Situation Analysis:
Whole Foods was founded in 1980 by John Mackey, Renee Lawson, Craig Weller, and Mark Skiles. It’s founding was the result of a merger between Saferway, a grocery store owned by Mackey and Lawson, with Weller and Skiles’ grocery store, Clarksville Natural Grocery. Whole Foods Market was one of the largest grocery stores of it’s kind in Austin, TX at the time. Considering the limited number of competitors (less than half a dozen natural grocery outlets throughout the United States at the time) Whole Foods made it’s marked on the industry immediately. As a company, Whole Foods has been guided by its mission statement “to nourish people and the planet.” Today, Whole Foods has developed into the largest natural foods grocery chain and is a Fortune 500 company, with nearly 450 stores worldwide.
Whole Foods focuses on organic, wholesome food. Unlike a typical “health food” store, Whole Foods has pioneered a supermarket concept in natural and organic food retailing. Although Whole Foods is primarily in one market, their brands include Whole Foods Market, 365 Everyday Value, Engine 2 Plant-Strong Products, and Whole Trade Products. All Whole Foods brands offer healthy, natural, and ethically-sourced products. While their stores offer many different brands of organic, natural foods, their 365 Everyday Value brand offers products that meet Whole Foods’ requirements and quality standards, without breaking the bank. Although Whole Foods has a reputation for being pricey, since their acquisition by Amazon in 2017, they’ve been able to move away from the “Whole Paycheck” mentality with their customers. With their partnership with Amazon, Whole Foods now offers discounts and special deals to Amazon Prime members both in store and when customers order through Amazon Fresh, their grocery delivery service.
By emulating the form of a supermarket outlet, with the content of a natural grocer, combined with the resources of Amazon, Whole Foods is far in advance compared to typical chain grocery stores. Additionally, it’s also more advanced with natural foods, Whole Foods distinguishes itself from standard grocers such as Kroger’s marketplace stores and is indeed more convenient than waiting for pop-up farmers markets from which to shop.
2.1.0 – Market Summary:
Whole Foods strives to provide a space for customers to engage in ethically-sourced, sustainable grocery shopping, while also creating a fun environment for shoppers. While Whole Foods operates in only one market segment as a natural and organic foods supermarket, they’ve done quite well in that offering alone. This market segment is valued at around 100 billion with a year-over-year increase of 9% as of 2015. There’s been a steady increase in popularity of organic and natural options, so Whole Foods will likely continue to be known as highly specialized in this market. Because of their advantage in being a natural grocer modeled after the supermarket structure; they have an advantage with ease of access and reliability.
Whole Foods’ budget-friendly, non-GMO brand 365 Everyday Value is very appealing to customers looking for natural products and produce, without a huge price tag. While the natural grocer does offer many brands of products all ranging in price, their 365 Everyday Value brand is a smart go-to option for first-time customers. This brand is also known to have some of the best brand equity in the nation, and it has also seen an increase in popularity since Amazon’s purchase of Whole Foods.
Because of Amazon’s unique market spaces, Whole Foods products and their 365 Everyday Value brand have seen a noticeable increase in recognition both in store and online. Just within the first week of Amazon offering the 365 brand, online grocery sales completed rang in at around $500,000 (PYMNTS). Because of their strong brand equity, and Amazon’s large customer pool, Amazon has already seen benefits from acquiring the Whole Foods brand.
In addition to the natural and organic foods market, Whole Foods also carried numerous household cleaning items, supplements, vitamins, water bottles, etc. All natural or environmentally-friendly products, of course. While this may not make up a large portion of their sales, these items to increase customer’s ability to make Whole Foods their “one-stop-shop.”
2.1.1 – Market Demographics:
Demographics of Whole Foods target market is dominated by highly educated, upper-class couples or individuals. Whole Foods customer profiles are about 58% female customers, and 42% male and most of those customers will be around the ages of 24-34 (Statista). Most of its customers, about 60% approximately will make over 100,000 annually, while less than 5% of their customers will make less than 20,000 annually (Statista). Further, approximately 75% of Whole Foods customers are White, followed by the next largest percentage of 11%, who are African American; followed by 9% of customers who are Asian (Statista).
As these statistics point out, Whole Foods is most commonly frequented by White, upper-class, high achieving and earning young professionals or families. While a dominating group of consumers in the Whole Foods market are young families or small households with incomes well above the national average, those consumers that aren’t part of the “young family” group will probably be wealthy individuals who are still earning well-above average.
