Whole Foods Competitive Position Analysis

Memo
To: John Mackey & Walter Robb
From:
Subject: Executive Summary: Whole Foods Competitive Position Analysis
Industry Analysis
As the largest grocery chain of natural and organic foods in the United States, Whole
competes within a specialized segment of the $557 billion (FMI, 2009) overall grocery retail industry. Its
main competitors sit within various strategic groups encompassing specialized organic/natural food
retailers, traditional grocers (especially those with dedicated organic food offerings), mass
merchandisers such as WalMart who have launched organic food lines, and even local coop markets or
farmer markets. However, Whole Foods enjoys an enviable competitive position in this industry due to
its scale and expansion, missiondriven brand superiority, and premium shopping experience.
In evaluating the industry, the environmental factors that are most important are market size,
demographic trends, regulatory factors, technology developments, supplier channels, as well as
consumer habits and social considerations (Exhibit 1). The effect of these factors are dramatically much
more favorable for the natural/organic food retail industry than the overall grocery industry, due to
greater market growth and increased consumer adoption due to perceived health and wellness benefits
coupled with an affluent customer base willing to pay a price premium. The only adverse factor, the
higher levels of regulation impacting the organic food segment, is counterbalanced by the ability of the
segment to withstand more stringent food quality and safety regulations in the future. As Whole Foods
is just 1.3% (Riddick, 2011) of the overall food retail market, it is wellpositioned to capitalize on these
attractive industry fundamentals for natural and organic foods.
A Porters Five Forces analysis (Exhibit 2) further solidified this reasoning. Whole Foods has already
established a strong industry presence in the natural/organic food retail segment with over 300 stores
nationwide, as well as six in Canada and five in the UK (Whole Foods Annual Report, 2010). With 30,000
SKUs, it has a broad product line that provides a comprehensive shopping experience for consumers.
Furthermore, consumers are choosing higher margin products and spending more: in a recent survey of
Whole Foods store managers, 64% said consumers were willing to trade up and 82% said that consumer
spending had much improved over last year (Mushkin, 2011). Whole Foods is also able to capitalize on
having a local community presence by working with local suppliers, farmers and growers while having
the power of a national brand. Due to its strong industry positioning, Whole Foods is poised to capture
additional share as it expands its retail presence both domestically and internationally and grows both
within the natural/organic food retail segment and wins converters from the overall food segment
who switch to natural/organic offerings.
Strategic Groups & Positioning
Whole Foods market positioning is challenges by a number of competitors who represent different
retail formats. While it competes directly with natural/organic grocers such as Trader Joes and Fresh
Market, it also faces competition from traditional supermarkets, and more recently, from mass
merchandisers such as WalMart and club stores such as BJs. Exhibit 3 shows a breakdown of the main
competitors within each strategic group. As consumers continue to push for healthier food choices in

