Competitive Forces and SWOT Analysis: Whole Foods Market Peter Smtih Dr.

Roy BUS599, Strayer University October 23, 2011 Competitive Forces and SWOT analysis: Whole Foods Market 1. Discuss the trends in retailing of organic foods and the impact of these trends on Whole Foods Market. The organic foods industry is one that shows consistent growth. From year to year, they are undergoing an increase in demand. There are a number of factors that contribute to the industrys growth. These factors include more consumers being educated, and conscious of health concerns of processed foods having a negative impact on their body and the environment. Trends in the retailing of organic foods would include the ups and downs in the farming industry, healthy lifestyles, the environment, and the fluctuating economy. Majority of consumers are now paying more attention to what they are ingesting. This is in large part to making sure what they are putting into their body is ensuring safety. This healthy lifestyle is not only being used for individuals, but also families. Obesity is increasing from year to year; even schools are taking a step into promoting a healthier lifestyle by changing the items they have for sale. For example, many schools are no longer sale sodas during school hours and have now selected baked chips or sun chips over your regular choice of bagged goodies. The ups and downs of the farming industry will always be a trend pertaining to the retailing of any foods. A bad season can lower the available supplies for businesses causing a shortage. Unexpected weather can cause a bad season. Hurricanes, tornadoes, or any heavy rainstorm can cause crops to be lost. Another belief of consumers is that organic farming has positive effects on the environment. If less preservatives are being used the environment should not be exposed to harmful products such as pesticides. With the state of todays economy, more people are cooking at home and dining out a lot less, which also plays into the positive effect of organic foods because consumers are more conscious with their selections when shopping. (Dimitri & Oberholtzer, 2009) 2. Evaluate the competitive environment of the firm: Apply Porters model and analyze each factor relative to the company. The competitive environment of Whole Foods Market is definitely a members only status. In other words, because their business is based on the sales of organic goods and products it is a club that very few may enter. This gives the competition more oomph. In using the Porters model to evaluate the environment we must look at the five forces to determine how attractive the industry is. This helps businesses determine whether or not they are capable of competing in this industry. Each of the forces is measured differently, but the measurement is based on high or low with strategic barriers. Buyer power is considered competition pressure from buyer bargaining and seller-buyer collaboration. Buyer power is stronger when there are many options. When buyers have the ability to postpone their purchases, control high volume purchases, and the demand is considered weak show examples of strength. There is buyer weakness when purchases are inadequate, when a buyer switches costs to competing brands, and when a sellers brand is important to a buyer. The organic foods market has an increasing buyer power because the
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number of companies that are now offering organic products continues to go up. Consumers have the opportunity to look around and choose what fits their needs, not having to look in just one store. Supplier power is based on the ranking of suppliers when providing the necessities for a business. The supplier power is high when business buyers have few choices to buy from. When business buyers have many choices to buy from, the supplier power is considered low. According to our text there are two contingencies that determine whether or not supplier-seller relationships are strong or weak. These two contingencies are (1) whether or not key suppliers can use adequate negotiating power o impact the terms of supply in their favor, and (2) how close one or more industry members can cooperate with their suppliers to achieve an effective supply chain. By using our textbook definitions we are able to determine that Whole Foods Market and other organic markets have a mediocre rating of suppliers. As time moves forward, this might increase or decrease but right now suppliers are limited. Threats of substitute goods or services are based on few factors. These factors include how freely available and attractively priced these substitutes are, the view of consumers pertaining to substitutes even qualifying, and the costs of switching to the substitutes. Threats are high when there are a hefty number of alternatives to products being offered. Low percentage of threats is based on few alternatives for substituting organic products. In the organic market, threats are low because there are many barriers to qualify for products being considered organic. The USDA has established stipulations as to what qualifies for organic purity. These categories are specific and in order to be considered a valid threat, substitute goods must fit within them. Threats of new entrants are based on the level of difficulty when trying to enter into this market. The threats are considered high if it is easy to enter the market and low when it is difficult to surpass barriers to enter markets. These threats can be based on laws, rules or regulations, and expectations of consumers. This market has a low threat of new entrants status. The USDA has implemented regulations that categorize the term organic and when it can and cannot be used. In order for a new entrant to enter into this market, they must first be able to qualify themselves through the USDA stipulations. It is the opinion of the reader, this is more difficult than breaking the barriers once they are in the market. The last of the five forces is rivalry among competitors. This is based on the amount of competition within a specific market. When competition is high, rivalry is high. For little to no competition, rivalry is considered low. The basis of this rivalry can be determined by few factors. These factors include low prices, better quality and availability. In such a specialized market, it is safe to say the level of rivalry among competitors is high. Throughout our reading we were able to compare Whole Foods Market to more than one other competitor. These competitors included Wild Oats Market, Fresh Market, Trader Joes, Sunflower Markets, Fresh & Easy Neighborhood Markets, and Independent Natural and Health Food Grocers. Because this market is specialized and each competitor offers a strategy that keeps the rivalry going, this is considered to have high competition. (Thompson, Strickland, & Gamble, 2010) 3. Discuss which environmental factor poses the most significant threat to Whole Foods and what the company can do to combat it. Environmental factors can affect the health, whether physical or emotional, of a consumer. Other factors include diversity of weather, disasters, and allergies. The environmental factor that poses the most significant threat to Whole Foods could be the weather or climate. This
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affects crops and what farmers can offer to organic markets such as Whole Foods. Hurricanes, Tornadoes, rainstorm, and other natural disasters have the ability to destroy crops. Farming is based around specific seasons and must be completed based on a strategic schedule. If natural disasters affect this schedule there is a possibility there will be no crops to pass on. In order to combat this threat, Whole Foods must be able to adapt to the possibilities. In saying this, Whole Foods should have a bulk inventory that allows them to stock up and be able to bounce back if a natural disaster wipes crops. This should all be established in a business plan for inventory that Whole Foods should be using. (Thompson, Strickland, & Gamble, 2010) 4. Complete a SWOT analysis and identify significant opportunities and threats facing the organization. Strengths 1. Diverse offerings of organic products with vast numbers 2. Team leadership through employee empowerment, compensation and incentives 3. Donating profits after taxes back to the community to help enforce teaching of wellness and health-conscious trends among a diverse group of people through non profits or educational programs Weaknesses 1. Affiliation with FTC over procurement of Wild Oats including CEOs ethics being questioned based on actions on Yahoo Finance 2. Low percentage of funds spent on advertising and marketing (relying on word of mouth is not always dependable) 3. Purchasing specific items (vitamins and supplements) from an outside supplier (could be considered waste of money as a substitute) Opportunities 1. Ability to create vitamin and supplements instead of purchasing through supplier or develop partnership with other suppliers that promote health awareness and health consciousness. 2. Merge with other smaller companies within the market in order to create a well developed presence in the industry 3. Develop a relationship with celebrity or significant individuals involved in diets, healthiness, promoting good living and teaching wellness (this endorses mission of Whole Foods) 4. Partner with specific suppliers that are vastly known for organic foods 5. Arrange unions with grocers to promote quality organic foods in geographical areas that may not have a Whole Foods so product lines can be more notarized Threats 1. Low price competition with other competitors (this can undermine the identity of 100% organic, consumers satisfied with 95% or organic ingredients being used) 2. Fluctuation within current economic situation, with high unemployment rates and people continuing to be laid off the number of consumers that cannot afford to buy organic continues to increase 3. Environmental concerns that cause the availability to decline outside of manufacturers control (Thompson, Strickland, & Gamble, 2010)