Geographically, Whole Food’s customers likely live in urban or suburban areas of major cities across the US. This is especially important because Whole Foods stores are typically developed in urban or suburban settings of some of the largest cities in the United States (Whole Foods). Additionally, these target groups make enough money to live in the major cities or surrounding suburbs in which they work and might also hold values that are more progressive. Often, being ethically mindful and environmentally friendly is seen as “progressive,” and many customers will be attracted to Whole Foods over other grocers who place less emphasis or importance on being a sustainable, mindful company. Both demographic groups will be identified as health-conscious, and have cared for how and where their food is sourced. An enjoyable feature of visiting Whole Foods is their samples and meal options available in the various pop-up restaurants in store. Customers of Whole Foods will also be more likely to shop on a week to week basis, some even shorter, considering their proximity to the store and the limited lifetime of fresh vegetables and fruits.
These demographics and market interests were informed additionally through a survey of mostly college students, with about 12 responses, 83 percent of respondents were between the ages of 18-24 and considered themselves students and/or student employees (part-time). The majority of these responses pointed to the common interests of students when shopping for groceries. The most checked box was “discounts” when asked which consumer preferences are most important when buying groceries. Other attributes which participants found most important were the highest quality, availability, value, organic options, and locally sourced produce. While most of these attributes are in line with Whole Foods values and offerings, results of the survey revealed that 33 percent of participants visit Whole Foods “occasionally” followed by 67 percent who visit “rarely.” This interesting disconnect in consumer preferences and shopping habits might point to a reality that Whole Foods are having a hard time shaking the “Whole Paycheck” mentality.
2.1.2 – Market Needs:
As mentioned earlier, a consumer preference survey showed that most customers are looking for discounts as well as high-quality products. While Whole Foods might be known for the latter substantially more than being characterized as a discount food source, the company is certainly making strides to initiate a shift in how consumers think about Whole Foods prices. The organic and natural food market is identified not only by a desire to live off healthy foods but it might also have a harder time being characterized as affordable for lower-income households and individuals. Ever since the Amazon acquisition, Whole Foods has certainly been in a better position to offer discounted prices (Entrepreneur). They have also implemented Amazon Prime customer pricing, which can often offer 10% or more in savings for Prime customers, both in-store and online at amazon.com (Whole Foods; Amazon).
Whole Foods takes the initiative to care for its company, employees, and suppliers in the best ways possible. This market tends to focus on ethical sourcing and setting the highest quality standards in grocery shopping. By positioning themselves as a grocery outlet who sources locally and ethically, Whole Foods further associates themselves with values that are reflective of their target market and consumer interest. Whole Foods has the potential to appeal much more to these customers who do value ethical sourcing and environmental care, but who also need to budget for groceries, and they seem to be working hard at doing so, though it may come down to company reputation and the “whole paycheck” mindset once again. As Whole Foods continues in their partnership with Amazon, they should be able to slowly remove themselves from that mindset, and into one that appeals more to a younger and potentially lower-earning generation.
2.1.3 – Market Trends and Market Growth:
Whole Foods has a reputation as a proximal, convenient, high-quality, organic grocery outlet, and has set itself up well for some current trends we’re seeing in cities across the US. We’re in a health-food trend, and it’s still uprising. Many stores are focusing efforts on gaining organic and natural food lines and labels to attract younger families and a millennial generation that is both budgets conscious and health conscious. These trends are also emphasized by a significant tech-industry boom, especially in cities such as Seattle, San Fransisco, and Silicon Valley. This tech-focus is drawing young professionals into metropolitan areas and compensating enough for them to live comfortably in those urban settings. Both the draw to more metropolitan areas and an increased focus on that which consumers are fueling their bodies, this natural and organic food market segment is thriving and becoming increasingly present in stores throughout the US.
A health-food trend, with budget and environmental care in mind, is on the rise, and it’s impacting net sales for the industry as well. Just in the last five years, Whole Foods has seen a net sales increase of nearly five billion U.S. dollars worldwide. Sales are expected to continue increasing, as we continue to experience increases in popularity of convenience shopping and grocery delivery services such as Amazon Fresh.
