whole foods market capstone project
TRANSCRIPT
Whole Foods Market
Whole Foods Market Capstone Project
NaTasha L. Mays
Sunday, June 10, 2012
Strayer University
BUS599010VA016-1124-001
Dr. Mary Hair Collins
Whole Foods Market 2
Abstract
This paper is a holistic analysis of Whole Foods Markets. All aspects of the company will be
discussed in an effort to illustrate the working parts of a business coming together in an effort to
build a successful and profitable company. Lastly a discussion reviewing strategic goals,
financial performance, strengths and weaknesses, pricing strategies, threats, motivational
methods and last but not least ethical behaviors in business.
Whole Foods Market 1
Whole Foods Market is an organic whole foods supermarket chain headquartered in Austin,
Texas. Whole Foods Supermarket came to being in 1978 at the hands of John Mackey and Rene
Lawson. It began as SaferWay, a natural foods store. In 1980 John Mackey acquired two new
partners Mark Skiles and Craig Weller. Mackey merged SaferWay with Skile’s and Weller’s
Natural Grocery store and formed Whole Foods market.
Whole Foods mission statement addresses the quality of their food but also the standards
throughout their company. Whole Foods mission statement aims to make customers and
employees aware of the present capabilities, customer focus, activities, and business makeup.
Any and all actions are driven by Whole Foods mission and core values. Whole Foods Market
has seven different core values to guide the business.
Selling the highest quality natural and organic products available
Satisfying and delighting our customers
Supporting team member happiness and excellence
Creating wealth through profits and growth
Caring about out communities and our environment
Creating ongoing win-win partnerships with our suppliers
Promoting the health of our stakeholders through healthy eating education
The mission statement summarizes the core values, it reads, Whole Food Market is a dynamic
leader in the quality food business. We are a mission-driven company that aims to set the
standards of excellence for food retailers. We are building a business in which high standards
permeate all aspects of our company. Quality is a state of mind at Whole Foods Market (Whole
Foods Market 2010). The vision statement takes the mission statement a bit further by
addressing the purpose and value of the organization. The vision statement reads, our motto
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Whole Foods, Whole People, Whole Planet emphasizes that our vision reaches far beyond just
being a food retailer. Our success in fulfilling our vision is measured by customer satisfaction,
Team Member excellence and happiness, return on capital investment, improvement in the state
of the environment, and local and larger community support (Whole Foods Market 2010). The
mission and vision statements are roadmaps as to what the company focus will be and how it will
arrive at the desired outcome whereas the core values are the building blocks.
Whole Foods Market has performed well in the organic food segment of the market.
Whole Foods performance in relation to the mission and core values encompass more than the
desire to increase revenue. Their motto is Whole Foods, Whole People, Whole Planet, with this
in mind Whole Foods goes beyond profit margins and delves into the purpose of the business and
the enthusiasm with which it conducts its business. The fiscal performance is tied directly to the
intriguing passion and purpose of Whole Foods. The excellent fiscal numbers are attained by
keeping customers happy and empowering and appreciating employees. Whole Foods Market
Inc. (NasdaqGS:WFM - News) commenced fiscal 2012 with a bang, posting better-than-
expected first-quarter 2012 results on the back of strong sales as shoppers flocked to the grocery
chain. The company has been gaining market share compared with other supermarket chains
(Zacks, 2012) As illustrated in table 1 the consolidated statement of cash flows for Whole Foods
Market shows the increase in revenue/cash flow quarter after quarter. The upward momentum
continued into the second quarter with reported sales for the quarter increasing 14% to $2.7
billion.
Employees at Whole Foods Market are enthusiastic about healthy living and utilizing
food and natural products to enhance the lifestyle. This directly contributes to living out the
mission of Whole Foods, Whole People, Whole Planet, keeping employees happy and in turn
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they produce excellent results by way of customer service and product belief. Employees are
encouraged to partake of the healthy lifestyle by being offered discounts on products. Newly
hired employees receive a 20% discount on all products offered in the store. A second layer of
encouragement and reward for employees who are living the whole healthy lifestyle is a discount
of 30% on all products sold. This demonstrates Whole Foods commitment to its mission and
vision by engaging the employees.
The strategic goals of a company are most often derived from a mission statement. The
mission statement is put into action with the creation of the strategic goals. The strategic goals
act as a roadmap, providing a clear course to reaching and achieving the desired outcomes set
forth by company management. The general business strategy for Whole Foods Market
includes; differentiation of its organic products, growth by store expansion, respecting all forms
of life, educating via public participation and an extending an invitation to join the Whole Foods
Market vision. The strategic goals are directly linked to the core values as the values serve as
building blocks for the mission, vision and strategic objectives. The association between the
core values and the strategic goals can be illustrated by linking each or several core values to one
strategic objective. There is a one to many relationship in this area, see Figure 1.