5. Discuss how Whole Foods can use its strengths and opportunities to achieve a sustained competitive advantage in the marketplace. The best way to achieve a sustained competitive advantage in the marketplace would be for Whole Foods to capitalize on their strengths, improve their weaknesses, make use of their opportunities, and continue to recognize their threats. A strength that Whole Foods has is donating their profits after taxes to non-profit organizations and educational programs that inform the general consumer on wellness and healthy living. These funds can also be used to develop a partnership with a celebrity dietician or wellness counselor for their consumers use. Whole Foods can hire an individual and have them offer free advice to their consumers; part of the problem with healthy eating and living is many consumers are not completely sure how to do it and where to start. (Thompson, Strickland, & Gamble, 2010) References Thompson, A.A., Strickland, A.J., & Gamble, J.E. (2010). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases: 2009 custom edition (17th ed.). New York: McGraw-Hill-Irwin. Dimitri, C. & Oberholtzer, L. (2009). Marketing U.S. Organic Foods: Recent Trends From Farms to Consumers. Retrieved on October 20 from http://www.ers.usda.gov/publications/eib58/eib58.pdf Business Policy and Strategic Management Spring 2009

Discuss the trends in retailing of organic foods and the impact of these trends on Whole Foods Market. Existing trends in the retailing of organic foods are healthier eating habits, concern over purity of foods, health-consciousness and the idea that eating organic foods have a positive effect on the environment (Thompson, 2010). The craze of purchasing only organic foods has an effect on not only Whole Foods but on many supermarket chains. Although organic foods are marked up in comparison to processed foods there is much competition in this market and thus the profit margin is not very high when selling these items. Evaluate the competitive environment of the firm: Apply Porters model and analyze each factor relative to the company. The five forces in Porters Model of Competition are threats of new entrants, rivalry among competing firms, and threat of substitute products, bargaining power of buyers, and bargaining power of suppliers. Each of the forces of Porters model is directly related to the Whole Foods Market. Organic foods are extremely popular so there is always a threat of new entrants into the market who want a piece of the profit pie involved in the organic food market. As noted in the text, competition in the organic food market is heavy and causes the profit margin to be low. In this case, stores have competitive prices and although organic foods are more expensive the mark up on these items is not very high at all (Thompson, 2010). The threat of substitute products is not very high as smaller scale supermarkets and even large retailers like Wal-Mart are not sole organic food retailers. However, if mass retailers started to brand their own organic foods and solely start to sell organics then prices would be lower in places like Wal-Mart where prices are generally low. This scenario is not very likely; therefore, Whole Foods Market doesnt really have to worry about the threat of substitute products. The threat of bargaining power of suppliers and the bargaining power of buyers are the last two forces in Porters Model. Once again, Whole Foods Market has nothing to worry about presently with these two forces. Suppliers really do not have many options of selling organic products on a large scale so national retailers who sell solely organic foods have the upper hand with bargaining power. Therefore, bargaining power of buyers is not a threat to Whole Foods Market either. However, if there was another national retailer that stepped into the market who was able to offer lower prices then this would be an existing threat to Whole Foods. Discuss which environmental factor poses the most significant threat to Whole Food and what the company can do to combat it. The current state of the economy is the most significant environmental factor that poses a significant threat to Whole Foods. The text notes that Whole Foods as a very high price point and is often called Whole Paycheck (Thompson, 2010). Because of this many consumers choose to purchase items that are more budget friendly for their household. There is no need to purchase pricey organic foods if you will not have a home to put it in because you have spent all of your funds on eating healthy. To combat this issue Whole Foods could change its marketing approach. Presently, marketing consists of internal taste tests and things of that nature. However, Whole Foods could start to focus on educating prospective customers on the benefits of eating organic to include helping the environment, living longer and the threat of processed foods containing pesticides. They could also lower the price points so more 5

consumers could afford their products but not so low as to deplete their profit margin. Even if a full organic diet is not affordable to those on a budget they would learn the importance of eating healthier and may purchase some products from Whole Foods Market. Complete a SWOT analysis and identify significant opportunities and threats facing the organization. A SWOT analysis of Whole Foods includes the analyzing of strengths, weaknesses, opportunities and threats in the market. A couple of strengths of the Whole Foods Market include their merchandising and their ability to build their layout according to the area where the market is located. Thompson (2010) notes that produce and other items are color coded to attract the attention of consumers. Also prior to building a Whole Foods Market, representatives do an extensive analysis of the demographics in the area. With the information obtained the markets are built and merchandised to attract their target audience. Weaknesses of Whole Foods Market include the high price point and the limited marketing techniques used. Whole Foods Markets are strategically placed in areas where a large amount of the population can afford their products. However, the price point is so high that others in the area stray away from shopping with the retailer. Thompson (2010) indicates that Whole Foods does not spend funds on marketing and depends on its customers to spread the word through the power of word of mouth. Some opportunities that exist are expanding marketing to lower income areas and offering Whole Foods brand items to other retailers who may be only selling a limited amount of organic items. By educating lower income families it will assist in building a better quality of life. As stated before, even if these families only purchase a few items from Whole Foods they will become loyal customers. Building an alliance with retailers who sell organic products on a smaller scale would be helpful to Whole Foods to increase brand presence and power. For example, if a Whole Foods is not located near a consumer and they tried a branded it and love it then they will continue to purchase the item. Although not directly from Whole Foods, they would remain loyal to the brand itself. Possible threats include the condition of the economy and offering of lower priced organic products by large national retailers. If the economy continues at the rate it has been in the past, Whole Foods client base may decrease as they may not be able to afford the organics offered. If this happens, Whole Foods has to be ready to react in order to maintain a profit margin. If a large retailer like Wal-Mart increases the amount of organics offered to consumers this will threaten the Whole Foods Market. Wal-Mart strives to offer the lowest prices and also offers price match. With that said, this could cause Whole Foods Market profits to decrease. Discuss how Whole Foods can use its strengths and opportunities to achieve a sustained competitive advantage in the marketplace. The merchandising and layout of each Whole Foods Market both can be used to achieve sustained competitive advantage in the marketplace. The layout and merchandising is unique to the area in which the market is located, making it difficult to duplicate across the board. Places like Wal-Mart have started to try and color coordinate items but it does not have nearly the same effect on consumers as it does at a Whole Foods Market. Merchandising at these markets makes consumers want to make sure they see everything (Thompson, 2010). 6

Opportunities of marketing branded items to other retailers as well as offering lower priced items to lower income families will give the Whole Foods Market staying power also. As noted before if a market is not located in a certain area, customers will at least be familiar with the brand and quality of whole food items even if purchased from a different retailer. The First Lady has a program that is attempting to counteract obesity in children. Partnering with the large scale program could help Whole Foods in offering lower priced items to lower income families also helping with increasing brand power of the Whole Foods Market. References Thompson, A.A., Strickland, A.J., & Gamble, J.E. (2010). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases: 2009 customer edition (17th ed.). New York: McGraw-Hill-Irwin.

