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Case-TUTOR Copyright 2004 GLO-BUS Software, Inc.

Case 1: Whole Foods Market

Mushtaq Hussain Khan

During the past 20 years, Whole Foods Market has evolved into the worlds largest retail chain of natural and organic foods supermarkets. The company had over 140 stores in the U.S. and Canada and sales of $2.7 billion in 2002; revenues had grown at more than 20 percent for 12 consecutive quarters. John Mackey, the companys co-founder and CEO, believed that throughout the companys rapid growth, we have remained a uniquely mission-driven companyhighly selective about what we sell, dedicated to our core values and stringent quality standards and committed to sustainable agriculture. The companys stated mission was to improve the health, well-being, and healing of both people and the planeta mission captured in the companys slogan Whole Foods, Whole People, Whole Planet. In preparing this case, youll need to draw upon the concepts presented in Chapter 1 and to some extent on Chapters 2-4 and critically evaluate Whole Foods mission, strategic vision, performance targets and strategy. The role of Case-TUTOR is to help you learn how to use the concepts and tools of strategic analysis correctly and to walk you through the process of preparing a case in first rate fashion. This case preparation exercise on Whole Foods Market (WFM) is framed around the following questions: 1. What are the chief elements of the strategy that Whole Foods Market is pursuing? 2. Is the strategy well matched to recent developments and conditions in the natural and organic foods segment of the food retailing industry? 3. Do you think John Mackey has a good strategic vision for Whole Foods? Why or why not? What do you like/dislike about the companys slogan Whole Foods, Whole People, Whole Planet? Do the slogan and the principles underlying the slogan (see case Exhibit 1) really matter at this company or are they just nice words and window dressing? Explain. 4. Do WFMs core values as presented in case Exhibit 3 really matter? Have they contributed to the companys success? Why or why not? 5. How well is Whole Foods Market performing from a financial perspective? 6. How well is Whole Foods Market performing from a strategic perspective? Does Whole Foods enjoy a competitive advantage over its chief rivalsWild Oats and Trader Joes? Does the company have a winning strategy? 7. What recommendations would you make to John Mackey regarding the actions that management needs to take to sustain the companys growth and financial performance?

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Case 1: Whole Foods Market

Mushtaq Hussain Khan

1. What are the chief elements of the strategy that Whole Foods Market is pursuing?
Which of the following represent elements of Whole Foods strategy? (Place an X in those boxes that
correctly identify elements of Whole Foods strategy and add other strategy elements in the spaces below as needed for completeness.)

Expand into markets outside the U.S. Begin selling some Whole Foods organic brands at the stores of major supermarket chains Encourage interested buyers to visit www.wholefooodsmarket.com to purchase organic and natural foods products for next-day delivery to their home Expand via a combination of opening its own new stores and acquiring existing stores Locate its new stores in the upscale areas of urban metropolitan centers, mostly in high-traffic shopping locationssome were freestanding stores and some were in strip centers Pursue a low cost/low price strategy and concentrate on appealing to low and middle income households Offer a wide selection of natural and organic foods (roughly 26,000 food and non-food items) that appeal to both natural foods and gourmet shoppers Offer a wide selection of natural and organic foods (roughly 26,000 food and non-food items) that appeal to both natural foods and gourmet shoppers Other strategy elements (at least 5):

2. Is the strategy well matched to recent developments and conditions in the natural and organic foods segment of the food retailing industry?
Yes No Not sure Reasons:

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Case 1: Whole Foods Market

Mushtaq Hussain Khan

3. Do you think John Mackey has a good strategic vision for Whole Foods? Why or why not? What do you like/dislike about the companys slogan Whole Foods, Whole People, Whole Planet? Does the slogan really matter at this company or is it just nice words and window dressing?
A. What is your assessment of John Mackay's strategic vision for Whole Foods Market?
Mackays strategic vision seems appropriate and well-conceived. Mackays vision is too grandiose. Mackays vision is too idealistic. Mackays vision is out-of-step with consumer eating habits. Mackays strategic vision is ill-conceived and lacking in several respects. Reasons/explanation/justification:

B. What do you like/dislike about the companys slogan Whole Foods, Whole People, Whole Planet?
Likes Dislikes

C. Do the slogan and the core values underlying the slogan (see Case Exhibit 3) really matter at this company or are they just nice words and window dressing?
The slogan really matters to how Whole Foods conducts its businessboth management and company personnel take the slogan and the principles it embraces very seriously. The slogan is mostly nice words and window dressing. The slogan matters to some extent but it is mostly intended as good public relations and as something that will help make customers feel good about the company. Reasons/supporting evidence:

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Case 1: Whole Foods Market

Mushtaq Hussain Khan

4. Do WFMs core values as presented in case Exhibit 3 really matter? Have they contributed to the companys success? Why or why not?
A. Check those that are accurate and add others as needed for completeness.
Evidence that the core values affect how WFM conducts its business
One of Whole Foods Markets core values was to satisfy and delight customers. Store personnel seem quite dedicated to this effort. The core values of empowering work environments, self-directed teams, and self-responsibility are the principles upon which the stores are organized and managed. The core value of maximizing profit is evident in the companys premium pricing of its products. The core values relating to innovation and inviting store environments seem to be very much in play in the merchandising and appealing product displays in the companys stores.

