Analysis of Whole Foods Inc - Essay Example

Introduction Using various models of analysis, Whole foods operations is analyzed. Whole Foods is a company that chose to market organically produced products and foods rather than go to conventional ones. Its operating strategy is timely, as it has answered the needs of customers for healthy lifestyle products and so it is considered a leader in the organic marketing. But every organization, even if they are deemed to be successful should present itself to various analysis for the benefit of its stakeholders. Analysis provides the company a vision for its future operation. Analyses used in this study are Five Forces, Life Cycle Assessment, Value Chain Analysis, SWOT, PEST, and 7S. I. Using Five forces (Quick MBA) each factors are analyzed a. Buyer power- Whole Foods faces a weak buyer power because buyers are fragmented and does not have particular influence on product or price. Organic food is sold in different 14,500 supermarkets in the States, so buyers do not have a single power to be able to dictate their price on the retailers. But if we consider Whole Foods to be the buyer, then we can consider this company to have a very strong buyer power because it can purchase and command a price from direct suppliers, and can buy out competition b. Threat of new entrants. The threat of new entrants to the industry is low because of the big amount of investment needed to compete in the industry. The average capital cost of opening a food market site amounted to $15.1 million in 2007, plus the inventory cost of $850,000 . Whole Foods Market pre opening expenses averaged $2.6 million for the 21 stores they have opened. It is doubtful whether the products of the small manufacturers can reach the same shelves as with Whole Foods. c. Threat of substitutes . There is a low threat of substitute because of the growing concern of people on wellness products. Whole Foods succeeded in building a competitive advantage. Their prices are comparatively higher than conventional foods, but they have established a niche in the industry because of the perceived needs of costumers. d. Threat of rivalry - There is a high degree of rivalry in the industry because of the emergence of competitors in the industry. The rivalry is intense because competitors like Fresh & Easy Neighborhood, Sunflower Farmers market. Traders Joe, and Fresh Market offered several competitive moves. Competitors applied innovations, features, and lower pricing, For instance, Fresh Market developed small markets with the feel and atmosphere of an open European style market. At the same time these stores offered an array of competing organic products in the same area where Whole Food operate. So there is a contest of ambiance among rival stores. e. Supplier power - Bargaining power of supplier is limited and weak because The Whole Foods is considered a big client for most suppliers of organic products. For this reason, suppliers owe some indebtedness to the company. Aside from the fact that there are many local suppliers who also offer standardized organic products. II. INDUSTRYLIFE CYCLE ANALYSIS Industry life cycle refers to different stages of an industry go through, from its product entry to its eventual decline. Industry life cycle has four phases described as : “introduction, growth, maturity, and decline.(Investopedia) Figure at left depicts this cycle . Using this cycle, we analyze the future of Whole Foods in China. In deciding the future of the company, we have to consider several factors. In 2010, China has 1,339,724,852 population which is a big market. Introduction to this market will not be too difficult because studies of Kuo Hang and Gale Fred (2007), and Stephen, Emmert, et al. (2009) both showed a growing demand of the Chinese for quality and healthful foods. The second phase is described as growth of the industry that is shown by innovation or changes from conventional to organics. Business at this stage experiences many challenges, or the growing pains. Barriers to growth are prices and its relativity, environmental certifications and education. Hang and Gale proved that Chinese demands are correlated with price, and their demands get lower as price increases. They are not motivated by environmental and animal welfare concerns but are becoming health conscious. Organic products are relatively higher than conventional ones, and this should be taken into consideration by Whole foods Market. Hang and Gale stated that affluent ones are becoming conscious of lifestyles and are doing their purchases now in supermarkets. This could be a marketing challenge to WholeFoods Market. Growth also means the company should contend itself to the different environmental certifications needed by the government to become a certified organic producer. Whole Foods has a policy buying from local suppliers whenever possible. This system produces a problem because of negative publicity about the use of too much pesticide by Chinese farmers thereby hindering growth of organic farming. Third phase is maturity described as a situation where a dominant figure is settled. At this point, there are already small players in China that sells organic products. There are also local farmers that supply the products. Corollary to the marketing strategy of Wholel Foods, it can buy out these small players in order to become the dominant figure in China. This is the phase where companies are concerned with market share and profits. Fourth stage is the decline where sales slip down and the industry are replaced by a new one. Technology may replace organic food, or inventions may replace the industry. So far, there is no research found yet that is set to replace natural food, and there is a tendency that it will be on a long term basis. The Value Chain Analysis – The idea of Value Chain as developed by Michael Porter is valuable to an organization because it helps them to view the whole system, and from then, could analyze its strengths and weaknesses. The VCA is a model of analysis that pinpoints responsibilities in each phase of the converting inputs into outputs. Porter classified these responsibilities into primary and secondary activities.