Competitive Forces and SWOT Analysis - Essay Example

Running head: Whole Foods Market Whole Foods Market: Competitive forces and SWOT analysis Introduction The popularity of organic foods over other food items is growing day by day in America and other western countries because of the less consequences or side effects associated with it. Organic foods always contain only natural ingredients and it is processed in a natural way keeping away all the artificial ingredients. Even the production of organic foods is done in a natural manner avoiding the use of conventional non-organic pesticides, insecticides and herbicides. Organic foods cultivation is done under the supervision of the governmental agencies in order to ensure the quality of the agricultural products developed. Organic farming and food production found to be less harmful to environment. At the same it offers healthy body and fewer side effects to the regular users. Artificial foods like the fast foods always contain harmful ingredients to the health. Moreover artificial foods always contain excess calories which may be precipitated in the body of the user as fat. Organic farms always use less energy and resources and moreover it helps the ecosystem immensely. The comparatively higher advantage of organic farming and the consumption of organic foods forced many countries to encourage the farming and usage of organic foods at present. Background of Whole Foods Market Founded in 1980, in Texas as a small supermarket, Whole Foods Market is currently world’s largest retail chain in natural and organic foods. John Mackay is the CEO and co-founder of Whole Foods Market. The company has recorded $ 6.6 billion sales in 2007 and had around 276 stores in total in countries like US, UK and Canada. It recorded an annual growth rate of 20% from 2000 onwards has set a target of 400 stores and $ 12 billion sale by 2010 (Thompson, 2008, p.c2). Whole Foods Market is responsible for the popularity of organic foods not only in America but even in other countries as well. Whole Foods Market aims to catch the number one spot not only in organic food industry but even in general food industry where the Whole Foods Market stores operate. Organic foods trends and the impact on Whole Foods Market People are more aware of the consequences of artificial foods at present which helped organic foods to grow immensely for the last two decades. The rapid pace of life activities and high levels of diversified commitments forced the public to rely on fast in order to save time. Moreover, fast foods were tastier than the organic foods which helped the fast food industry to grow immensely. But along with the fast food industry, the health problems also began to grow heavily. Dawn Crystal (2010) has mentioned that the major problem associated with fast food is obesity (Crystal, 2010). The fat or oily contents are more in fast foods which gives more calories to the body than actually required. The excess calories will be deposited in the form of fat in body because of lack of work outs to burn out it. These excessive fat deposits create severe health problems like high BP, cholesterol, diabetics, heart problems etc. In short, the dangers of getting addicted to oily foods or fast foods are better known to the current generation which helped the growth of organic foods markets in general and Whole Foods Mark operation in particular. The combined sale of natural food and beverages was about $ 62 billion in 2007 which represents around 7.3% of the total $ 850 billion food product sales in US (Thompson, 2008, p. c2). The increased health problems and the proven relationships between health problems and obesity have forced the general public to think of some drastic changes in their existing food habits. The demand for organic foods is increasing because if this increasing awareness about the dangers caused by the fast food like artificial foods. As per the survey conducted by Whole Foods in 2005, 65% of US population has already tried organic foods whereas the figure was around 54% in 2003 (Thompson, 2008, p. c5). The increasing demand for organic foods is definitely a great opportunity for Whole Foods to conquer the food market not only in America, but even in other regions of the world. Nobody wants to put their life in jeopardy simply because of their food habits. People have already realised that they need to make a compromise between the taste and health concerns. If they go for tastier fast foods, their health will be in trouble. On the other hand, if they are ready to practice the less tasty organic foods, their health will be better. Competitive environment Wild Oats, Sunflower Markets, Trader Joe and Fresh Market were the major competitors of Whole Foods apart from the local, regional and national supermarkets (Thompson, 2008, p. c23, c25). In 2007, Whole Foods acquired its main competitor Wild Oats which was struggling to exist, for $ 700 million (Thompson, 2008, p. c7). The acquisition of Wild Oats definitely increased the competing