The financial performance for Whole Foods Market for the a period covering the
previous 5 years, beginning 2011 shows a steady increase in net revenues and operating income,
see Figures 2 and 3. There is an intricate interdependence between financial performance,
strategic goals and strategy. The strategies developed must encompass the available resources
required to sustain the specified strategy. Whole Foods has employed a focused growth strategy
using store expansions and acquisitions as the medium to facilitate growth. To execute this
strategy financial resources are required. Whole Foods focused on specific financial items in an
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effort to support the initiatives. The cost of new store development has been lowered, the
amount of cash on hand is substantial and income is expected in an effort to keep debt low.
(Billquist, 2011) The same financial foresight required for store expansions was used to acquire
Wild Oats. There had to be cash on hand as well as income to replenish and pay down debts.
Whole Foods has also strategized to target a specific type of market which encompasses more
affluent individuals who are better educated and are generally physically fit. This target market
allows Whole Foods to price their products a bit higher than others. With the higher pricing
Whole Foods has been able to emerge with higher profits in a struggling economy thus reporting
excellent financial results. Finally Whole Foods has engaged in a differentiation strategy. The
strategy directs Whole Foods to be highly selective about their products. This type of strategy
directly increases company revenue because Whole Foods can stipulate higher prices for their
products. It has proven to be successful with a reported company profit for the first quarter of
fiscal 2012 of $118.3 million, or 65 cents per share, up 33 percent from $88.7 million, or 51
cents per share, in the same quarter last year. (Garr, 2012)
Whole Foods is classified as the largest organic foods retail chain in the market with 317
stores. The organic food market has grown substantially in the past several years. With people
becoming more health conscious the state and health of the food they eat is a fundamental part of
healthly living. With the increase in demand for organically grown foods comes a need for an
increase in suppliers. Thompson, Strickland and Gamble (2009) states the following:
“organic farmland in the United States totaled 4.1 million acres in 2005. While only 1 percent of
U.S. farmland was certified as organic in 2005, farmers were becoming increasingly interested in
and attracted to organic farming, due to the increased process they could demand for organically
grown fruits, vegetables and meats.” (C-4)
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Farmers have struggled to keep up with the demand for organic food. The fact that only 1
percent of farmland in the US is certified as organic presents a problem for keeping up with
demand. The popularity of organic foods has also captured the attention of major supermarket
retailers, in addition low entrance barriers coupled with a fast growing market have substantially
increased new entrants attempting to acquire a piece of the organic pie. Additional competition
in the market allows consumers the ability to potentially substitute products with lower priced
ones from competitors, this poses a substantial risk to Whole Foods. Major supermarkets began
to expand their offerings of organic foods because of this Whole Foods began to have issues
finding chicken and beef suppliers to stock all of its stores. Consumers have facilitated the
growth of the organic industry beyond the specialized market it once was. With this growth the
industry has had to adapt and find new ways to keep up with the consumer need. Whole Foods
has also had to compete not just with stores of their type but mainstream supermarkets as well.
Whole Foods created and launched their own organic labeled products in an effort to persuade
the consumer to purchase these specialized products from a specialized store.
Whole Foods Market possesses several strengths that contribute to their sustained and continued
success. The reputation of Whole Foods Market is a prestigious one in the industry allowing it to
demand higher prices of the market; this presents itself as a substantial strength in relation to the
bottom line. Whole Foods has a strong private label tantamount to a high quality product that is
linked to a unique and enjoyable shopping experience with expertise knowledge of the extensive
products offered in the store. The core values set forth by the organization are respected in the
market as well as by the local community and consumers. Whole Foods is viewed as the
authority when it comes to natural/organic foods. This attracts new customers who have limited
to no knowledge about eating organic or using all natural products.
