CASE STUDY

CENTENNIAL COLLEGE

CRAFTING

&

EXECUTING STRATEGY

GROUP ASSIGNMENT –

2

CASE STUDY

PROF.STEVEN H. LACHOWSKI

GROUP MEMBERS

NAME

STUDENT ID

INTRODUCTION

Whole Foods Market was founded in

Austin, Texas, when four local

businesspeople decided the natural foods

industry was ready for a supermarket

format. The founders were John Mackey

and Renee Lawson Hardy, owners of Safer Way Natural Foods, and Craig Weller

and Mark Skiles, owners of Clarksville Natural Grocery. The original Whole

Foods Market opened in 1980 with a staff of only 19 people. It was an immediate

success. At the time, there were less than half a dozen natural food supermarkets in

the United States.

By 2006, Whole Foods Market had evolved into the “world’s largest retail chain of

natural and organic foods supermarkets.” Their rapid growth and success is

primarily due to being highly selective about what they sell, as well as being

dedicated quality standards and core values. Whole Food’s stated mission

statement was to “promote vitality and well-being for all individuals by offering

the highest quality, least processed, most flavourful natural and naturally preserved

foods available.”

1. What are the chief elements of strategy that whole food is pursuing?

Strategy formulation is vital to the well-being of a company or organization. There

are two major types of strategy:

(1) Corporate strategy, in which companies decide which line or lines of business

to engage in; and

(2) Business or competitive strategy, which sets the framework for achieving

success in a particular business. While business strategy often receives more

attention than corporate strategy, both forms of strategy involve planning,

industry/market analysis, goal setting, commitment of resources, and monitoring.

The chief element of the strategy that whole food is pursuing is providing the finest

quality of products in the market that is free from preservative and other

genetically engineered products that reduce the quality of being organic. This

means that is has the least amount of processed product and are naturally

preserved. Whole food market strives to eventually dominate the local market and

eventually the international market. They promote the vision of the whole food,

whole people and the whole planet.

2. Is the strategy well matched to recent developments and conditions in the

natural and organic foods segment of the food retailing industry?

I am strongly agree with the statement that Whole foods strategy is well matched

to recent developments and conditions in the natural and organic foods segment of

the food retailing industry. whole foods have good and healthiest products and

without pesticides, hormones, and other genetically engineered products that could

affect health, community, and agriculture. The quality products at Whole Foods

have a flavourful taste and are preferred by the demands of health conscious

consumers and the current trends of a healthy lifestyle.

Whole Foods has tried to lower some of its pricing to compete with all of the other

growing stores in the market. Whole Food's merchandising strategy was to create

an inviting and interactive store atmosphere that turned shopping for food into a

fun, pleasurable experience. The company believed that the extensive and

attractive displays appealed to a broader customer base. The merchandising skill

that the company possessed was the prime factor in the success of luring shoppers

back time and time again. Whole foods have happy and satisfied employees who

also obtain shares in the company. The company do not have much competition

only on smaller scales or small areas in existing regular food markets. The

company is still expanding even in this poor market and acquiring new stores and

companies.

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 company’s motto

“Whole Foods, Whole People, Whole Planet?” Do the motto and the principles

underlying it (Exhibit 1) really matter at this company or are they just nice

words and cosmetic window dressing? Explain.

John Mackey’s vision for Whole Foods was to become an international brand

synonymous not just with natural and organic foods but also with being the best

food retailer in every community in which whole food stores were located. He

wanted whole foods market to set the standard for excellence in food retailing. His

philosophy was that marketing high quality natural and organic foods to more and

more customers in more and more communities would overtime gradually

transform the diets of individuals in a manner that would help them live longer,

healthier, more pleasurable lives.

John Mackey’s vision charts the company’s future strategic course. It explains

what the company wants to be, where it wants to go and what are the scopes of the

company’s future. When we see the popularity of the company in natural and

organic food market we may realize that John Mackey’s vision for Whole Foods is

not unrealistic or unachievable. He does not want to stop at just natural and organic

food but also wants to capture the food retail business itself and at the same time

considering the health and happiness of the people. In my opinion if John Mackey

follows the strategies made by the company and continue carrying out the

wonderful business and pleasing the customers the chances of achieving the vision

gets higher with time.