RUNNING HEAD: WHOLE FOODS MARKET IN 2008 Whole Foods Market BUS 599 Strategic Management Professor James Glenn January 23, 2011 Discuss the trends in retailing of organic foods and the impact of these trends on Whole Foods Market. Since the millennium, natural and organic foods have been on the rise in U.S. supermarkets. With the demands of consumers being more health conscience and wanting to better the environment, the selection and variety of natural and organic products grew ranging from meat, fresh product, dairy, and bread just to name a few. Because of this increase, organic and natural products were expanding into leading supermarkets. Chains, such as Wal-Mart, Kroger, SafeWay, and Publix, included sections for organic foods and fresh organic fruits and vegetables. (Gamble, Strickland, Thompson, 2009) Some factors that transformed organic foods retailing are consumers becoming more educated about foods, nutrition, and good eating habits, concern over the purity and safety of food due to the presence of pesticide residues, growth hormones, artificial ingredients, chemicals, and genetically engineered ingredients, different demographics becoming more health-conscience, and positive effects of organic farming. (Gamble, Strickland, Thompson, 2009) Although the demand for organic foods have increased, the high prices of these products, along with availability and brand loyalty, cause consumers to be reluctant in their purchases to becoming healthy. (Gamble, Strickland, Thompson, 2009) Evaluate the competitive environment of the firm: Apply Porters model and analyze each factor relative to the company. 7

Porters model help analyze the key factors that influence the industry performance. (Porters five forces,) Porters key factors entails the competitive rivalry among existing firms, threat of potential entrants, threat of substitutes, power of suppliers, and power of buyers. (Porters five forces,) Competitive rivalry among existing firms is high as there are many sellers along with Whole Foods that offer natural and organic products. The cost structures among them differ with Whole Foods providing consumers products at premium prices. The exit barriers are high in that it is costly for Whole Foods to leave the industry. (Porters five forces,) Threats of potential entrants could affect Whole Foods profitability. Threats of potential entrants depend on the availability of resources, the economies of scale, access to distribution channels, and consumers brand loyalty. (Porters five forces,) Threats of substitutes depend on the cost of substitutes, the ease of switching, and the willingness of consumers to use substitutes. (Porters five forces,) Threats of substitutes are at average as the only substitutes are Whole Foods competitors. (Competitive analysis of,) Although Whole Foods competitors tend to have just as much range and variety in their products, Whole Foods price are a bit expensive, which would reflect more in the power of buyers. The power of suppliers depend on the number of suppliers that produce the desired product, the expense of the switching cost from one supplier to another, and whether or not there are substitutes for the product. (Porters five forces,) United Natural Foods was Whole Foods biggest supplier, which contributed to 24 percent of total purchases in 2007. In order to meet Whole Foods standard, it was best to switch to buying directly from producers and manufacturers (Gamble, Strickland, Thompson, 2009). The threat of the power of suppliers is high because there are more local, independent, and corporate farmers and an increasing number of natural and organic stores. (Competitive analysis of,) The power of buyers depends on consumers sensitivity to price and the differentiation from the product to a substitute. (Porters five forces,) Whole Foods prices were higher than any other conventional supermarkets due to its growing and marketing costs, which were up to 75 percent more than these conventional supermarkets. (Gamble, Strickland, Thompson, 2009) Discuss which environmental factor poses the most significant threat to Whole Foods and what the company can do to combat it. The main environmental factor that poses the most significant threat to Whole Foods is the power of the buyers, which is due to its products selling at premium prices. Competitors such as Fresh & Easy Neighborhood Market, Trader Joes, Fresh Market, and Sunflower Farmers Market, provide quality natural and organic products but all are priced competitively. Like Fresh Market, Whole Foods can also place new stores into high-income neighborhoods. (Gamble, Strickland, Thompson, 2009) Whole Foods should adopt some ideas from Trader Joes regarding its weekly new, seasonal, and one-time-buy items promotions. (Gamble, Strickland, Thompson, 2009) With these products and some in-store products, Whole Foods should have these products on sale or at competitive prices weekly. This would provide consumers, who are not willing to spend as much, the opportunity to enjoy the experience and eat healthy and affordably. Complete a SWOT analysis and identify significant opportunities and threats facing the organization. Whole Foods strengths are in its merchandise and customer service. These are two key strengths that reflect in revenues as they have to be superior enough for consumers to become loyal customers. As for their weaknesses, some consumers have 8

dubbed Whole Foods as Whole Paycheck, which means that they prices are above what consumers are willing to purchase. (Competitive analysis of, ) Some consumers who are striving for healthiness seem to be willing to pay premium prices. Whole Foods have the opportunity to sell private-label brands in conventional supermarkets at lower prices. Economic conditions such as consumers spending may pose a threat along with changes in government regulations. There is also competition with independent natural and health food grocers, Fresh Market, Fresh Market, Trader Joes, and Sunflower Farmers Market. Fresh Market seems to be in high competition as it sells the range and variety of products as Whole Foods, but they place stores in shopping area near educated, high-income residents (Gamble, Strickland, Thompson, 2009). This placement of stores ensures that the majority of consumers in these neighborhoods are able and willing to pay premium price to eat healthy. Trader Joes products and prices vary between regions, and they include or introduce new, seasonal, or one-time-buy items weekly. (Gamble, Strickland, Thompson, 2009) Discuss how Whole Foods can use its strength and opportunities to achieve a sustained competitive advantage in the marketplace. Whole Foods core value for customer service is to satisfy and delight customers. (Gamble, Strickland, Thompson, 2009) Whole Foods should continue to *empower+ team members to do whatever it [takes] to meet or exceed customer expectations on every shopping trip (Gamble, Strickland, Thompson, 2009). By ensuring this takes place, Whole Foods small percentage on advertising can remain the same, if not decreased, because of the word-of-mouth recommendations and testimonials from customers --anything less would go against the Whole People portion of their motto. (Gamble, Strickland, Thompson, 2009) With Whole Foods private-labels entrance into other supermarkets, they are able to generate sales from the consumers who are not willing or able to purchase their products in any of their original stores. In a sense, this strategy, or opportunity, allows Whole Foods to meet the economically-challenged consumers half-way and shows consumers satisfaction is their priority and they do not have to purchase Whole Foods products at a premium. References Competitive analysis of whole foods, inc.. (2008, November 3). Retrieved from http://www.docstoc.com/docs/2360432/Competitive-Analysis-of-Whole-Foods-Inc Gamble, J., Strickland, A., & Thompson, A. (2009). Crafting & executing strategy: the quest for competitive advantage concepts and cases. Boston: McGraw-Hill Learning Solutions. Porters fives forces model : industry analysis model . (n.d.). Retrieved from http://www.learnmarketing.net/porters.htm

Team C TABLE OF CONTENTS Section 1: Case Study of Whole Foods 1 1.1 Historical Background 1 1.2 Organization Mission 1 1.3 The External Environment 2 1.3.1 Remote Environment 2 1.3.2 Industry Environment 3 1.3.3 Operating Environment 3 1.4 The Internal Environment 4 1.5 Generic Strategy 4 1.6 Long-Term Objectives 5 1.7 Grand Strategies 6 1.8 Short-Term Objectives 6 1.9 Functional Tactics 7 1.10 Strategy Execution Policies 8 1.11 Executive Bonus Compensation Plans 8 1.12 Organizational Structure, Culture, and Leadership 9 1.13 Strategic Control 10 1.14 Innovation 10 Section 2: Identification of Key Strategic Issues for Whole Foods 11 Section 3: Analysis and Evaluation of Whole Foods 12 3.1 The External Environment 12 3.2 Industry Analysis 12 3.3 Internal Analysis 14 3.3.1 Resource-Based View 14 3.3.2 Value Chain Analysis 15 3.4 SWOT Analysis 16 3.5 Mission Statement Analysis16 3.6 Generic Strategy Analysis 17 3.7 Long-Term Objectives Analysis 19 3.8 Grand Strategy Analysis 20 3.9 Short-Term Objectives Analysis 21 3.10 Functional Tactics Analysis 22 3.11 Strategy Execution Analysis 23 3.12 Executive Bonus Compensation Plans Analysis 23 3.13 Organizational Structure, Culture, and Leadership Analysis 24 3.14 Strategic Control Analysis 25 3.15 Innovation and Entrepreneurship Analysis 25 Section 4: Recommendations 27 4.1 Major Insights of External Analysis 27 4.1.1 Remote Environment 27 4.1.2 Industry Environment 28 4.1.3 Operating Environment 29 4.2 Major Insights of Internal Analysis 30 4.3 Mission Statement 30 10

