mass merchandisers, and others as potential threat for WFM. The third competitive force is of the “growing bargaining power of supplier” in the Porter’s five forces model (Ireland, Hoskisson & Hitt, 2008). WFM is itself acting as the supplier in this situation. It is important here to note that as the supplier of organic and natural products the bargaining power of WFM is increasing since it is the market leader in this field. However, at the end of the day, it is decreasing the profit margins of its backward chain producers. This may lead to greater loyalty and cooperation from the producer side for WFM in the coming years. The “growing bargaining power of buyer” is the fourth force in the same model. It is difficult to make strong comments on this topic because various buyers varying degree of readiness to use their bargaining power (Ireland, Hoskisson & Hitt, 2008). Bargaining is a process by which buyer can actually decrease the prices. However, these buyers can acquire the same by switching to discounted shops like Wal-Mart. Moreover, WFM’s customers are those who are ready to pay a premium for organic and natural products. Therefore, this threat is not severe for WFM. The last force is of “threat of substitutes” (Ireland, Hoskisson & Hitt, 2008). It is vital to understand that the customers who come to WFM are not looking for organic and natural products. However, they are more interested in making sure that they live a healthier life without putting the environment on stake. The same result is achievable with joining fitness centers, wellness programs, consulting health care specialists and other institutions and variables from the health care industry. Therefore, all these institutions also are potential substitutes to the offerings of WFM. Environmental factor impacts As mentioned under the upcoming heading of SWOT analysis, one of the most significant threats for WFM is the ongoing recession in the financial market that will stay the same at least for the coming few years. It is quite understandable that during a recession people find themselves with less disposable income to depend on premium priced or luxury products. This is the reason why the growth rate of sales of the industry has witnessed a slowdown trend since 2007 (Kotler & Armstrong, 2005). WFM understands the fact that this threat is a significant and powerful enough and make them go down on their knees. One of the possible solutions to cope up these situations can be by establishing partnerships with the existing traditional supermarkets. In this way, it would be able to absorb the shocks of this recession, would decrease its competition and both the companies would enjoy greater profits. Another way out is that WFM should try to achieve a national brand equity by carefully diversifying into geographical locations where it has not been until yet. SWOT Analysis Strengths Leader in the organic foods industry Acknowledged by the fortune 100 best companies to work for WFM operates on the demographic rule that around every store of WFM, at least 40 percent of the population would have a college degree so it can have more aware and educated customers. Well experienced and has well known and trusted brand name. Brand loyal customers and string customer base. Weaknesses Current competitor strategy lacks solid aggressiveness. Some experts often refer WFM as “Whole Paycheck” since the prices are seriously high. No strong advertising or promotions efforts and heavily relies on word of mouth. The revenue per employee of WFM is around 138 US dollars; however, the industry average touches the peak of 309 US dollars. Opportunities Increasing concerns of customers about purity and safety of their foods would make them switch to organic and natural foods. The population is becoming more educated and aware about the benefits of healthier eating patterns. People are developing this opinion that organic farming is safe and healthy for the environment. By promoting the benefits of organic foods, it can attract many new customers in the future. Threats Growth slowdown to 7-9 percent since the year 2009 in the organic food industry Possible scarcity of organic foods in the coming years Economic recession leave people with less disposable income to spend on luxury items or premium products of WFM Competitive advantage Experts define competitive advantage as the ability of the firm to continue making profits and continue keeping a unique position for itself in the market as compared to its customers (Kotler, Keller, & Cunningham, 2009). The biggest competitive advantage for WFM is its market leadership and if in some way or the other WFM succeeds in sustaining that then it would continue making profits and have a unique position with respect to its competitors. However, WFM would have to do a lot of homework for the same. This is challenging before the exit barriers of this market are low so not so well doing firms leave easily. Moreover, competitors are smart enough to offer the same products thus making it difficult for customers to distinguish. Therefore, the key to sustaining this competitive advantage would be by powerful and effective promotion, healthy and aggressive advertising techniques, and expansion. It is also imperative to note that WFM has the choice to show an aggressive approach towards its competitors and turn their motto of Whole Foods. Whole people and Whole planet” into an aggressive one since they assume their scope as “whole” and nothing else. In addition, there is lot of room for WFM’s products in Canada and Europe where WFM has limited operations to this date. Conclusion Surely, the upcoming years will pose a serious challenge for WFM and it would definitely witness a slowdown trend in the growth of its profits. However, it is undeniable that WFM has the potential to overcome all these hurdles and challenges and keep on the trend of its growth. Nevertheless, for that, they would have to decide carefully on their strategies and plans. References Hellriegel, Don, and Slocum, John W. (2007). Organizational behavior. Cengage Learning. Ireland, R. Duane., Hoskisson, Robert E., & Hitt, Michael A. (2008). Understanding Business Strategy: Concepts and Cases. Cengage Learning. Kotler, Philip, & Armstrong, Gary. (2005). Principles of marketing. Cengage Learning. Kotler, Philip, Keller, Kevin Lane., & Cunningham, Peggy H. (2009). Marketing Management. Pearson Education Canada. Porter, Michael E. (1985). Competitive Advantage. Free Press. Whole Foods. (2010). Whole Foods Market Official Website. Retrieved on January 29, 2010: http://www.wholefoodsmarket.com/ Read More