abilities of Whole Foods. Wild Oats were ranked second only to the Whole Foods before the acquisition. In other words, the combined strength of the number one (Whole Foods) and number two (Wild Oats) is more than their individual strengths. In this case 1 + 1 = 3 instead of 2 The growth strategies adopted by Whole Foods were; opening new stores wherever business potentials exist, acquiring of small firms that had capable personnel. Apart from acquiring the number 2 in the market Whole Foods acquired lot of other small supermarkets as well which strengthened their competing abilities even further. The acquisitions of small supermarkets helped Whole Foods to establish outlets wherever they have not one. Moreover, Whole Foods concentrated more to acquire small supermarkets which have capable employees. This strategy helped them to utilize the services blended with experience and efficiency. Environmental factor impacts Whole Foods, reported earnings down 30 percent, or 35 cents a share, from $49.1 million in the third quarter of 2007 to $33.9 million, or 24 cents a share, for the three months ending July 6. Revenue rose to $1.84 billion from $1.51 billion a year earlier (Economy takes a bite out of Whole Foods, 2008). The global economy is not in good shape at the moment which is definitely a threat to the future business prospects of Whole Foods. At the same time many people believe that the severity of the recession is over and the global businesses would be back on track in the near future itself. Since 1992, Whole Foods, argued for the mandatory labeling of foods containing genetically modified ingredients. Moreover, Whole Foods is the only retailer on the recently appointed USDA Advisory Committee on Agricultural Biotechnology, another multi-stakeholder group organized to examine the many complex issues related to agricultural biotechnology (Whole Foods, 2010). Whole Foods strongly believes that the customers have the right to know about ingredients of their food items. Whole foods have a strong commitment towards the societal values as they are more concerned with the health of the public than the profit. They believe that the health of the public should be given preliminary importance as healthy people are the assets of a nation. Moreover, Whole foods use technology judiciously. They use only those technologies in which they have 100% confidence. They never used technological assistance blindly SWOT Analysis Empowering work environments, allocation of self responsibility to employees, retail innovations, self directed teams, incremental progress, shared fate, wise environmental practices etc are some of the major strengths of Whole Foods (Thompson, 2008, p. c8). Whole food, whole people, whole planet slogan (Thompson, 2008, p.c6) helped Whole Foods to get strong support from the public. The innovative business strategies like Team based management strategy, Gain sharing strategy and Economic value added incentive system helped Whole Foods to achieve higher places within a short time period after their arrival in the market. The major weakness of organic foods in general and Whole Foods in particular is the less taste associated with it compared to fast foods. In a rapidly moving world, people don’t have enough time for the processing of organic foods and they always look for shortcuts which will force them to rely on fast foods again and again even if they are aware of the health problems associated with it. Another major weakness of organic foods is the high cost of it compared to other foods. It is not easy to get a high yield when growing organic foods without using any chemical fertilizers or pesticides. The less yield forces the organic food processors like Whole Foods to increase the price of it which affects the sale of organic foods in the market. Globalization has provided immense opportunities for Whole Foods to market their products on a global basis. The awareness about the dangers of fast foods is everywhere which is definitely an opportunity for Whole Foods to expand their business to other parts of the world. Consumer demand for organic foods is growing at a rate of 20% annually since 2000 which shows that the future of organic foods is bright. The major threat for the business prospects of Whole Foods is the price wars between the competitors. Fast growing Trader Joe has raised stiff challenges for Whole Foods with respect to the pricing and sales of organic foods. Whole Foods current marketing strategy lacks aggressiveness whereas the main competitor Trader Joe is actively involved in the marketing of their products. Higher prices of organic foods are another threat for the business prospects of Whole Foods. People always look for cheaper options especially in the current dipping world economic scenario which will definitely serve as a major threat for the business prospects of Whole Foods. Competitive advantage Competitive advantage of a firm can be better analysed using Michael Porter’s five forces; bargaining power of customers, bargaining power of