4.4 Generic Strategy 31 4.5 Long Term Objectives 32 4.6 Grand Strategies 32 4.7 Short Term Objectives 34 4.8 Executive Compensation 35 4.9 Effective Strategy Implementation 36 4.10 Control Recommendations 37 4.10.1 Premise Control 37 4.10.2 Strategic Surveillance 37 4.10.3 Special Alert Control 37 4.10.4 Implementation Control 37 Appendix A 39 Appendix B 41 Appendix C 43 Appendix D 47 Appendix E 48 Appendix F 52 Appendix G 53 Appendix H 56 WORKS CITED 1 Section 1: Case Study of Whole Foods 1.1 Historical Background Whole Foods started in 1980 with one small store in Austin, Texas. At the time, there were less than half a dozen natural food supermarkets in the United States.[1] Today, they are the worlds leader in natural and organic foods, with more than 270 stores in North America and the United Kingdom. Whole Foods was founded by John Mackey, Renee Lawson Hardy, Craig Weller, and Mark Skiles. Whole Foods seeks out the finest natural and organic foods available, maintaining the strictest quality standards in the industry. They also have an unshakeable commitment to sustainable agriculture.[2] See Appendix A for a more detailed history. 1.2 Organization Mission Whole Foods talks about their mission in terms of Whole Foods Whole People Whole Planet. Each of these elements plays a dynamic role in the companys success.*3+ For the Whole Foods element of their mission, they search for the highest quality, least processed, most flavorful, and most natural foods available. They believe that food in its most natural state is the best tasting and most nutritious food that there is.[4] The second element of their mission is Whole People. Whole Foods believes that their people make their company. They want their employees to be passionate about healthy food and a healthy planet. Since Whole Foods is a decentralized organization, they want their employees to take advantage of it and use the self-directed team culture to create a respectful workplace where everyone is treated fairly and are motivated to succeed.[5]

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The third element of their mission is Whole Planet. Whole Foods actively supports organic farming and sustainable agriculture to help protect the planet. Not only does Whole Foods participate on a global level with their Whole Foods Foundation, but they also participate by helping local communities. [6] See Appendix B for more about the Whole Foods Foundation. As a result of the green movement, Whole Foods has added the 3Rs to their green mission: Reduce, Reuse, Recycle.*7+ See Appendix C for more about the Whole Foods green movement. Whole Foods has many important values. For example, they believe that their customers are the most important stakeholders and the lifeblood of their business.[8] Whole Foods has five major stakeholders; John Mackey (CEO), James Sud, Glenda Chamberlain, Walter Robb, and John Elstrott.[9] Whole Foods selectively chose where to do business based on their average customer. Whole Foods knows that its products are for health and food enthusiasts.[10] 1.3 The External Environment Whole Foods, just like any other retailer right now, has been struggling with the economy. The external environment has been changing in uphill and downhill motions daily, something that Whole Foods has never experienced before. Not only is there pressure on the financials of the corporation, but also there is the pressure to go green. Whole Foods has to pay close attention to its remote, industry, and operating environments to make sure that they choose the best directions and actions available for its organizational structure and internal processes. 1.3.1 Remote Environment The remote environment has recently taken a huge hit for all retailers, including Whole Foods. Recently there have been many threats in the economy and very few opportunities. The economy, both in the United Kingdom and the United States, has had unstable activity resulting in an increase in unemployment and a decrease in consumer spending. Both of these factors have negatively affected Whole Foods direction, as far as expanding and building new stores. Whole Foods has been keeping up with the changing technology. The organic retailer has been improving the growth of organic foods. Not only has Whole Foods been focused on their technology efforts, but they have also become a leader in ecological efforts. As a result, they have been the leader in the green movement and caring for the ecological environment. They have created the 3Rs Reduce, Reuse, Recycle and used it to promote green efforts internationally. 1.3.2 Industry Environment The environment that Whole Foods also places a focus on is the industry environment and their product differentiation. Most people can identify a Whole Foods product by its organic information. Whole Foods can easily differentiate their product because they are the leader in selling organic foods. However, Whole Foods is facing a threat from substitute products and services that is leading to increasing rivalry from established players in the grocery industry.

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1.3.3 Operating Environment The operating environment is another critical focus for Whole Foods. Whole Foods has done a great deal of research to evaluate their customer profiles. This research has allowed Whole Foods to plan strategic operations and to anticipate changes in the market. Whole Foods knows that its customers are health-conscious people who whole-heartedly enjoy nutritious natural food. As a result of this, Whole Foods has chosen to operate in the United States, Canada, and the United Kingdom based on each countrys consumer profiles and buyer behavior. Whole Foods has also placed their stores in locations that are meaningful to their organic farming areas and distribution centers. 1.4 The Internal Environment Employees from top management down have benefited from the companys rapid growth. Whole Foods does have a strong employee force, with just over 50,000 employees and growing. They are Fortunes 22nd best company to work for in 2009.*11+ A forecast for 2009 quarterly profits has estimated that quarter one of 2009 sales will be down 4 percent. This is the first time in the stores history that sales will be down.*12+ During this, Whole Foods has cut jobs, reduced its store opening plans, pared back its capital expenditure budget, and suspended its cash dividend.[13] Each of the executives within Whole Foods is passionate about the products that Whole Foods sells. They each believe in the Whole Foods, Whole People, Whole Planet motto and that motto is followed through middle management all the way down to the last cashier. See Appendix D for more employee information. 1.5 Generic Strategy Whole Foods understands the need for cost advantage. They are as efficient as they can possibly be in all aspects of the organization. However, Whole Foods operates under a fairly narrow strategic focus anchored in a differentiation base. They emphasize differentiation in a number of ways. Whole Foods has added a social dimension to its value proposition with its wind energy usage and other environmentally-friendly practices. Social issues are essential to what makes Whole Foods unique in the food retailing industry.[14] This uniqueness allows Whole Foods to differentiate themselves from their competitors. Not only are they offering quality, healthy products, they are a socially-responsible corporation which improves their image in the eyes of the consumer. Unfortunately, the product differentiation they originally experienced has faded as the marketplace changed. Although Whole Foods does an excellent job of differentiating itself from its competitors, its true competitive strategy lies in its fairly narrow focus strategy. Whole Foods has found an excellent place for itself within a particular market segment. That market segment holds the ethical, educated, affluent, health-conscious consumers in the United States, Canada, and the United Kingdom. Whole Foods is attending to the needs of these consumers, offering healthy, socially-responsible products that are difficult to find elsewhere. Although Whole Foods strategy is not completely narrow, as they will sell to anyone that walks in the door, they are definitely strategically targeting a particular group of consumers. 13

