CASE STUDY

CENTENNIAL COLLEGE CRAFTING & EXECUTING STRATEGY

GROUP ASSIGNMENT 2 CASE STUDY PROF.STEVEN H. LACHOWSKI
GROUP MEMBERS NAMESTUDENT 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 worlds 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 Foods 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 companys 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 Mackeys 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 Mackeys vision charts the companys future strategic course. It explains what the company wants to be, where it wants to go and what are the scopes of the companys future. When we see the popularity of the company in natural and organic food market we may realize that John Mackeys 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 Markets 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 companys success? Why or why not? The fact presented in case Exhibit 3 really matter to Whole Foods Market is totally acceptable. Theiraim 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 companys 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 Gross Profit Margin Return on sales Return on stockholders equity Net return on sales Return on total assets Earnings per share Current ratio Quick ratio Working capital Debt-to-asset ratio Long term debt-to-equity ratio Long term debt-to-capital ratio Inventory Turnover Inventory Turnover per day 34.94% 5.689% 0.14516 0.0363 0.0998 $1.46 1.224 0.824 114211 0.0042 0.00612 0.00609 17.90 26 days 2007 34.84% 4.512% 0.1252 0.0277 0.0581 $1.30 0.8514 0.4842 (116530) 0.2290 0.504 0.335 14.907 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 thats 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 WFMs 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 doesnt 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 Mackeys Internet postings unethical or in any way inappropriate? What actions, if any, do you disapprove of? What actions, if any, should the companys board of directors take with regard to his Internet posting and blogs? It is true from my belief that Mackeys internet postings were very unethical and inappropriate as there are expectations from the public for every business including CEOs. 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. Mackeys 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 FTCs 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 FTCs 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