Personally I like the motto of “Whole food, Whole people, Whole planet”, these

elements play a huge role in the success of Whole Food. The good thing about

Whole Food is that it follows its motto in running the business. These are not just

word. Whole Food provides highest quality least processed, most favorable and

natural foods. So it provides the best taste and most nutritious foods. Whole

People are the people of the company; they are passionate about healthy food and

healthy planet. Whole Planet means they are committed to help and take care of

the world around and are active support of organic farming and sustainable

agriculture that help to protect the planet.It has also established a not for profit

Whole Planet Foundation. It has stopped using disposable plastic bags and has

started converting its distribution fleet vehicles to biodiesel fuel. It is also involved

in promoting proper animal farming etc.

4. Do Whole Foods Market’s core values as presented in case Exhibit 3 really

matter? Are they “real” or just cosmetic window dressing? What evidence can

you cite to support your answer? Have Whole Foods’ core values contributed

to the company’s success? Why or why not?

The fact presented in case Exhibit 3 really matter to Whole Foods Market is totally

acceptable. Their aim is to produce high quality products and supply thousands of

organic food and gourmet products. They have a high regard for

quality and standards in what is offered to their customers. Whole Foods focus on

the quality of their products selling organic, preservative free products, wild or

aquaculture fish and products that are environmentally friendly. Using this

information, they are “real” towards their core values which are why their

company has been successful in the market.

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

Do some number-crunching using the data in case Exhibits 9 and 10 to

support your answer. Use the financial ratios presented in Table 4.1 of

Chapter 4 (pages 104-105) as a basis for doing your assessment of the

company’s financial statements and financial condition.

Whole Foods’ business generated cash flows from operations of $452.7 million in

2006 and $398.6 million in 2007.

2006 2007

Gross Profit Margin 34.94% 34.84%

Return on sales 5.689% 4.512%

Return on stockholders’ equity 0.14516 0.1252

Net return on sales 0.0363 0.0277

Return on total assets 0.0998 0.0581

Earnings per share $1.46 $1.30

Current ratio 1.224 0.8514

Quick ratio 0.824 0.4842

Working capital 114211 (116530)

Debt-to-asset ratio 0.0042 0.2290

Long term debt-to-equity ratio 0.00612 0.504

Long term debt-to-capital ratio 0.00609 0.335

Inventory Turnover 17.90 14.907

Inventory Turnover per day 26 days 20 days

We can see from the above given comparison that the performance of Whole

Foods Market has somewhat declined in 2007.Most of the capital expenditures of

the company go into funding the development or acquisition of new stores and

acquisition of property and equipment for existing stores.Sales return has

decreased by 1% and the current ratio is also less than 2006. The debt-to-equity

ratio and the debt-to-capital ratio have increased which is not so beneficial for the

company. As the gross profit margin is almost equal in both years the company is

visibly performing well from financial perspective. The inventory turnover per day

has also decreased in 2007.

6. How well is Whole Foods Market performing from a strategic perspective?

Does Whole Foods enjoy a competitive advantage over its rivals? Does the

company have a winning strategy?

Whole Foods Market is preforming well from a strategic prospective as they are

increasing their locations and markets. They continue to provide healthy high

quality foods and brands that are good for consumers, the environment, and their

own growth in the industry. Whole Foods Market has been able to acquire the

second largest competitor in their industry, Wild Oats Market, which eliminates the

competition. They have a competitive advantage to other supermarkets because of

their high and fine products that they carry. Whole Foods also has the advantage of

a well-known name that’s associated with a higher quality for supermarket

products at more competitive prices

In my opinion the company has the other competitive advantages apart from

explained above over the competitors part of which is briefly explained below:

Maximum Freedom, Minimum Governance.

WFM operates under the belief stores should have the freedom to meet the needs

of its unique customers and team members. The only governing rule all stores must

dogmatically adhere to is all food sold at WFM must be free from artificial

preservatives, colours, flavours, sweeteners, and hydrogenated oils.

However, unwritten social rules to govern stores. These unwritten social rules

come in the form of ‘best practices’ which its stores and regions openly share

Small Pieces Loosely Joined

WFM is comprised of entirely teams. Every corporate/regional department is a

team. Every store is a team. Every department in every store is a team. And every

employee is a team member. The success of the company team is dependent upon

the collective success of all the teams.

WFM believes in self-directed teams and its success is dependent upon the shared

fate of all team members working together on every team. Every small piece is

loosely joined and requires interdependence to reach store level and company level

team goals

Getting Bigger by Acting Smaller

WFM decentralizes nearly every business function. The regions are charged with

procurement of product, training of store team members (store employees),

PR/marketing activities, and making business critical decisions. As WFM gets

bigger, it actually gets smaller.