1.6 Long-Term Objectives In this tough economy, it is more difficult for companies to set long-term objectives, particularly in regards to financial projections and expansion. However, Whole Foods has made some long-term goals. In the area of competitive position, Whole Foods hopes to continue to expand and grow, aiming to open 66 stores in the next four years.[15] In the area of public responsibility, Whole Foods aims to have over 50 percent of its imported products from the developing world fall under the Whole Trade Guarantee program within ten years.[16] A final long-term objective of Whole Foods, in the area of profitability, is for sales to reach $12 billion in the next five years.[17] 1.7 Grand Strategies Whole Foods is using a combination of grand strategies to achieve its long-term objectives. Whole Foods has been accomplishing its long-term objective of achieving expansion and growth through a grand strategy of horizontal integration, acquiring similar firms operating at the same stage of the production-marketing chain. This can be seen in Whole Foods recent acquisition of Wild Oats. This acquisition eliminated one of Whole Foods biggest competitors, which is one of the benefits of this grand strategy. To attain its objective of having 50 percent of its imported products from developing countries fall under the World Trade Guarantee, Whole Foods is using innovation as a grand strategy. Whole Foods created this guarantee back in 2007, and they are working with third-party certifiers to ensure the criteria are verifiable. Their certifiers, in turn, work with producers to get their products to market and improve their operations.[18] The work their certifiers are doing with producers will help to get more producers matching the criteria under the Whole Trade Guarantee, which will help to increase the number of products in Whole Foods stores. In order to achieve its objective of achieving sales of $12 billion, Whole Foods is minimizing the number of branded products in their store that can be found elsewhere, using the grand strategy of product development in this instance. Whole Foods launched its Whole Trade product line two years ago, and this product is not available anywhere else. Whole Foods is developing new products in this line, more than doubling their offerings in this line from 442 products last year to over 1,000 products today.*19+ 1.8 Short-Term Objectives Whole Foods has a number of objectives for the near future. They are determined to introduce eight new stores in 2009. Originally, Whole Foods was operating under the idea that bigger is better, as can be seen with their 80,000 square foot store in Austin, Texas. However, they have realized that, in order to maximize return on investment, stores should average around 40,000 square feet. They will try to develop all new stores around this average in the upcoming year. Along those lines, they are also trying to drive down their average development cost per square foot.

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In terms of financial objectives for the short-term, Whole Foods is working to stabilize and grow their 2009 sales. They are hoping to put 2009 sales in the range of $8.3 billion, up from $7.9 billion in 2008.[20] 1.9 Functional Tactics There are quite a few things Whole Foods is doing to accomplish its short-term objectives. They are working to obtain a larger return on investment from their developing stores. When originally making plans for their Alameda store in the Bay Area of California, they presented to the community a plan for a 44,000 square foot store, with 100 street-level parking spaces and 80 rooftop spaces. After reevaluating the potential for return and the current economic environment, they are now planning to develop a 33,000 square foot store with 145 street-level parking spots.[21] In a difficult financial economy, Whole Foods had a difficult time making financial projections for the 2009 year. However, they are certain they will be able to stabilize and grow their sales in 2009 if they can do the following four things: 1. improve their Wild Oats stores, 2. minimize the number of self-cannibalized stores, 3. continue their execution of their differentiation strategy, and 4. increase awareness of their value-oriented product offerings.[22] 1.10 Strategy Execution Policies Whole Foods has created a number of policies to empower and aid in strategy execution. One important policy is their policy of maximum freedom, minimum governance. Whole Foods believes each store should have the freedom to do whatever necessary to serve its individual customers and their needs. Individual stores do comply with best practices, but the only governing rule each store must abide by is that all food sold there must be free from artificial preservatives, colors, flavors, sweeteners, and hydrogenated oils.[23] Another policy that Whole Foods has which empowers employees and counteracts resistance is their open book policy. The company shares all financial information, from salaries to profitability, with all of its employees. Whole Foods believes this policy will allow their informed employees to make smarter decisions.[24] Particularly in a tough financial crisis like now, this policy will also counteract resistance to new, more fiscally responsible changes to the organization. 1.11 Executive Bonus Compensation Plans Whole Foods has an interesting approach to compensating its executives. CEO John Mackey slashed his own salary from at least one million dollars to one dollar in November 2006. In addition, all of his profit made from stock options in the organization goes to charity. Cash compensation (salary and non-equity bonuses) is capped for top Whole Foods executives at 19 times the average full-time workers pay. This is done to eliminate compensation disparities, which damage morale.[25] In regards to bonuses, all employees in the organization have the chance to make cash-based performance bonuses, called gain sharing, and 94 percent of nonexecutives receive stock options (along with executives).[26] Additionally, employees 15

have the opportunity to vote on what benefits to offer.[27] This model gives employees incentive to perform better when they have something to gain from it. 1.12 Organizational Structure, Culture, and Leadership Whole Foods uses a divisional organizational structure, which is divided up geographically. Individual regions are responsible for procurement of product, team member training, public relations and marketing activities, and making critical business decisions. Whole Foods decentralizes decision-making in this way for a couple of reasons. First of all, this model decreases corporate bureaucracy. Also, by making decisions at the regional level, decision-makers are much more knowledgeable about their local shopper than a centralized corporate figure would be.[28] Mackey describes Whole Foods and its culture as a social system. Their culture is founded mostly on teamwork. The team is the defining unit of activity and each store is composed of 10 self-managed teams, such as grocery, produce, etc. Additionally, the team leaders within each store comprise a team, and store leaders in each region form a team as well. Part of this teamwork contributes to the competitive spirit that exists within stores and between stores, which compete on quality, service, and profitability.[29] This team-based mentality also contributes to Whole Foods new team member hiring process. Due to team-based bonuses, existing team members have to vote on new hires. They must receive two-thirds of the vote in order to officially become part of the team. The Whole Foods Leadership Team consists of thirty executives including the CEO, CFO, Presidents and Vice Presidents. Currently, Whole Foods is deciding on a President for the Midwest Region.[30] As discussed earlier, all of these executives believe strongly in the mission and values of Whole Foods. 1.13 Strategic Control Whole Foods practices a strategic surveillance method of strategic control. They are regularly monitoring events inside and outside the firm, which could affect the course of its strategy. To monitor situations within the firm, Whole Foods practices a process called internal benchmarking. Periodically, each Whole Foods is toured by a group of as many as 40 visitors from another region. This allows for lateral learning, which can be seen as learning from peer stores to determine what they are doing well.[31] This can also help leadership to determine internal and external events effecting business at that store. This can be used to determine possible future trends. 1.14 Innovation Whole Foods has been incredibly innovative, particularly with their social practices. They were the first supermarket, in January 2008, to eliminate the use of plastic bags in their stores. They also continue to introduce and improve their animal and seafood welfare systems, encouraging innovative animal production practices.[32] A large part of Whole Foods competitive advantage is their environmentally-friendly practices. As they continue to introduce new policies and procedures that improve the environment, they will continue to increase their competitive advantage.

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Section 2: Identification of Key Strategic Issues for Whole Foods After reviewing a brief case study of Whole Foods, we focused on a few challenges and problems that Whole Foods needs to address. Obviously, a huge concern for any retailer right now, and an equal challenge for Whole Foods, is the current state of the economy. Whole Foods has to watch their internal and external environments closely in response to a decrease in consumer spending and an increase in unemployment rates. A second challenge that Whole Foods needs to address is expanding their narrow focus strategy. Given the economic downturn, Whole Foods will have to widen their market niche by decreasing prices to reach a lower-income target market. Whole Foods is also struggling with substitute products and services. Whole Foods needs to address the price differences between the substitutes and eliminate the differences. A third problem that Whole Foods is facing is a decrease in their rate of expansion, which is affecting their long-term goals. In this economy, opening a new store is a risk. Since there has been a decrease in consumer spending, sales have gone down, jobs have been eliminated, and new stores have not been opened. A final problem that Whole Foods is currently facing is their attempt at horizontal integration through their acquisition of Wild Oats. Whole Foods has $925 million in debt that is mostly tied to the Wild Oats purchase. The purchase seemed like a logical short-term and long-term strategy to help eliminate substitute products, services, and competition. Whole Foods current situation has been an uphill and downhill rollercoaster from the acquisition of Wild Oats to the fall in the economy. The following section analyzes these challenges in more depth to determine the root causes of the strategic challenges and problems to help formulate possible solutions for the firm. Section 3: Analysis and Evaluation of Whole Foods 3.1 The External Environment See Appendix E for in-depth information about Whole Foods External Environment. 3.2 Industry Analysis The boundaries of the industry are Kroger, Safeway, Henrys, Wegmans, HEB (Here Everythings Better), and Farmers Markets. The structure of the industry is organic and its direct competitors are Trader Joes, Sunflower Market, Sprouts, Kroger, Safeway, and other mainstream grocery chains that offer organic foods. Whole Foods major determinants of competition are demographics and location. Whole Foods uses potential customers educational levels, population density and income levels as a primary determinant for its locations. Whole Foods stores are mostly located in high-traffic shopping areas and are either free-standing or within strip malls.[33] Whole Foods competitive positioning is their reputation on social and environmental responsibilities, their location, upgrading animal welfare programs, and their effectiveness on sales distribution by supporting local buying from suppliers that share a concern for social responsibility and the environment. This builds many opportunities for the company as a whole. Not only are they strengthening their 17