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The differentiation strategy is the most appropriate strategy to employee for Whole Foods
Market. The differentiation strategy attempts to provide a competitive advantage via a product
or service offering whose attributes differ significantly from the offerings of rivals or a set of
capabilities for delivering customer value that rivals don’t have. (Thompson, Strickland &
Gamble, 2009) Whole Foods has accomplished this by providing a shopping space that is well
lit, brightly colored displays housing fruits and vegetables; eliminating cookie cutter store
designs by designing each store according to the size a layout of the space. The only static
“rule” is that all store locations must be able to accommodate a 25,000 to 50,000 square foot
facility; enhancing seafood standards which require vendors to pass an independent third-party
audit to ensure adherence to the strict quality standards. Whole Foods further accomplishes
differentiation by the level of customer service it offers to its customers. Employees of Whole
Foods are enthusiastic and knowledgeable about the products offered, this enthusiasm becomes
contagious and in-turn influences the customers. The main differentiation aspect Whole Foods
uses is the quality of its products. The first core value is “selling the highest quality natural and
organic products available.” This core value provides a distinct competitive advantage. Whole
Foods has been touted as having the highest and most stringent quality standards in the industry.
Because Whole Foods has held fast to this strategy the return to shareholders has been
significant. The expected outcomes in response to the strategy are; a focused loyal customer
base whose needs are continuously met and exceeded, on or above target financial results,
growth and retained and happy employees and customers.
An acquisition is an appropriate action when the following elements are present; the
desire to grow a business at a fast pace, to create presence in an area where the entity does not
exist, to eradicate some or all direct competition and to increase sales and revenue. An
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acquisition makes sense if first the company being acquired meets certain financial criteria and it
is determine to be valuable. Whole Foods over the years has acquired various smaller natural
and organic food stores in the industry. This action proved successful as the company was
names one of the 500 Fastest-Growing Private Companies in America. The targeting of Wild
Oats presented an opportunity for Whole Foods to eliminate competition in the market. Wild
Oats stores were located in geographic areas which would allow Whole Foods to enter ten to
fifteen new markets, where they had no presence. The acquisition also presented a boost to
Whole Foods financials, raising stock prices and increasing sales. Whole Foods began to acquire
stores in 1991, by 2005 they owned stores all across the country. This richly increased their
presence and allowed them to provide a wider and enhanced selection. Market conditions should
be conducive when aggressively acquiring companies. The markets in which Whole Foods
acquired smaller businesses had minimal competition outside of the target companies.
As the leader of Whole Foods Market it would be appropriate to reward employees for
the remarkable success the company has experienced. Net income for the upscale natural-foods
grocer’s fiscal fourth-quarter 2010 totaled $57.5 million, or 33 cents a share. Analysts had
expected the grocer to earn 28 cents, according to a FactSet Research survey. Sales rose 15% to
$2.1 billion. (Andrejczak, 2010) Whole Foods earned $75.5 million, or 42 cents a share, for the
quarter ended Sept. 25, 2011 (Andrejczak, 2011) The company's profit for the first quarter of its
fiscal 2012 was $118.3 million, or 65 cents per share, up 33 percent from $88.7 million, or 51
cents per share, in the same quarter last year. (Gaar, 2012) With these types of financial results it
is only fair that the employees, team members reap the benefits of their hard work. According to
Thomas, Strickland and Gamble the use of incentives and rewards is the single most powerful
tool management has to win strong employee commitment to diligent, competent strategy
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execution and operating excellence. (Thomas, Strickland & Gamble, 2009) An appropriate
reward structure should link performance targets to every department and team member in the
organization. The reward structure would be a minimum of 12 percent of base salaries for all
employees not just management. The percentage could increase based on the financial
performance of the company. Managers and above would have the same incentive program but
with additional or varied performance standards as well as a higher percentage payout than
individual contributors. The performance standards would follow the SMART goal model in
that they would be specific, measurable, attainable, realistic and timely. Performance standards
will be crafted for each operational group in an effort to allow them to have direct impact on the
success of the assigned standard. Incentive payments would be paid out in February for the
previous year performance results. This incentive plan will encourage all employees to put forth
their very best effort in an attempt to meet and or exceed strategic goals. The reward system is
based on the quality of results that are achieved. The minimum percentage payout is in line with
the financial results reported for the previous three years including results from Q2, 2012. Once
the plan is developed all employees will be sent a letter detailing their level within the company,
the strategic objectives they are responsible for as well as the percentage payout expected for
their position. Monetary rewards would not be the sole method by which to reward employees.
Employee of the quarter nominations will be used as a vehicle to recognize employees that
consistently go above and beyond in their functional areas. A peer recognition program will be
enacted. This program will allow individual contributors to nominate their peers for a company
award for doing a good job and going above and beyond. Discounts on products and services
would also be provided in an effort to encourage employees to engage in a healthy lifestyle
which is part of the company core values.
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The company’s current strategies support ethical business behaviors because the chosen
strategies overlap company and community goals. These overlaps prove to create a competitive
advantage. Whole Foods leaders recognize that society impacts the competitive environment in
which companies do business. Society provides the team members, set the rules and regulations
by which businesses operate, drives the demand for company products and services and provides
the basic roads, telecommunications, water supply and electricity with which to operate.