suppliers, threat of new entrants, threat of substitute products and competitive rivalry within an industry (Porters Five Forces Model, n. d) When we analyses the competitive advantages of Whole Foods with respect to Porter’s five forces we can conclude that the internal rivalry is high whereas the barrier to entry of new products is medium. Challenges from substitutes or complements are medium as far as Whole Foods future prospects are concerned. Supplier power is high whereas buyer power is medium (Competitive Analysis of Whole Foods, Inc., n. d). ‘Whole foods’ is the world’s largest organic food seller which means their competitive power is much higher than their competitors. Moreover, they have acquired the number two Wild Oats and a lot of other small supermarkets which increased their competing power further. Bargaining power of customers Buyer power or the bargaining power of customers is medium for Whole Foods. Buyers of organic foods know very well that they don’t have much options or substitute organic products in the market just like other artificial food items. Moreover, they know that developing of organic foods under the natural environment is not an easy task and the organic foods manufacturers need to be complemented for their effort to free the world from the threats of fast foods. So, generally the organic foods users may not bargain much about the prices of the foods which is definitely an advantage for Whole foods. Bargaining power of suppliers Even though the customer power is medium, the supplier power is very high for the development of organic foods. Naturals resources needed for the development of organic foods are less and expensive and moreover, the number of farmers who use natural means to grow the food items are less compared to other farmers. So, the natural food supplier bargaining power would be extremely high for Whole Foods. Threat of new entrants Threats from new entrants in the market are medium as far as Whole Foods’ competitive advantage is concerned. Even though, the public are increasingly aware of the consequences of artificial foods, they still have reluctance in avoiding it because of the convenience it provides to them. In other words, the organic food market opportunities are less compared to other food businesses. Entrepreneurs always look for the more profitable artificial food market because of the huge demand and hence we can safely say that threats from new entrants is medium or less as far as Whole Foods’ competitive advantages are concerned. Threat of substitute products It is not easy to develop substitute products for naturally growing foods. The quality of naturally growing foods cannot be matched by any other food items which means the threat of substitute products are medium for Whole Foods. Competitive rivalry within industry Competitive rivalry is so high in the organic foods market. As mentioned earlier the challenges from Trader Joe are so high for Whole foods which forced them to think about mergers and acquisition strategies to strengthen or expand their wings across America and other countries. Conclusion The demand for organic foods is increasing rapidly in the current world because of the proven health problems associated with fast foods. Whole Foods is world’s largest organic food manufacturing company which has achieved this position by adopting the merger and acquisition strategies. Even though the demand for organic foods is high, the comparatively higher prices and the higher timings needed for processing are major threats for the future business prospects of Whole Foods. The dipping world economy is another problem for the growth of Whole Foods. Even amidst these problems, the demand for organic foods is increasing at a rate of around 20% per year, which is definitely good sign for Whole Foods. References 1. Crystal Dawn (2010), The link between fast food and health problems, Retrieved on 27 January 2010 from http://www.helium.com/items/827764-the-link-between-fast-food-and-health-problems 2. Competitive Analysis of Whole Foods, Inc. (n. d), Retrieved on 27 January 2010 from http://www.docstoc.com/docs/2360432/Competitive-Analysis-of-Whole-Foods-Inc 3. Economy takes a bite out of Whole Foods (2008), Retrieved on 27 January 2010 from http://naturalfoodsmerchandiser.com/tabid/66/itemid/3232/Economy-takes-a-bite-out-of-Whole-Foods.aspx 4. Porters Five Forces Model, (n. d), Retrieved on 27 January 2010 from http://www.google.com/imgres?imgurl=http://student.dcu.ie/~slejhad2/pics/porter.jpg&imgrefurl=http://student.dcu.ie/~slejhad2/porter.htm&h=600&w=800&sz=115&tbnid=OYA68-KxEJHwUM:&tbnh=107&tbnw=143&prev=/images%3Fq%3Dporter%2527s%2Bfive%2Bforces%2Bmodel&usg=__xIDsskRVXEzLwBJa3Y9w2tmg7Vg=&ei=etVkS4PQCYr-6QPQhukW&sa=X&oi=image_result&resnum=4&ct=image&ved=0CBkQ9QEwAw 5. Thompson Arthur A. Whole foods market in 2008: Vision, core values and strategy 6. Whole Foods (2010), Sustainability and Our Future, Retrieved on 27 January 2010 from http://www.wholefoodsmarket.com/values/sustainability.php Read More