An Assessment Of Whole Foods Value Chain. Memorandum - Case Study Example

Memorandum Mr. John Mackey, the CEO ----------------- July, 2, 2007 An assessment of Whole Foods valuechain As desired by your goodself, the following report makes an assessment of the strengths and weaknesses of Whole Foods Market Inc. Today we are living in a fiercely competitive environment, with shrinking margins. To acquire competitive advantage on its rivals a company needs to focus on marketing efforts, brand building, value creation, operational efficiencies etc. It is quite heartening that in such a competitive environment Whole Foods has been able to record revenues of $5,607.4 million during the fiscal year ended September 2006 with an increase of 19.3% over 2005. This has been possible on account of a strong value chain at Whole Foods. The revenue growth forms a core component of the strength of the company. Some of the strengths can be enlisted as; Strong revenue growth: During the previous five years when the market forces became much more competitive credit goes to the management of the company for coming out with impressive revenue figures. As compared to the industry average of 6.2%, during 2002-2006, Whole Foods recorded a revenue growth of 19.8%. Wide range of products: Company's product profile appears equally impressive with natural and organic products like seafood, meat and poultry, bakery, Gift Cards, prepared foods, specialty (beer, wine and cheese), nutritional supplements and vitamins, grocery, body care, books, floral products, pet products and household products. Focused growth strategy: Company's decision to contest1 the decision of Federal Trade Commission (FTC) challenging the merger of Whole Foods Market and Wild Oats, provides a glimpse into the aggressive strategy that the company has adopted over the years. In the year 2006 itself company opened 13 new stores with a view to reaching out to newer customer base. Company has also been successfully pursuing the acquisition strategy to leverage the economies of scale. Dedicated Workforce: The Company could not have written the success story without an active support and cooperation from the dedicated workforce. But there are some weaker areas which need constant attention as well; Lesser presence on the International horizon: Though the company has been able to establish itself firmly in US, its international is still limited to couple of stores in UK and Canada only. Minimal media presence: Today we are living in a media savvy society, therefore having a good presence in media and advertisements provides an edge to a company and its products. But so far Whole Foods has relied more on word-of-mouth publicity and keeps ignoring the strengths and advantages of being in media. For example in 2006 the company spent only 0.4% of total revenues on advertising. Rising rental costs: Whole Foods has been operating with rented space at many places. This forms a major cost component for the company. With rising rental costs and decreasing profit margins, the situation may become alarming if the requisite attention is not paid to the issue. For example, during the fiscal year 2006 itself the company paid approximately $153.1 million as rental expenses. Primary activities in the value chain include (Appendix-1); Inbound logistics: Raw material supplies, knowledge sources, consultancies, supplier management etc. Production: The inbound logistics are put in use to give out a finished product or a full-fledged service component. Outbound logistics: Taking care of distribution network, inspecting the quality of goods and services, planning out marketing and sales strategies etc. Marketing and sales: It forms an important component of the value chain as it is the main interface between the company and the customer. Service: Once the product or service is delivered to the customer, then comes taking a feedback from the customer. This has become very important in order to establish the company's brand equity and customer's loyalty. Futuristic needs are also projected by way of accepting regular inputs from the customer. Recommendation In order to improve the value chain Whole Foods needs to invest in training and development of its human resources, establishing a dependable infrastructure, technology development and procurement (Appendix-2). It is said that the strength of a chain is as good as the weakest link. Therefore every element in a value chain has a crucial role to play. To come out with a value product the human resources need to be made more quality and value conscious. Today technology plays an important role in almost every part of the business process. Right from e-procurement, to e-business etc. technology has a say everywhere. Therefore a technologically advanced company is known as a quality conscious company. Your attention is solicited towards the brief report on the functioning of the company with some suggestions for improvement in operations. With best regards Appendix-1: The process of value creation encompasses managing quality in the entire chain of processes leading to the production of final product or service. Quality in essence is delivering superior value to the customer. The value phenomenon is complicated and multifaceted. For the companies to identify their sustainable competitive advantage, Michael Porter developed a generic value chain with inter-related activities which are common in many firms. Porter identifies primary and support activities. Primary activities are the ones which generate a profit margin by adding value. These activities can be instrumental in providing a sustainable competitive advantage for the organisation either collectively or individually. Porter's value chain framework (1985) in general is accepted as the language for representing as well as analyzing the logic of firm-level value creation. The customer will prefer to deal with the company which values its association with the customer. This will help in retaining the customer base. And loyal customers happen to be good brand ambassadors for a company/ product, which will ultimately help the company in sustaining its competitive advantage. For a customer, value proposition include, Access to products, need fulfillment, desire fulfillment, increased choice, new consumption patterns, Problem solving features, and interactivity. In the value chain, value is created in the goods or services through efficient production of goods and services based on a variety of resources. The company is considered as a series or chain of activities. Primary activities in the value chain include; Inbound logistics Production Outbound logistics Marketing and sales Service Appendix-2: Three most important value chain generators Infrastructure: Company's infrastructure decides the number of customers it can cater at a given time and the kind of workload it can take on. Human resources: It is said that the strength of a chain is as good as the weakest link. Therefore every element in a value chain has a crucial role to play. To come out with a value product the human resources need to be made quality and value conscious. Technology development and procurement: Today technology plays an important role in almost every part of the business process. Be it the e-procurement, IT enabled services, e-business etc. technology has a say everywhere. Therefore a company will have to be technology savvy for being valued as a quality conscious company. Read More