seeking out natural / organic foods, traditional grocery outlets have drastically ramped up their organic
offerings. In 2009, mass market retailers representing mainstream supermarkets, club/warehouse
stores, and mass merchandisers sold more than 54 percent of organic food (Organic Trade Association,
2010). Whole Foods Market needs to fight against these more traditional outlets to achieve share.
Competitor Analysis
Further analysis of competitive forces reveals that Whole Foods is in good position to push back against
the encroaching invasion of market share. Three retailers, Trader Joes, Kroger, and WalMart, were
chosen to represent the typical competition that is faced by Whole Foods (Exhibit 4). While their main
consumer appeal in competitive pricing and selection does challenge Whole Foods market share, Whole
Foods has significant competitive advantages by offering an unparalleled value proposition in the food
quality and selection as well as providing a premium shopping experience by delighting its customers.
While price points are higher in Whole Foods Markets, it has ramped up its competitive offerings in
value products by offering 2,200 SKUs in its private label line, 365 Everyday Value (Whole Foods 10K)
and pushed products discounts. Its missiondrive culture permeates the store to every consumer basket
it takes leadership in consumer education of environmental and sustainability issues, thus building
more loyalty for its products that support these causes. However, Whole Foods does face formidable
competition from all sides of retail, from traditional supermarkets to mass merchandisers to local
famers markets, and it will need to act defensively within the markets it currently operates in and
aggressively move into new ones in order to achieve continued growth.
Whole Foods certainly has the capabilities for this it has pursued an expansion policy since its founding
and at the same time, has cut development costs by 35% (Riddick, 2011), so will be able to become even
more expedient in its expansion efforts. This commitment to frugality is evinced also by the
compensation structure executive compensation is capped at 19x average employer salary, yet Whole
Foods has remained in Fortunes 100 Best Companies to Work For for 13 years, indicating that its
strong commitment to employees and culture has resulted in high employee satisfaction and dedication
to driving the firms success. Lastly, Whole Foods has strong supplier relationships, emphasizing the
local communities around each store. In sum, its people, process, and systems are poised to help Whole
Foods continue to achieve market share gains and represent a significant competitive advantage.
Competitive Positioning
Whole Foods 2007 acquisition of Wild Oats, formerly its largest competitor, has allowed it to continue
to expand its retail presence both domestically and internationally. While the overall grocery market is
saturated, there is room to grow within the natural/organic segment. The strong company culture and
dedication to the consumer has resulted in identical store sales growth at 6.0% (Whole Foods 10K),
driven partly by its recognition that consumers need valuebased products in natural/organic foods as
well. Its The Whole Deal weekly promotion and 365 Everyday Value private label directly staves off
competition from traditional and discount retailers trying to steal share. As average transaction count
and basket size continue to increase at 7% and 2% respectively (Riddick 2011), Whole Foods will
undoubtedly be wellpositioned to gain more share and sustain its position as the market leader in this
grocery segment as the health and quality benefits of natural/organic foods moves further into
consumers minds and captures their wallet share. As long as Whole Foods remains on the offensive in
expanding its stores and also its offerings to a broader range of customers, the firm should continue to
enjoy a dominant competitive position in the natural/organic food industry.

Addendum
Exhibit 1:
Environmental Analysis:
(1) Organic/Natural Food Retail
Market size $907 billion $76 billion
Annual growth 0.9% 5%
Demographic Trends Health and wellness an increasing
priority for consumers, reflected in
food choices
Consumers have become more
ecoconscious
Segment caters to affluent
shoppers
Improvements in the economy
have led shoppers to move
towards organic baskets
Regulatory factors Regulation exists: FDA approval
required for most foods
Much heavier regulation in
organic food markets from the
FDA, FTC, CPSC, USDA, and EPA
Technology developments Online food shopping is carving
out a niche (Amazon Fresh, Fresh
Direct, Relay Foods, etc.)
Foods feature new innovations
such as hydroponic vegetables,
almond milk, etc.
Suppliers Wide range of food suppliers Fairtrade, fairshade, organic,
and local sourcing a priority
Consumer Preferences /
Social Factors
Social culture moving towards
environmental awareness and
support for sustainability
Consumers still fairly price
sensitive on food items
Society migrating towards an
experience economy
Consumer propensity to trade
up and pay a premium on
certain food items
Price sensitivity in food retail
does not always extend to
premium products valued for
quality, health, or other factors
High brand loyalty
(1) Includes grocery stores, supermarkets, convenience stores, independent stores, and chain stores.
Sources: Wikinvest, Damodaran, Aswath (Professor of Finance, NYU Stern).

Exhibit 2:
Porter’s Five Forces Analysis:
Overall Food Retail Organic/Natural Food Retail
Intensity of Competition Extremely competitive
Oversaturated market
Multiple players consisting of
supermarkets, warehouse stores,
natural/organic specialty stores,
warehouse clubs, supercenters,
mass merchandisers, and
convenience stores
Competitive against other food
retail offerings
Unsaturated market
Many regionally based players,
few larger chains exist except
Whole Foods (& Wild Oats,
acquired by Whole Foods),
Trader Joes, & Fresh Market
Power of Suppliers Depending on the product,
suppliers can have strong leverage
(Nestl) or little leverage (regional
wineries)
Many products are carried by a
retailer as loss leaders
Many foods are sourced from
local suppliers and growers
Suppliers have far less power in
the organic/natural food retail
segment
Power of Buyers Consumers have full power in
choosing among various brands,
products, as well as retail channels
in a commodity food market
Price sensitivity is high
Consumers still have high
purchasing power but they are
willing to pay a price premium
for higher quality/health benefits
Economic recovery leading to
more consumers choosing to
tradeup for their food choices
Substitute Products Consumers can make substitutes
within food categories but most
products are not substitutable
Threat of substitutes mainly
exists from nonorganic/non
natural foods
Barriers to Entry Barriers to entry involve
establishing relationships with
suppliers and cultivating customer
loyalty
Switching costs fairly high as most
consumers tend to stick with one
supermarket
Assets costs and exit barriers are
moderate
Same barriers to entry as
general food retail
Establishing supplier
relationships can be more
difficult
Convincing customers who
dont typically shop at
natural/organic markets to
switch is very difficult

