Whole Foods Market, Inc.

Company Profile
Publication Date: 29 Feb 2012

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Whole Foods Market, Inc.

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TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................4
Key Facts...............................................................................................................4
SWOT Analysis.....................................................................................................5

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Whole Foods Market, Inc.

Company Overview

COMPANY OVERVIEW
Whole Foods Market (or the company) is a natural and organic foods supermarket chain that
operates through several wholly owned subsidiaries. The company's supermarkets are located in
the US, Canada and the UK. It is headquartered in Austin, Texas and employs 64,200 people, of
which 13,300 are part-time employees and 2,700 are temporary employees.
The company recorded revenues of $10,107.8 million during the financial year ended September
2011 (FY2011), an increase of 12.2% over FY2010. The operating profit of the company was $547.6
million in FY2011, an increase of 25% over FY2010. The net profit was $342.6 million in FY2011,
an increase of 42.5% over FY2010.

KEY FACTS
Head Office

Whole Foods Market, Inc.

550 Bowie Street
Austin
Texas 78703
USA

Phone

1 512 477 4455

Fax

1 512 482 7000

Web Address

http://www.wholefoodsmarket.com

Revenue / turnover 10,107.8

(USD Mn)
Financial Year End

September

Employees

64,200

NASDAQ Global
Select Ticker

WFM

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SWOT Analysis

SWOT ANALYSIS
WWhole Foods Market (or 'the company') is a natural and organic foods supermarket chain that
operates through several wholly owned subsidiaries. The company offers a broad and differentiated
product selection with a strong emphasis on perishable foods designed to appeal to both natural
and organic foods and gourmet shoppers. An extensive product offering allows the company to
address multiple customer segments. However, intense competition could negatively impact the
company through loss of sales, reduction in margin from competitive price changes, and/or greater
operating costs such as marketing.
Strengths

Weaknesses

Broad product offerings

Focused growth strategy
Strong focus on right sizing of stores

Product recalls affect brand image

Weak international operations
Increasing rental expenses

Opportunities

Threats

Increasing demand for organic products

Increasing popularity of private labels will
improve margins
Trends support increased demand for food
products

Intense competition may have an adverse

effect on profitability
Stringent regulations impose additional
liability

Strengths

Broad product offerings

Whole Foods Market offers a broad and differentiated product selection with a strong emphasis on
perishable foods designed to appeal to both natural and organic foods and gourmet shoppers. Its
product selection in all of its stores includes produce, seafood, grocery, meat and poultry, bakery,
prepared foods and catering, specialty (beer, wine and cheese), coffee and tea, nutritional
supplements, vitamins, body care and educational products such as books, floral items, pet products
and household products. In its stores, it stocks an even larger selection of organic food and non-food
products. These stores also have catering services where customers can purchase made-to-order
foods. Moreover, the company's emphasis on fresh food provides it with a competitive edge over
its peers, who usually offer only packaged foods. An extensive product offering allows the company
to address multiple customer segments, apart from insulating it from any significant fall in demand
for any specific product or segment and also enables it to retain its customer base attracting new
customers to its stores.

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SWOT Analysis

Focused growth strategy

Whole Foods Market focuses on expansion, primarily through new store openings in existing trade
areas as well as new areas, including international locations. During FY2011 and FY2010, the
company opened 18 and 16 new stores, respectively. The company opened six stores in the first
quarter of FY2012 and expects to open three stores in the second quarter. Besides, the company
is also expanding in the UK and announced its plans for the same in November 2010. The company
opened a 22,000 square feet store in Giffnock, Glasgow in November 2011, and plans to open a
20,000 square feet store in Richmond, London in 2013. Further, the company estimates to open
2832 stores by FY2013.
The company's strategy to grow through identical store sales growth, acquisitions, and new store
openings has enabled it to grow at a compounded annual growth rate (CAGR) of 26% during
19912011.
Since the natural foods retailing industry is highly fragmented and comprises many small local and
regional chains, growth through stores expansion provides the company access to desirable markets,
apart from enabling it to expand its reach to a wide customer-base and diversify its revenue streams.
Strong focus on right sizing of stores
Whole Foods Market is focused on the right sized store for each location. Since FY2008, the company
has downsized 20 leases by an average of 13,000 square feet each. The company reduced
approximately 1.4 million square feet from its development pipeline, downsizing 20 leases for stores
in development and terminating an additional 22 leases. Also in 2011, the company reduced the
average size of its pipeline stores to 35,000 square feet from 39,000 square feet in 2010.
While Whole Foods Market's larger-format stores have a strong presence in dense urban areas, the
company's smaller stores have the potential to generate great returns as well. The company's
decision to scale back the average size of its new stores is an important factor behind improving the
company's chain-wide productivity and enhancing its return metrics.