Evidence that the core values are just feel good window dressing
The company pays its workers a slightly belowaverage wage and has very modest fringe benefits. The company touts its core values in order to help win the patronage of to consumers who think such values are noble If the company really practiced what it preached, it would abandon its premium pricing strategy and charge lower prices Whole Foods primarily uses its core values as a tool to help recruit new employees.

Other evidence:

Other evidence:

B. What evidence is there that companys core values have contributed to its success?

5. How well is Whole Foods Market performing from a financial perspective?

The companys financial statements point squarely at very solid (though not spectacular) financial performance. Students can point to any of several statistics and measures to support this conclusion:

Revenues have increased at a compound average growth rate (CAGR) of

case Exhibit 9).

% since 1998 (see

Net income is up from $45.4 million in 1998 to $ % (case Exhibit 9). growth rate of

million in 2002, a compound average in 2002, a compound average

Earnings per share have increased from $0.87 in 1998 to $ % (case Exhibit 9). growth rate of

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Case 1: Whole Foods Market

Mushtaq Hussain Khan

Whole Foods profitability ratios (from case Exhibits 9 and 10): 2002 Gross profit margin Operating profit margin Net profit margin Return on equity Return on assets % % % % % in 2002 and 2001 34.8 % 4.9 % % 16.6 % 8.2 % in 2001 (see case Exhibit 10). % in 2002 and 37.6% in 2001 taken on burdensome debt levels
has / has not

2000 % % 1.6 %

1999 34.2 % 4.8 % %

1998 33.2 % % 3.5 %

The company current ratio was

The companys long-term debt to equity ratio was In financing its acquisitions, the company
Exhibits 10 and 11).

(case Exhibit 10). (see case

6. How well is Whole Foods Market performing from a strategic perspective? Is the strategy working? Does the company have a winning strategy? (Enter an X in those boxes
that you believe are corrects and add other reasons in the spaces provided to support your answer.) Evidence that Whole Foods Markets Strategy Is Working Well
WFM is the clear leader in the natural and organic foods segment. WFM is adding new stores at a steady and profitable pace and has ample room in the marketplace to add many more stores annually for many years to come. The companys strategic objective of 400 stores and sales of $10 billion by 2010 seems realistic and achievable. Whole Foods appears to have a competitive edge over its three biggest rivals (Wild Oats, Fresh Market, and Trader Joes) as concerns product breadth and selection. Whole Foods appears to have a competitive edge over its three biggest rivals (Wild Oats, Fresh Market, and Trader Joes) as concerns geographic coverage. WFMs strategy seems very well matched to both its external and internal situation. None of WFMs three chief rivals seems to be in Whole Foods Markets league or in a position to challenge or overtake Whole Foods as the market leader. The strategy is definitely producing gains in the companys financial performance.

Evidence that Whole Foods Markets Strategy Is Not Working Well

WFM has a relatively small market share in the natural and organic foods segment and a tiny market share in the supermarket industry as a whole. WFMs small profits and limited financial resources do not enable it to open many new stores each year. The companys strategic objective of 400 stores and sales of $10 billion by 2010 seems is unachievable with the current strategy. WFMs strategy has not resulted in any type of competitive advantage. WFMs strategy is not very innovativeits too close an imitation of the strategies being used by its rivals and its strategy can be easily defeated by the major supermarket chains. WFMs strategy is not very well matched to either its external or internal situation. The appealing elements of WFMs strategy can be easily copied by the leading supermarket chains which have much greater financial resources and a well-known brand name. The strategy is producing only very marginal and unattractive gains in the companys financial performance

Other evidence:

Other evidence:

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Case 1: Whole Foods Market

Mushtaq Hussain Khan

7. What recommendations would you make to John Mackey regarding the actions that management needs to take to sustain WFMs growth and financial performance? (Place
an X in the box of those recommended actions below that you agree with and then add other recommendations as needed for completeness.) WFM should stay the course and continue with the present strategy largely unchanged. WFM should try to accelerate its growth and move to add 40-60 stores annually. WFM should expand its product line to include more items typically found in traditional supermarkets. WFM should acquire several small and medium-sized supermarket chains and convert their stores over to the WFM format. WFM should strive to cut costs and lower its prices, so as to attract a larger clientele. WFM should launch a national advertising campaign to create broader awareness of the company brand name and pave the way for its entry into new geographic markets. WFM should acquire Wild Oats and convert the Wild Oats stores over to the WFM format. WFM should acquire Fresh Market and convert the Fresh Market stores over to the WFM format. Other recommended strategic actions:

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Case 1: Whole Foods Market

Mushtaq Hussain Khan

Copyright 2004 GLO-BUS Software, Inc.

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Mushtaq Hussain Khan

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Mushtaq Hussain Khan

Copyright 2004 GLO-BUS Software, Inc.

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Mushtaq Hussain Khan

Copyright 2004 GLO-BUS Software, Inc.

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Mushtaq Hussain Khan

Copyright 2004 GLO-BUS Software, Inc.

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Case 1: Whole Foods Market

Mushtaq Hussain Khan

Copyright 2004 GLO-BUS Software, Inc.

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