Team 2: Whole Foods Presenta8on, NBA 5330 Management Cases 2/18/2013 Kevin Bell, Jen Cohen, MaE De Paolo, Sarah Hu, Aashish Sharma

Whole Foods should acquire Wild Oats and increase its product offerings to enable lifestyle shopping and maintain its leadership posi:on

Whole foods currently is the leader in the natural-­‐ food retail chain and the fastest growing company in the grocery market

• Natural food segment growing at 7% • Whole foods sales -­‐ 16.3% of total sales in the natural product stores • Increasing compe88on from Gourmet & tradi8onal retailers and Discount stores

Challenge: How to maintain their status as a market leader in the Natural food Category while coping with increasing compe::on

Acquire compe88on such as Wild Oats

Increase private label offerings

Increase conven8onal brand offerings

Summary

strategy

Consumer segments

Competition

opportunities

Conclusion

Whole Foods strategy is to offer best in class natural/organic offerings to ideologically-­‐mo:vated, affluent consumers

Strategy Method Benefit

Acquire Competencies & Geographic Presence Target Ideological Buyers

• Acquire stores in key regions • Adopt best prac8ces of acquisi8on targets • Drive industry standardiza8on • Expand natural/organic offerings

• Increased customer base • Improved margins • Secure most loyal customer segment • Enable lifestyle shopping for customers

By integra8ng the core competencies of its acquisi8on targets into its business model, Whole Foods can offer unparalleled product quality to its customers Consumer segments

Summary

strategy

Competition

opportunities

Conclusion

Whole Food’s triple boGom line aligns the values of its ownership and customers to generate brand loyalty and high margins

Truth Standard Seang Accountability, TCS, Store Tours Fair Employee Sa8sfac8on Customer Health Quality of Life

Love

Profit Green Natural

In store aesthe8cs Environmental stewardship Beauty Summary strategy Consumer segments Competition opportunities Conclusion

Consumers in the natural foods category are divided into three segments Periphery Awareness and knowledge Purchasing habit Liked organic Mid-­‐level More aware and focused on health Purchased from grass root companies Price & convenience Grocery stores 39% Core Greater commitment to health Only from stores with knowledgeable people Health & nutri8on Mul8ple channels 37%

Started purchasing

Drivers Channel Percentage

Influenced by friends Fewer channels 24%

Whole Foods should primarily target Mid-­‐level and Core consumers to maintain its current status in the market Summary strategy Consumer segments Competition opportunities Conclusion

Whole Foods strategy is to provide a wide variety of products and charge a higher price High # of SKU’s Wegman’s Wild oats Whole Foods High Cost H.E.B Kroger’s Costco

Traders Joe Safeway Low Cost

Low # of SKU’s Summary strategy Consumer segments Competition opportunities Conclusion

US Natural Food offerings are being penetrated by conven:onal stores that offer non-­‐natural foods as well

2003 50% 50% US Food Retailing Business US Natural

Conven8onal Store Format: Kroger's, Albertson's, Safeway, WalMart Specialist Health & Natural Product: Whole Foods, Wild Oats, Trader Joes

Since 1991, conven8onal store sales of natural foods have moved from 7% to 50% market share Consumer segments

Summary

strategy

Competition

opportunities

Conclusion

Within the value chain, the retail segment offers the best margin and poten:al for expansion

Lower margins

Distributors

Opportuni:es: Limit supplier power in a highly consolidated industry through backward integrate and reduce delivery 8me of perishable goods by elimina8ng the middle man Limita:ons: Could threaten rela8onship with current distributors by becoming their compe8tors Opportuni:es: Display social responsibility that consumers will buy, differen8ate and redefine themselves, increased demand from customers Limita:ons: Taking 8me to learn organic process standards Opportuni:es: Thought leadership in the industry, influencing more stringent regula8on standards

Producers

Retailers Higher margins Consumer segments

Limita:ons: Will poten8ally create new challenges in mee8ng this standards and finding producers or distributors who meet them as well

Summary

strategy

Competition

opportunities

Conclusion

Whole Foods faces challenges from alterna:ve channels such as conven:onal grocers and discount stores due to lower pricing and convenience factors Conven8onal Grocers Discounters/ Warehouse Clubs Neighborhood Delicatessens

• More diverse offering of product categories • Easier access to the periphery of organic consumers

• Low-­‐cost opera8ng structures, limited SKUs • Larger percentage of private label brands

• Convenience of local deli builds customer loyalty • Loca8ons in urban markets where Whole Foods competes

Despite its leadership posi8on in the natural foods market, Whole Foods faces threats throughout the retail food industry and must be aggressive in mee8ng these challenges head on Summary strategy Consumer segments Competition opportunities Conclusion

Whole Foods must evaluate a number of strategies to drive boGom line and top line growth

A variety of op8ons focused on product and business model are outlined below: Revenue Synergy Raise Prices Open More Stores Alter Product Mix Change Store Layout Home Delivery

Cost Synergy

Culture Fit

Level of Expectation

Strong

Moderate

Weak

Summary

strategy

Consumer segments

Competition

opportunities

Conclusion

Whole Foods can appeal to a broader segment through acquisi:on and Increased product offerings

Target Strengthen share across core consumers by building on differen8a8on strategy Benefits Con8nue to set standard in the natural food industry

Build in entry barriers by helping to set more stringent regula8ons Increase share across mid-­‐level Conven8onal grocery stores offer consumers with the addi8on of name brand products as well as conven8onal brands natural foods in one loca8on Gain periphery consumer by increasing private label offerings Implementa:on The acquisi8on of Bread and Circus allowed Whole Foods to gain efficiencies in managing perishable foods The acquisi8on of Bread and Circus allowed Whole Foods to gain efficiencies in managing perishable foods Partner with CPG companies to develop organic name-­‐brand offerings

Steel share from discount channel Capture distribu8on market share from and conven8onal grocery stores with exis8ng players to increase buying power private label SKU’s and improve margins Strengthen rela8onships with producers by dealing with directly instead of using a middle man

Summary

strategy

Consumer segments

Competition

opportunities

Conclusion

Poten:al risks associated with the recommended strategies can be mi:gated by Whole Foods

Acquire Wild Oats • Risk: High acquisi8on costs and integra8on challenges • Mi:ga:on: Combine Whole Foods best prac8ces with Wild Oats value exper8se to increase profits

Increase Private Label Offerings • Risk: Jeopardize rela8onships with distributors • Mi:ga:on: Core consumers are unlikely to switch to private labels, which will limit cannibaliza8on

Increase Conven:onal Brand Offerings • Risk: Compromise the Whole Foods iden8ty and risk losing Core consumers • Mi:ga:on: Partner with conven8onal brands to make organic products

By acquiring its top compe8tor and increasing its product offerings, Whole Foods will maintain its leadership posi8on in the natural foods market

Summary

strategy

Consumer segments

Competition

opportunities

Conclusion