In 2002, WFM operated 140 stores with 9 regions. Today, WFM operates 176

locations with 11 regions. By decentralizing decision-making to the increasing

number of regions, WFM is able to reduce corporate bureaucracy.

WFM seeks to make as many decisions as possible at the regional level, a level

closer to understanding the local shopper than a centralized corporate entity ever

could understand.

Price to Value

WFM has no intentions to ever compete on low prices. WFM prices the products it

sells to the value its customers have for the products. Shoppers value WFM’s

values of pure, authentic, and flavourful foods so much so they will gladly pay

more.

7. Do You Approve the Decision to Acquire Wild Oats Market? What Pros

and Cons do you see?

In 2007, February whole foods made offer to acquire wild oats markets for about

$565 million (which is prime competitor of whole food market). Government

regulators filed a formal complaint against whole foods and claimed that the

merger would result in a monopoly of the natural foods industry that would

ultimately hurt consumers.

We personally believe that the acquisition of Wild Oats Market was a good

approach to dominating the market. Because Wild Oats is big competitor of Whole

Foods. In weighing the pros and cons, I think that the pros have outweighed the

cons that have resulted in being more beneficial to Whole Foods.

The pros of acquiring Wild Oats Market are that it eliminates the competition

Whole Foods will be able to better compete against the behemoth Wal-Mart and

the ever-nimble Joe’ sand this merger allows for more locations in places where

Whole Foods was not available, places like the Pacific Northwest and Rocky

Mountain regions, as well as Florida.. This is a huge possibility for growth on

Whole Foods Vision of expanding and

being dominant in the market. This

merger will reduce corporate

expenses. Massive reductions in

redundant corporate G&A overhead

expenses will take place as Whole

Foods doesn’t need two CFOs, two

CIOs, two Procurement VPs, two

Human Resources VPs, etc.

The cons associated with the

acquisition are that it accounts for the

rather large long-term debt that Whole

Foods picked up. Another terrible

thing to account for is the unpredicted

recession. As consumers stop shopping and spending more often, Whole Foods

Market as with every other business took a devastating blow to the business.

Lastly, another acquisition con is the conversion of the clientele of Wild Oats to

Whole Foods Market. As with any loyalty, there is hostility when one loses what

they love. This will take time but if Whole Foods can win their loyalty by offering

what they need they will be able to better flourish.

8. Were John Mackey’s Internet postings unethical or in any way

inappropriate? What actions, if any, do you disapprove of? What actions, if

any, should the company’s board of directors take with regard to his Internet

posting and blogs?

It is true from my belief that Mackey’s internet postings were very unethical and

inappropriate as there are expectations from the public for every business including

CEO’s. From my point of view he stepped over the line when he could not keep

certain business dealings confidential. It is important that a CEO is a good

businessman and it seems as if he were controlled by his emotions rather than

keeping the good business standards. Mackey’s bad behaviour gives a negative

image to the stakeholders that are involved. These include the business itself, the

investors, the public, and many more. According to me the directors revoke his

title or force a public apology to the FTC and all the stakeholders so that they can

have a positive image again.

9. What recommendations would you make to John Mackey regarding the

actions that Whole Foods’ management needs to take to get through the

recession that began in earnest in 2008? Should the company severely cut

back on opening so many new stores? Should the company vigorously contest

the reopening of the FTC’s challenge to the Wild Oats acquisition? Are any

other strategy changes needed?

It is the phase of economic downfall so I recommend to Markey for Whole Foods’

management are to create a new strategy that enables them reaching out to new

and current clientele given the new economic situations. The future is still

unpredictable and economy can go either way and it is important that every

business especially the one we are talking about here to able to adjust and make

changes to unpredictable factors. As it is phase of economic downturn the firm

should use the conservative approach rather than the aggressive one and should not

for any acquisitions which might result in the financial leverage and also company

should cut back on opening until the economy gets better .They should be focusing

on keeping the businesses that they and wait till there is a rise in this economic

downfall. No the company should not vigorously contest the reopening of the

FTC’s challenge to the Wild Oats acquisition.

RECOMMENDATIONS

Create a new strategy in reaching out to new and current client.

Raise capital through Equity share.

Reduce capital expenditure.

Target the cross- over market from the restaurant industry.

Expand service offering like store event and online order and many more.

Continue long run expansion.

Increase private label meat and seafood offering.

CONCLUSION