(Tutor2u, n.d.) The VCA OF Well Foods is summed up into primary and secondary activities which are outlined below: PRIMARY ACTIVITIES 1. INBOUND LOGISTICS Relations with suppliers – Good. Suppliers are beholden to company since it is a big company 2.Operations – activities required to transform inputs into products and services Company put emphasis in buying directly from local and regional manufacturers. This may put a strain on regular suppliers that could lead to switching. 3.Outbound logistics – activities required to collect, distribute the output Efficient distribution. 2 procurement and distribution centers were established, and seafood processing facilities supplies seafood requirements of the stores. It has an open format that makes distribution easier. 4. Marketing and sales – activities include informing buyers about products and services, inducing buyers to purchase them, and facilitating the purchase. Whole Food spends less on advertising, but relies on word of mouth campaign. Its core values are to satisfy and delight customers. Whole Food spends the budget in sponsoring taste fairs, product samplings and classes. Sales personnel are knowledgeable about their products and tries to educate costumers about natural foods, etc. They also provide suggestions on cuts, cooking instructions, and recipes. Presentation and layout of products in the store are satisfactory and some say shopping in the store is an experience itself. 5. Service – includes all activities to keep product effectively after it is sold The company has a long term mission of advancing the cause of long-term sustainable agricultural product and promoting clean environment, SECONDARY ACTIVITIES 1. 1. Procurement is acquisition of inputs or resources for the firm. Whole Foods grow by acquiring smaller store, or otherwise put up its own store in the region/locality. It buys its inputs of organic products from the regional farmers who are certified to be organic growers. No problem in procurement 2.Human Resource Management- These are the activities involved in recruiting, hiring, training, developing and compensating and if necessary terminating personnel. The employment package is good, but comparison with others in the industry is not done. Company was voted one of the best employers by Fortune Magazine 3.Technological development –pertains to the equipment, hardware, software and technological knowledge in transforming the inputs to outputs. Not much has been mentioned as far as technological process is concerned. 4.Infrastructure –serves the companies needs and ties its various parts together. This usually consists of the functions of the several departments in the organization. The company has a centralized system operating thru 9 regional subsidiaries, 9 bake shops, and 5 commissary kitchens, and a central coffee roasting station that supplies its stores in the areas. III. PORTER’S GENERIC STRATEGIES. Porter's Generic Competitive Strategies (ways of competing is a study of the firm’s relative position within the industry, knowing whether it is above or below the industry average, and the three strategies that leads to achieving the above average performance in the industry are cost leadership, differentiation, and focus.(source) This model analyzes the competitive advantage of the firm. 1. Cost leadership. It could not easily be determined if the strategy of pricing its products higher than conventional products establishes cost leadership nor it is advantageous. Company argues that the cost of growing and marketing organic products is normally higher than conventional ones. The study cited remarks of an Analyst saying that people are ready to invest on healthier foods because they believe it is good for their health, and this mood is not fad. 2. Differentiation. This is a strategy that seeks the product to be unique in the aspect that is widely valued by costumers. The strategy selects one or more attributes of the product that costumers perceive as important and unique Well Foods has competitive advantage here as the company capitalizes on the supply of organic foods that answers the wellness and healthy foods requirement. The company responded the need of the consumers for a holistic approach to healthy lifestyle. 3. Cost focus – a strategy that seeks a cost advantage in target segments. Whole Foods managed to attract a new kind of costumers who are vegetarians and those who are totally committed to a healthy lifestyle and does not mind putting more money on the item. Whole Foods seemed to be successful in developing this niche market because today it is claimed to be one of the top retail chain of natural and organic products in the world. 