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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