(Thomas, Strickland & Gamble, 2009) Whole Foods is committed to doing business in an
ethical and legal manner therefore, the ethical climate at Whole Foods supports doing the right
thing due to its social responsibility, staffing structure and quality standards. The ethical climate
at Whole Foods is clear and concise. Whole Foods has developed documents, charters polices
and process to facilitate an ethical environment. Efforts to employ an ethical strategy and
observe ethical principles in operating business are in direct concert with being a good corporate
citizen and being engaged in socially responsible business behavior. Whole Foods has made
charitable contributions and donated time team member time for community service endeavors.
(Thomas, Strickland & Gamble, 2009) Whole Foods take serious its responsibility to be an
active participants in all local communities in which it operates. Whole Foods donates a
minimum of 5 percent of its profits every year to various community organizations. (Whole
Foods, 2012) Whole Foods further supports ethical business behaviors by taking actions to
enhance employee well-being and make the company a great place to work. (Thomas,
Strickland & Gamble, 2009) Whole Foods supports team member happiness and excellence by
rewarding effort and results, creating an environment where motivated team members can do
well and reach their highest potential, the structure of the work unit within Whole Foods is one
of self-directed teams, information that may be potentially impacting to team member jobs is
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readily available all compensation information is available for review and leveraging the
diversity of team member ideas in an effort to produce creativity and receive multiple
contributions which drives innovation. Quality standards at Whole Foods play an enormous role
in supporting ethical business behaviors. Quality can be viewed as the cornerstone of ethical
business behaviors. Quality is all about the value a product has in relation to other contending
products. When consumers spend money on products they expect that they are receiving the best
value for their money. Whole Foods ensures this by adhering to high standards and aims to
provide the highest quality products to its customers by evaluating the ingredients for freshness,
safety, taste, appearance and nutritive value.
All in all Whole Foods Market appears to be a progressive and stable company with
aggressive growth plans for the future. Extensive effort has been exerted in planning and
execution of all of aspects of the business. Whole Foods has to capitalize on its individual
strengths and opportunities to sustain its edge in the marketplace. Currently, they are classified
as the number one organic food retailer in the United States. John Mackey’s vision for Whole
Foods Market to be the international brand known for being the best retailer of natural and
organic foods has come to fruition through the careful execution of vision, mission, core values
and strategy.
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References
Zacks, E. R. (2012, May 3). Whole foods posts healthy 2q. Retrieved from
http://finance.yahoo.com/news/Whole-Foods-Healthy-zacks-1176500019.html
Texas-based Whole Foods again one of 'best' places to work.” Anonymous.
The Colorado Springs Business Journal. Colorado Springs:Jan 30, 2009
Billquist, A. (2011, September 26). Growth strategy of whole foods and kroger. Retrieved from
http://www.augustbillquist.com/2011/09/26/growth-strategy-of-whole-foods-and-kroger/
Thompson, A., Strickland, A. J., & Gamble, J. (2009). Crafting & executing strategy. New York,
NY: McGraw-Hill Larning Solutions.
Andrejczak, M. (2010, November 3). Whole foods profit up 58%; shares gain. Retrieved from
http://articles.marketwatch.com/2010-11-03/industries/30693961_1_executive-john-
mackey-shares-food-retailers
Gaar, B. (2012, Feburary 8). Whole foods posts highest-ever quarterly profit, plans to keep
growing. Retrieved from http://www.statesman.com/business/whole-foods-posts-highest-
ever-quarterly-profit-plans-2160646.html
Whole foods market. (2012). Retrieved from http://www.wholefoodsmarket.com/
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Table 1
Figure 1
Core Value Strategic Objective
Selling the highest quality natural and organic
products available
Differentiation of its organic
products
Satisfying and delighting our customers Respecting all forms of life
Supporting team member happiness and
excellence
Respecting all forms of life
Creating wealth through profits and growth Growth by store expansion
Creating ongoing win-win partnerships with our
suppliers
Differentiation of its organic
products
Whole Foods Market 13
Promoting the health of our stakeholders through
healthy eating education
Respecting all forms of life
Educating via public participation
and an extending an invitation to
join the Whole Foods Market
vision.
Caring about out communities and our
environment
Respecting all forms of life
Educating via public participation
and an extending an invitation to
join the Whole Foods Market
vision.
Figure 2
Operating Income for previous 5 years
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Figure 3
Net Revenue for previous five years