Weaknesses

Product recalls affect brand image

Whole Foods Market has recalled several products owing to contamination. For instance, in January
2012, the company recalled certain Whole Foods Market Dairy Free bakery products because they
contain milk which is not declared on the labels. In November 2010, Whole Foods Market of Austin,
Texas recalled seven types of cheddar cheese over the possible risk of E. coli or listeria contamination.
Earlier in 2009, the Whole Foods Carob Energee Nuggets were recalled by the company due to
potential Salmonella contamination. Also in the same year, the company announced the voluntary
recall of its 365 Everyday Value brand in-shell Dry Roasted and Salted Pistachios due to the potential

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SWOT Analysis

salmonella contamination. Prior to that, in 2008, the concerns over the contamination of its fresh
ground beef with E. coli 0157:H7 bacteria led to its recall in selected states. In the same year, the
company had to recall 365 Organic Everyday Value Popcorn due to undeclared milk ingredients.
Such recurrent product recalls negatively affect the brand image of the company, which, in turn,
leads to low customer loyalty and brand equity.
Weak international operations
The company has weak international operations with just seven stores in Canada, and five stores
in the UK. Though the company intends to open new stores in the UK and Canada, its operations
in these markets are not large enough to derive economies of scale in purchasing and distribution,
resulting in relatively high product prices.The higher prices erode the competitiveness of the company
relative to its established international rivals, who have larger scale operations and, therefore, leaner
economics.
In a competitive environment, high dependence on few markets not only exposes Whole Foods
Market to the vulnerability of local market conditions but also limits the growth opportunities. Besides,
the company is deprived of the economies of scale and benefits which its competitors enjoy because
of their global operations.
Increasing rental expenses
Whole Foods Market has obligations under certain capital leases for rental of equipment and certain
operating leases for rental of facilities and equipment. Therefore, the change in rental expenses
charged under operating leases affects the companys business. In the recent years, the company's
rental expenses have increased significantly. Rental expense charged to operations under operating
leases for financial years 2011, 2010 and 2009 totaled approximately $321.6 million, $303.5 million
and $281.9 million, respectively. Increasing rental expenses affect the company's profitability and
consequently have a material adverse impact on margins.

Opportunities

Increasing demand for organic products

The demand for natural and organic foods has increased over the years due to rising awareness
about the importance of natural foods in the diets. According to industry estimates, the sales of
organic food increased three fold since 2000 to exceed $28.6 billion in 2010. Organic food sales
rose 7.7% in 2010, at a higher rate than the overall food industry in the US which grew at only 0.6%.
The organic food and beverages market in North America is expected to register strong growth rates
in the coming years.
Whole Foods Market offers natural and organic foods for special dietary needs in the US. The
company is well positioned to benefit from the expanding organic foods market and improve its

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share. This would enhance the company's revenue base in a lucrative and stable growth potential
market.
Increasing popularity of private labels will improve margins
Private label products in the US are witnessing strong growth in sales. The recent slowdown has
kept price the top concern for consumers. Instead of expensive brands, consumers across the
industry are turning to generic and private label products. Even upper-income shoppers are more
willing to buy generic, which has traditionally appealed more to shoppers with limited budgets.
According to industry estimates, private label brands accounted for around 17.4% of the US food
products sales in 2010 as against 15.2% in 2006. The private-label branded products industry in the
US is estimated to be worth $90 billion, and account for nearly 30% of the total servings of food
products sold.
Whole Foods Market's store brands feature approximately 2,600 SKUs led by its primary brand, 365
Everyday Value. Additionally, Whole Foods Market has a number of store-made and regionally-made
fresh items sold under the Whole Foods Market label. It also offers specialty and organic coffee, tea
and drinking chocolates through its subsidiary Allegro Coffee Company. In addition, the company
has developed a grouping of "exclusive" and "control brand" products to fill out its family of brands.
Control brands are brands produced exclusively for Whole Foods Market (e.g., Columbia River
Organics). The company's total private label sales accounted for approximately 11% of its retail
sales in FY2011 and FY2010. Increasing popularity of private label products among consumers and
the company's emphasis on enhancing its value offerings is expected to have a favorable impact
on the company's profit margins.
Trends support increased demand for food products
Eating at home and eating healthy are important trends that are likely to increase the demand for
grocery. The economic downturn, the perception that home-prepared foods are much healthier a
view held by 92% of grocery shoppers, according to an industry study and an unmet desire to enjoy
affordable, restaurant-style foods at home have given food marketers the opportunity to recapture
mealtime. According to a recent survey, 86% of the budget-conscious women in the US prepared
their meals at home in 2010. Approximately 71% purchased convenience produce (prepared salads,
chopped fruits and vegetables, etc.) and approximately 81% purchased convenient forms of fresh
poultry and meat regularly.
Despite the economy, industry reports suggest that the perishable department has been registering
steady growth. This growth is driven by the consumer's perception of healthy food, increasing working
population with lesser time to cook and also increased meal options provided. These trends suggest
a large potential market, the spending in which is not entirely discretionary. The positive trends in
the market will lead to increased sales in the segment which will also drive footfall.

Threats

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SWOT Analysis

Intense competition may have an adverse effect on profitability

Food retailing is a large, intensely competitive industry. Whole Foods Market competes with local,
regional, national and international conventional and specialty supermarkets, natural foods stores,
warehouse membership clubs, smaller specialty stores, farmers' markets, and restaurants. Each of
these competes with the company on the basis of product selection, quality, customer service, price
or a combination of these factors. Most supermarkets offer at least a limited selection of these
products, while some have chosen to expand their selection more aggressively. As competition in
certain areas intensifies, the company's results of operations may be negatively impacted through
loss of sales, reduction in margin from competitive price changes, and/or greater operating costs
such as marketing.
Stringent regulations impose additional liability
As the company operates in the natural and organic foods market, its stores and products are subject
to several laws and regulations relating to health, sanitation and food labeling. Several federal
agencies and departments, including the Food and Drug Administration (FDA), the Federal Trade
Commission (FTC), the Consumer Product Safety Commission (CPSC), the United States Department
of Agriculture (USDA) and the Environmental Protection Agency (EPA) set critical standards for the
manufacture, processing, formulation, packaging, labeling and advertising of products.
Failure to comply with these standards could result in penalties and seizure of marketing and sales
licenses. These regulations also result in additional compliance costs, which could reflect in reduced
margins.

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