commitment to local production, but buying local also shortens the time it takes to produce. Hence the local suppliers require less packaging and preserves nutrients and freshness.[34] By buying local not only is the company building a dependable and hopefully long-term relationship with its suppliers, they save on packing and shipping and build a win-win relationship with the farmers. Supporting their community and their people by recycling money within the local economy is a smart approach that represents opportunities for the firm. It is Whole Foods competitive positioning that keeps the customers coming back. Not surprisingly, many of its loyal customers believe in Mackeys philosophy and vision. It is this vision that creates a buyer behavior of its own. Mackey hopes the firms prospective customers are those whose primary concern is not price, but the intrinsic rewards obtainable by purchasing a product that can benefit and affect so many on such a grand scale. Mackey does his homework when it comes to studying and implementing the demographics, psychographics and buying behavior of his customers. It is one of his best strategic approaches. Whole Foods believes their people make the company. Their core values emphasize a happy and empowering working environment where team members are motivated, treated with respect, and are encouraged to discuss and solve problems.[35] 3.3 Internal Analysis 3.3.1 Resource-Based View Whole Foods has a unique combination intangible and tangible assets. They have been able to add new locations and expand to different geographical areas therefore creating tangible assets. The rapid expansion of the company has greatly increased the companys land and valuable store locations. However, this expansion has perhaps been too rapid and led to the initiative to sell some of the Wild Oats stores and other locations which have been underperforming. A positive element to the sale of these locations is that it will generate additional cash and financial resources to combat the current lack of available credit and the firms recent financial underperformance. Another valuable tangible resource is the increase in the access to and reserves of raw materials Whole Foods has obtained through acquisitions of multiple suppliers and key relationships with organic producers. [36] Whole Foods has many intangible assets which provide competitive advantages for the company. The companys reputation for quality products and social responsibility are at the forefront of Whole Foods public image and customers appreciate this reputation. They have built a strong brand name which is identifiable to consumers, and differentiates the company from competitors while promoting loyalty. Organizational morale is also highly important to Whole Foods as the company focuses on motivating and empowering employees. These intangibles of brand loyalty, reputation, and organizational morale are very difficult to imitate and will be sustainable. The management team is highly experienced and most have been with the company since its inception which is another intangible strength. An important organizational capability of Whole Foods is the companys unique distribution channels which have been developed as a result of the relationships with supplier and the companys multiple acquisitions. This capability is unlikely to be imitated due to the isolating mechanism of path dependent resources which Whole Foods has obtained through multiple 18

acquisitions and strong relationships with suppliers. Another capability is the innovative nature with which the company has developed organic products and led the way in social responsibility. The companys ability to successfully coordinate all decentralized locations is another strong capability that creates value for the organization. 3.3.2 Value Chain Analysis The chain of activities creating value for the Whole Foods customer begins with the mission of Whole Food - Whole People - Whole Planet. The activities that strengthen the Whole Foods brand also differentiate the products and meet the customers need quickly. A customer can buy an organic peach at many alternative stores, but purchasing an organic peach at Whole Foods represents getting a whole food while supporting whole people and a whole planet. Now that is value added. The primary activities that represent strengths include outbound logistics, marketing and sales, and service. These activities rely heavily on the support activity of human resource management. As stated in section 1.2, "Whole Foods believes that their people make their company," and Whole Foods provides tremendous support for their employees. Human resource management is seen as a strength and a source of competitive advantage. The primary activities that represent weaknesses include inbound logistics. Inbound logistics is seen as a weakness compared to the larger competitor of Safeway due to Safeway's buyer power and centralized logistics. The challenge Whole Foods faces is maintaining procurement methods in-line with nurturing a whole planet while lowering costs. As Whole Foods grows, inbound logistics may prove essential to lowering costs. 3.4 SWOT Analysis |Strengths |Weaknesses | |- Reputation as socially and environmentally responsible |- Large debt from Wild Oats Acquisition | |- Focused growth strategy |- Fragmented supply chain | |- Large product portfolio |- Weak international operations | | |- Perceived as Whole Paycheck | |Opportunities |Threats | |- Expansion in UK |- Increasing competition | |- Value proposition |- Economic recession | |- Advertising |- Maturing organic industry | See Appendix F for Whole Foods in-depth SWOT analysis. 3.5 Mission Statement Analysis 19

As stated in section 1.2, Whole Foods talks about their mission in terms of Whole Foods Whole People Whole Planet. Each of these elements is broadly chosen; however, each one has a deeper meaning for the firms intent. A company mission is the unique purpose that sets a company apart from others of its type and identifies the scope of its operations in product, market, and technology terms.*37+ Whole Foods mission demonstrates its basic products, food, and services. The mission also demonstrates that the company cares about its internal and external employees and consumers, Whole People, as well a long-term goal for the company, Whole Planet. The mission meets six different specific business criteria for a strong mission statement. First, Whole Foods product provides benefits at least equal to its price.*38+ Whole Foods provides organic food, at an organic price. Second, the product can satisfy a customers need of a specific market.*39+ As mentioned before, Whole Foods has a specific market that cares about a Whole environment, externally and internally. Third, the advanced technology used in production provides a cost and quality competitive advantage.[40] Whole Foods is and has been implementing wind power in all of the stores. Fourth, the hard work of their employees and support of their consumers provides sustainability and profitability for the company. The Whole People motto is carried from the top-down for a strong internal employee bond. Fifth, the management philosophy of Whole Foods results in a favorable public image. The CEO and stakeholders believe in Whole Foods Whole Planet. Finally, the CEOs self-concept of the business is communicated and adopted by their employees and stockholders.[41] Every employee throughout the company follows and believes in the company mission. The six criteria for formulating a strong mission statement are met in Whole Foods mission statement. The company mission statement does not need to be reformulated because, once each element is explained, the motive of the company can be seen. The mission statement for Whole Foods represents its intent to survive through growth and profitability from the inside out. 3.6 Generic Strategy Analysis Although Whole Foods understands the need for cost leadership, they are currently operating under a fairly narrow strategic focus anchored in a differentiation base. A generic strategy can be defined as a core idea about how a firm can best compete in the marketplace.*42+ Both aspects of Whole Foods competitive strategy, the narrow focus and differentiation, have worked well to provide the firm with relevant competitive advantage. Part of Whole Foods competitive strategy surrounds their differentiation opportunities. Whole Foods possesses all necessary skills and resources that foster differentiation, particularly a creative flare, a corporate reputation for quality, and strong cooperation from all channels. Whole Foods has been creative with revolutionizing the grocery industry and has extremely strong relationships with its suppliers and distributors. Similarly, Whole Foods possesses organizational requirements necessary to sustain differentiation activities. Its strongest organizational requirement lies in its ability to attract highly skilled creative employees with its betterthan-average wages and benefits. Regardless of Whole Foods ability to sustain and 20