WFM Revenue Growth Rate Comparisons Company Industry
Sector
S&P 500
Y / Y Revenue Growth (Q3 MRQ)
145.08 % 6.46 % 6.45 % 5.29 %
Q / Q Revenue Growth (Q3 MRQ)
130.01 % -19.36 % -6.47 % -1.05 %
Y / Y Revenue Growth (for 12 months ending Q3 TTM)
1.95 % -9.43 % 1.57 % %
Seq. Revenue Growth (for 12 months ending Q3 TTM)
46.29 % 1.09 % 1.34 % 1.33 %
Revenue 5 Year Average Growth
6.5 % 10.69 % 5.56 % 14.44 %
Expected Revenue Growth (Y/Y)
-3.48 % – – 3.04 %
2.2 – Competitors:
Sprouts markets and Trader Joes are considered some of the top two competitors for market share in this segment, though many stores are also trying to gain organic and natural food lines to attract health-focused clientele. Trader Joes offers natural and organic foods at a more reputable lower price, although since the recent acquisition of Whole Foods by Amazon, Whole Foods has been able to better compete with lower prices and discounted items for Amazon Prime Members. Trader Joes emphasizes their friendly environment and customer service, in addition to their lower prices. Due to their smaller store size, they are better able to focus in on interpersonal qualities of the customer experience. Trader Joes is running behind Whole Foods in revenue, with net sales ending in 2017 at 13.3 billion, whereas Whole Foods’ net sales for the same year landed at 16.03 billion.
Both Sprouts market and Trader Joes are aligned with a smaller, low-scale image of a natural food grocer, which is where Whole Foods stands apart. Because of Whole Foods’ supermarket scale and structure, their competitors also include grocers such as Costco Wholesale, Safeway, and Kroger brands. Although these brands are higher scale and wholesale focused, both aspects which Whole Foods does not emphasize most, Whole Foods still finds itself in the top 9 of all food and beverage retailers in the United States, according to a Statista 2016 report.
2.3 — SWOT Analysis:
Strengths Weaknesses Opportunities Threats
Brand equity,
brand reputation High prices Global expansion Climate change
Motivated and
passionate by mission Heavy dependence on U.S. market base Lower, competitive
pricing Increase in GMO
products
High quality
standards and brand Few suppliers Discount, lower cost competitors
2.3.1 – Strengths:
1. Brand equity and reputation: Whole Foods has a strong reputation as a high-quality, which attracts customers to their stores solely based on the strength and reputation behind the name.
2. Motivated and Passionate Mission: Whole Foods continues to be motivated by their mission to care for the environment, their employees, and their company. Their mission and mindset of ethical sourcing and environmental care continues to set their brand apart from other stores in the market.
3. By being driven with the morals and ethical standards that they have, they are sure to continue to build brand reputation, and sell the high-quality products they offer. This also means that they will continue to live out those morals when looking for suppliers and collaborative partners. In the market, these high-quality standards helps the Whole Foods brand stand out among other stores that offer lower prices for lower quality goods.
2.3.2 – Weaknesses:
1. Whole Foods is still having a difficult time shedding its reputation as a “whole paycheck” store. Although they have been working hard to lower prices, they are still relatively more expensive than competing natural and organic food suppliers. This factor will likely turn away customers who are price-sensitive who could buy similar products for a lower price.
2. Because Whole Foods stores exist almost entirely in the United States, it is very reliant on the U.S. market’s economic stability. This is a weakness because of their vulnerability to economic changes.
3. Whole Foods relies on suppliers who can meet or exceed their standards for quality, environmental sustainability, and ethics, and these standards actually make it quite difficult for Whole Foods to find a large pool of suppliers. This factor could impact Whole Foods’ ability to grow rapidly into a global market, and also could have negative impacts on their growth rate as a business.
2.3.3 – Opportunities:
1. Global expansion could be an opportunity for the Whole Foods brand. Although in order to be in the position to expand globally, they would need to reduce prices slightly, which would not directly impact the brands high-quality image and reputation.
2. In order to gain an aspect of competitive pricing, Whole Foods would need to find a larger number of reliable suppliers. Once Whole Foods is able to sort out the issue of having limited suppliers, they will be able to expand their supply chain, thus expanding their growth as a company and their ability to expand more rapidly into a global context.
2.3.4 – Threats:
1. Climate changes poses a threat to Whole Foods as it will impact food suppliers and food production, and this will likely impact availability of suppliers as well. This threat is difficult to respond to as Whole Foods has limited impact relative to the network of forces impacting and worsening climate change.
2. Whole Foods sells mostly non-GMO (genetically modified organism) products. They are currently working towards GMO labelling, which will help indicate which products contain GMO’s (Whole Foods). Although, it is becoming increasingly difficult to supply non-GMO products as they are increasing in popularity and use across the United States. This has an impact for their supply chain as well, and limits (once again) the number of suppliers that Whole Foods can utilize.
3. One more threat to Whole Foods is their lower-cost, discount competitors. There are many stores working towards gaining a natural or organic section of their stores, many of which will offer similar products for a much lower price. These competitors have and will continue to pose a threat to Whole Foods as lower prices will appeal to more prices-sensitive customers.