4. Differentiation segment. The company is now on its 32nd year and had a sales of $6.6 billion in 2007 with 206 stores located in US, Canada, and Great Britain. Their target for 2012 is to establish 400 stores and increasing their sales to $12 billion. This could only mean that the company is serving their target segments better than that of other industry segments or competition. Further, their growth could be interpreted as being able to exploit the special needs of buyers in the organic segments. V. SWOT ANALYSIS STRENGTHS Company is prestigious, established, successful and with global operations The company is synonymous to environmentalism and health consciousness. For example, it uses paper bags instead of plastics. Cares about community and environment Sells about 30,000 lines of organic products in its stores It was voted by Fortune Magazine as one of The Best Companies t o work for eleven consecutive years. WEAKNESSES Pricing is set higher than conventional items. Wellness and healthy life style is not permanent Decentralized hiring of personnel is a problem Ethics standards of its President is questioned Sales decline due to recession OPPORTUNITIES Health market is in its infant stage. It has more opportunities for growth. Acquisition of rival companies like Wild Oats is one way of growth, and allows the company to expand geographically. There is a growing demand or organically grown products THREATS Competitors are working hard to get a fair share of the market. For example, the “Taste before you buy promo” of Fresh and Easy Brands is a cunning way of persuading customers to buy their products. Any contamination of the products like bird flu, mad cow, and e-coli. Low price offering of competitors V. PEST ANALYSIS. PEST looks at the factors that influence the environment the company is operating in. PEST is an acronym for political, economic, socio-cultural and technological factors and a model used by business leaders in building their vision of the future. Political Changing policies of the government such as control of diseases, and other improvements may impede organic process procedures, Economic Barriers in using organic products are the belief that it is too expensive, availability of the product and loyalty of the consumers to the brand. Socio-cultural Increasing awareness of people on the importance of healthy society is a factor that can influence the environment. Technological The technological process of transferring the product from input to output is not clear. A PEST is an important consideration because it helps Well Foods determine if what they are doing is aligned with forces of change that it affecting the world. At this instant, we could say, that its mission of providing organic food and materials is consistent with the people’s needs.. IV. 7s Framework Value based management 7S framework of Value Based Management describes how one can holistically and effectively organize a company. Figure below depicts an illustration that shows shared values as the link that unites the organization. It is the characterized as the central beliefs and attitudes. Source:Vector Study.com n.d. Strategy Marketing of high quality natural and organic foods to more and more customers would eventually transform the diets of individuals in a manner that would help them live longer, healthier and more pleasurable lives. Works satisfactorily. Shared values To support the health, well-being, and healing of people, customers, team members, and the organization. Values are embedded in the organization, Structures Decentralized operations. People are empowered to make decisions, at the same time creating a respectful workplace where team members are treated fairly and highly motivated to succeed. Style" Style is friendly because company believes each member of the team is a contributor Staff There are about 62,000 employees in charge of 276 stores. Sufficient for operation. Skills Procedure of hiring ensures that an applicant is qualified and skillful. Conclusion. Based on the analysis undertaken, several points have to be considered by the company. The 5 forces show the factors where the industry is high or low. Where it is low, company should take advantage of the opportunity to strengthen its operation. Where it is high, company should be aware and strategies must be ready to offset. In IndustryLife cycle, findings show that there is future growth in China. Organic industry is on its first phase and is still in the introductory stage. Whole Foods may find barriers in its entry like pricing, domestic competition, and government controls. However, China has a big potential for growth because of its developing high income group that is already switching to natural foods. Findings in value chain analysis show smoothness of operations in both primary and secondary activities with the exception of technological process which was not properly presented in the case WHOLE Foods has demonstrated competitive advantage both in cost and differentiation, while its SWOT clearly pointed where the company should pay attention to. Its PEST needs a long term planning and strategy, while the 7S (shared value ) is well established and defined in the organization. References Emmert, Stephen, Finger, Shira, anf Metzger, Ryan. 01 April, 2008. The Market for Organic Foods in China. International Focus at Kellogg. Kellogg School of Management. https://www.kellogg.northwestern.edu/Departments/International/InternationalFocus/article/2008_Organic_ (accessed 05July 2012) Gale, Fred and Huang, Kuo (January 2007). Chinese demand for Food Quantity and Quality in China. A Report from the Economic Research Service No. 32. United States Department of Agriculture http.//www.ers. usda.gov. (accessed 05 July 2012) Mind Tools. SWOT Analysis. http://www.mindtools.com/pages/article/newTMC_05TEST.htm (accessed 27 June 2012) Quick MBA. (n.d.) Porter’s Five Forces. A Model for industry Analysis.http://www.quickmba.com/strategy/porter.shtml (accessed 28 June 2012) Vector Study.com. (n.d.) 7-S framework of McKinsey. http://www.vectorstudy.com/management_theories ( accessed 28 June 2012) Tutor2u. n.d. Strategy: Value Chain Analysis. http://tutor2u.net/business/strategy/value_chain_analysis.htm(accessed (28 June 2012) Read More