Exhibit 3:
Strategic Groups Within Organic/Natural Food Retail Industry:
Natural/Organic
Food Markets
Traditional
Supermarkets
Club
Warehouses
Specialty
Markets/Coops
Mass
Merchandisers
Farmers
Markets
Trader Joes Kroger BJs Wholesale
Club
Harvest Coop
(Cambridge, MA)
WalMart In most cities
Fresh Market Supervalu Sams Club Rebeccas
Natural Foods
(Charlottesville,
VA)
Target
Food Emporium Safeway West End Market
(New York, NY)

Sources: Whole Foods 10K, Riddick.
Exhibit 4:
Competitor Analysis
Whole Foods Trader Joes Kroger WalMart
Value Proposition High quality
Locally sourced
Broad selection
of products
Premium
shopping
experience
Low price points
Unique selection
Fun, but crowded
shopping
experience
Onestop shop
Wide selection of
foods
Familiar format
Discount club cards
for frequent shoppers
Addon services like
pharmacy, Starbucks,
bank branches
Low prices
Availability of
other products
(eg. apparel, toys)
in store despite
low food selection
Addon services
like pharmacy,
credit card lines,
etc.
Geographic
Presence
300 domestic
11 international
353 domestic 3,619 stores 8,500 stores in
15 countries
Price Points High
Increased
discounts &
private label
products
LowAverage
Some sales on
products
Average
Frequent sales &
customer loyalty cards
Low
Frequent sales
on discounted
items
Target Market Affluent, health
conscious
yuppies
Younger
generations
Mainstream
shoppers
Value shoppers
Moms

(continued on next page)

Competitor Analysis (contd)
(contd) Whole Foods Trader Joes Kroger WalMart
Capabilities Significant brand
leverage over
suppliers & customers
Provides an
exploratory shopping
experience
Delivers valuebased
products through 365
Everyday Value brand
Employees trained
to delight
customers
Strong supplier
relationship with
United Natural Foods,
which accounts for
27% of purchases
Average
development costs of
new stores 35%
cheaper YOY
Buys directly
from suppliers,
doesnt charge
slotting fees
Private label
Trader Joes
has high
consumer
loyalty
Employees
asked to focus
on customer
satisfaction and
delivering on it
Largest national
grocery chain: has
significant
leverage against
suppliers
Offers broad
array of products
to consumers,
including huge
private label
selection
Uniform
experience across
stores
Excellent supply
chain
management
process
Sophisticated
inventory
management
systems
Multinational mass
merchandiser with
very powerful
leverage against
suppliers
Excellent supply
chain management
Sophisticated
inventory
management systems
Four retail concepts
with different aims
(WalMart
neighborhood market
supports grocery
efforts)
Grassroots process
aims to captures
employee feedback
Culture / Values Missiondriven
(supports market for
sustainable products,
give a minimum of 5%
of profits each year)
Supportive of well
being of team
members (employees)
and customers
Upholds integrity in
dealings with partners
and suppliers
Fun, unique
culture
reflected by
store
employees and
pervades the
shopping
experience
Commitment
to low prices for
consumers
Core values
include safety,
diversity, integrity,
& respect
Seeks diversity in
suppliers with
focus on
increasing
womenand
minority owned
companies
Culture of
inclusion
Relentless profit
driven culture
3 basic beliefs of
respect for the
individual, service to
customers, striving
for excellence
Employees
encouraged to shout
the WalMart Cheer
in stores to show
pride in company
Source: Wikipedia, TraderJoes.com, WholeFoods 10K, Kroger.com, Walmartstores.com, BusinessWeek, Refrigerated
Transporter, Riddick.

References
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