foster differentiation, as discussed in Section 1.5, it has lost some of the differentiation it originally experienced as the marketplace has changed which has increased rivalry with Whole Foods. The other strong aspect of Whole Foods competitive strategy is their narrow market focus. Whole Foods caters their products to the unique demands of their smallto medium-sized customers, as discussed in Section 1.5. In the past, Whole Foods has profited and obtained a strong competitive advantage catering to underappreciated market segments. They have always strategically placed their stores in areas near their target market. However, in this increasingly volatile economy, even those affluent consumers Whole Foods was originally targeting have become more price sensitive. Other firms in the industry, like Kroger or Safeway, that largely target customers, could be Whole Foods biggest fear right now. Whole Foods will probably never be able to operate as a true cost leader in the marketplace due to the nature and values of Whole Foods and its products. Whole Foods prides itself on its natural, organic products grown by local farmers. These products, however, are not designed for ease in manufacturing and Whole Foods does not possess a low-cost distribution system which are both required skills and resources for overall cost leadership. Although they do not possess the resources necessary to attain cost leadership, Whole Foods does understand the need for cost efficiency. They tightly control costs and their incentives are based on meeting quantitative targets, both organizational requirements for cost leadership. Although Whole Foods uses all skills and resources it possesses to foster speed, it does not possess all skills necessary to be a leader in rapid response. Unfortunately, agriculture is extremely inflexible in terms of manufacturing and suffers from low levels of automation. Whole Foods has developed self-managed work teams at low levels within stores to increase responsiveness. They also quickly provide a wealth of information to all employees within the organization to increase decision speed, which is another way Whole Foods is working to achieve competitive advantage via speed. Although Whole Foods is working to establish advantage in both cost and speed, its true competitive advantage lies in its focus strategy anchored in a differentiation base. As the economy becomes increasingly worse, however, Whole Foods may need to rethink this competitive strategy. 3.7 Long-Term Objectives Analysis As discussed in Section 1.6, Whole Foods possesses long-term objectives in three areas: competitive position, public responsibility, and profitability. Whole Foods long-term objective to open 66 stores in the next four years is measurable, motivating, suitable, and understandable, which are all qualities long-term objectives should possess. However, while this objective is specific, it is not very flexible. It is extremely important that long-term objectives be adaptable to extraordinary changes in a firms environment.[43] This objective could likely have to be reformulated in coming months or years due to the extreme changes that have occurred economically in the industrys remote environment. Whole Foods second long-term objective to have 50 percent of its imported products from the developing world under the Whole Trade Guarantee possesses all necessary qualities: its flexible, measurable, motivating, suitable, and understandable.

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It is also being realized, with its consistent work with certifiers to improve this program and get more of their suppliers in developing countries on board.[44] Whole Foods final long-term objective, in the area of profitability, suffers from the same problems as their first. Although this objective is measurable, motivating, suitable, and understandable, it did not take into account the necessity for adaptability in case of changes in the firms environment. The current economy could make it extremely difficult for Whole Foods to increase profits by 150 percent in the next five years. This objective is inappropriate considering the current financial crisis and may need to be reformulated in the coming months or years. 3.8 Grand Strategy Analysis Although two of Whole Foods long-term objectives are inappropriate considering the current economy, Whole Foods is using a combination of grand strategies that are geared directly toward achieving these long-term objectives. When analyzing whether or not the grand strategies of horizontal integration, innovation, and product development discussed in Section 1.7 were appropriate, we found it necessary to utilize the Grand Strategy Selection Matrix. When considering the two variables in the selection process using this matrix[45], we found that Whole Foods possesses a principle purpose of maximizing their strengths. And, although they were focused somewhat externally recently, we believe Whole Foods' overall emphasis is internal for growth and profitability. Using these variables in the Grand Strategy Selection Matrix indicate that Whole Foods should be using an internal, strength-based combination of grand strategies: concentrated growth, market development, product development, and innovation in order to accomplish its long-term objectives. Therefore, although Whole Foods was focused on external expansion in recent years using horizontal integration, that strategy may be inappropriate when considering Whole Foods overall objectives. Whole Foods other grand strategies of innovation and product development are completely appropriate for achieving their long-term objectives. See Appendix G for more information on the Grand Strategy Selection Matrix. 3.9 Short-Term Objectives Analysis Whole Foods has established two short-term objectives for the near future: introducing eight new stores in 2009 and increasing 2009 sales to $8.3 billion. An extremely important quality of short-term objectives is measurability, which each of Whole Foods are. Additionally, although they are not prioritized, Whole Foods will be working to introduce new stores all year, which will affect their profitability for the year. Although both objectives possess the necessary qualities, it is important to determine whether they operationalize the long-term objectives of Whole Foods.[46] These short-term objectives play into Whole Foods long-term objectives, helping Whole Foods to achieve both competitive position and profitability. However, neither of these objectives facilitate Whole Foods with the achievement of their long-term objective relating to public responsibility. Thus, their short-term objectives are not effectively guiding the implementation of the firms strategy. 3.10 Functional Tactics Analysis 22

Whole Foods will employ several activities to achieve their short-term objectives and establish sustainable competitive advantage. The list of functional tactics utilized by Whole Foods is seen as highly effective. In the functional area of finance, they have recently eliminated 306 positions, lowered the number of new store openings for 2009, terminated 13 leases, downsized 9 leases by 13,000 square feet, cut discretionary expenditures not related to new stores by 50 percent, suspended their cash dividend, and raised $425 million by issuing stock.[47] This quick decisive action to boost liquidity has been highly regarded by the investment community. The activities in 2008 to improve their Wild Oats stores included converting: all of the stores to our purchasing and information systems; transitioned team members to our payroll and benefits plans; and eliminated all positions at the Wild Oats corporate office.*48+ Further action will be taken to expand the perishable offerings, increased rates of pay, and raise the shopping experience to Whole Foods high standards. Minimizing the number of self-cannibalized stores is being achieved through closing the nonperforming operations. Whole Foods differentiation strategy has been copied somewhat in recent years and in response they are rapidly increasing the number of exclusive goods, leading the way in sustainable farming and seafood farming standards, and continuing their Whole Planet actions. In 2009 they plan to roll out a 5-Step Animal Welfare Rating system to our U.S. stores, which debuted in their London store last year.*49+ The 5-Step Animal Welfare Rating system is yet another example of Whole Foods ability to distance themselves from the competition. Increasing awareness of the value-oriented product offerings is being marketed through the launch of the Whole Deal program. The program will continue to educate consumers about the ways to save money at Whole Foods through coupons, budget minded recipes, and quarterly in store guides.*50+ 3.11 Strategy Execution Analysis The policies that empower action include: maximum freedom, minimum governance, and the open book policy.*51+ Maximum freedom, minimum governance is implemented through decentralizing nearly every business function, which has created more freedom of the individual stores and less governance.[52] This policy empowers the individuals in all of the nearly 300 stores to make decisions and take action, including procurement. However, the goal of growing the company to $12 billion in sales is expected to require a more efficient centralized supply chain, which will need to be balanced with the current decentralized policy. The open book policy, which shares all financial information with employees, is effective at informing employees to make smarter decisions. Whole Foods also has a company-wide best practices policy that reduces ambiguity and uncertainty. 3.12 Executive Bonus Compensation Plans Analysis Whole Foods has strived to create a compensation plan that fits their strategic goals and the compensation package offered fits well. Executive pay is capped at 19 times the average full-time workers base pay, and the CEO has limited his pay to $1 since 2006, in addition to his stock options going to charity.[53] All teams in the 23

organization can earn gain sharing cash bonuses and 94 percent receive stock options.[54] Employees also vote on the benefits to include in their package. Following their core value of caring about the communities and environment they contributed 5 percent of net after tax profit to charitable causes and have committed $7.9 million to international microlending programs.[55] Because the compensation plan has excessive pay caps and bonuses are based upon store sales, it is believed that agency problems are largely avoided. 3.13 Organizational Structure, Culture, and Leadership Analysis Whole Foods has developed an organizational structure designed to support the strong company culture and streamlined leadership. The strategy of having a geographically divisional organizational structure helps to build a stronger culture within each of the individual stores. The independence helps to differentiate each store from the larger company. As a company grows, there is a tendency for employees to become just a number, but at Whole Foods the individual stores support the sense of being a valued person. The independence also builds stronger, more self-sufficient bonds and cuts significant levels of bureaucracy out, helping to streamline leadership.[56] Teams play a major role in the structure of the company. By using teams throughout the organization and having the gain sharing cash bonuses awarded to the best performing teams, a stronger competitive team culture has developed.[57] The competitiveness amongst the different sections of a Whole Foods store can be seen in the high quality of presentation and service delivered. The strategy of organizational division and the structural use of teams have shown to be a good fit with the desired culture of whole people and the competitiveness of the company in the supermarket environment. 3.14 Strategic Control Analysis As mentioned in Section 1.13, Whole Foods uses strategic surveillance as a major form of strategic control. By utilizing a bottom up approach to the strategic surveillance method, improvements, trends, and problems can be seen, implemented, or changed more rapidly than by using a top down approach. The internal benchmarking used by Whole Foods includes periodic tours of all stores by employees from another store or region. By using this first-hand exchange of ideas and information, the individual stores can spot places for improvement and management can keep up to date with the changes. The use of strategic surveillance internally has proven successful. With the growing competition from copycat stores, Whole Foods may need to begin a program of strategic surveillance externally, in order to stay ahead of the competition. 3.15 Innovation and Entrepreneurship Analysis Whole Foods continues to blaze the trail forward in many innovative ways, through the extensive creation of foundations, continually raising product standards, and green action. As mentioned in section 1.14, a large part of Whole Foods competitive advantage comes from their environmentally friendly practices and stewardship. In 2005, they created the Animal Compassion Foundation and Whole 24

Planet Foundation enabling Whole Foods to reach their larger community stakeholders.[58] In 2007-2008, the privately held Animal Compassion Foundation was changed to Global Animal Partnership and changed to a public foundation so a broader community can benefit.[59] In 2009, the Global Animal Partnership will roll out their 5Step Animal Welfare Rating system in the United States.[60] The Whole Planet Foundation has contributed $11.4 million to 22,000 micro entrepreneurs and 110,000 individuals in the poor and developing communities that supply the store product.[61] Whole Foods continues to implement higher standards in seafood and animal products. In partnership with the Marine Stewardship Council (MSC), they are the first retailer to offer MSC labeled seafood.[62] In 2008, the World Society for the Protection of Animals ranked Whole Foods the #1 retail grocery by the amount of humanly labeled products per store. Whole Foods has shown a commitment to going green in all aspects of their business including: renewable energy, energy reduction, green construction, reusable grocery bags, composting and recycling.[63] By continuing forcefully in the direction of environmental stewardship innovation, Whole Foods can further differentiate itself and the competition will continue to play catch up. Section 4: Recommendations 4.1 Major Insights of External Analysis 4.1.1 Remote Environment 4.1.1.1 Economic Factors The recession has caused decreased consumer spending and high unemployment, two major economic factors influencing the external environment. Higher unemployment rates are a major contributor to the decrease in consumer spending which has people shopping at lower cost grocers. Higher food prices are also an economic factor. 4.1.1.2 Social Factors Many companies are making focused efforts to increase philanthropy, and Whole Foods is no exception. Public opinion on social responsibility is increasingly relevant to a companys reputation. Another social factor is growing health consciousness by consumers and increased focus on the green movement. 4.1.1.3 Political Factors Along with the new liberal administration comes the potential for higher taxes in the future. The economic stimulus plan incentives and funds will also have an impact on the development of many industries. The increase in the money supply from the bill may also lead to future inflation. FDA Food labeling requirements have been increasing along with regulation by the FTC. 4.1.1.4 Technological Factors

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The growing popularity of online social networking and blogging has influenced companys outreach to consumers. Businesses have been taking advantage of technological advancements made in agriculture, distribution systems, and communication technology. 4.1.1.5 Ecological Factors The nation has been embracing the green movement over the past years and this environmental focus will continue to be important. Eco-efficiency has been crucial for environmental responsibility by companies. Recent developments in renewable energy technology have increased the feasibility of producing and using renewable energy sources. Companies and individuals have increasingly been attempting to reduce their carbon footprint and promote environmental sustainability. 4.1.2 Industry Environment 4.1.2.1 Threat of Entry There is a low threat of entry in the organic food industry for new entrants thus it is a weak force. It is very difficult for companies to achieve economies of scale due to the high cost of producing and supplying organic food. It is also difficult to access strong distribution channels, something Whole Foods has accomplished through multiple acquisitions and mergers with suppliers. 4.1.2.2 Powerful Suppliers Organic food suppliers are not powerful since the majority of suppliers are independent farmers and other relatively small suppliers which are not highly concentrated. Whole Foods is a large company and has been able to exert influence and build a loyal chain of suppliers. These reasons make powerful suppliers a weak force. 4.1.2.3 Powerful Buyers Buyers are powerful for several reasons and are a strong force. Many organic products are standard when held in comparison to other organic products and this presents alternatives to buyers. Organic products are more expensive than standard grocery products which make switching costs low and this threat of substitution makes buyers powerful. 4.1.2.4 Substitution Substitution is a strong force and threat to organic grocers mostly because of high prices. There is a large availability of lower priced substitute products at traditional grocers. 4.1.2.5 Jockeying for Position

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Rivalry is high and is a strong force in the organic food industry with major competitors such as Safeway increasing their emphasis on organic products. The natural food industry is expanding within the traditional grocery industry and increasing rivalry among existing market participants. 4.1.3 Operating Environment 4.1.3.1 Competitive Position Whole Foods competitive position is strong within the traditional organic food industry based upon its reputation for social responsibility and product quality. However, Whole Foods is losing market share and facing increased pressure from larger grocers increasing their organic product lines and lowering prices. For these reasons Whole Foods competitive position in the overall grocery industry is weak and should be improved upon. 4.1.3.2 Customer Profile Whole Foods customers are aware of the benefits of organic food and are loyal to the Whole Foods brand name. They base their decision more upon the benefits of eating healthy rather than the cost. They are generally well educated and affluent, yet Whole Foods products can appeal to many demographic profiles. 4.1.3.3 Labor Whole Foods has been able to attract highly capable workers and with the amount of available workers due to high unemployment this will continue. They focus on motivating and empowering employees to maintain a high level of employee morale. They do not allow unions since it wouldnt support company values of open communication and trust. The threat of unionization poses problems, but these problems havent materialized thus far. 4.1.3.4 Creditors Credit markets are tight and these conditions make it difficult for companies to find financing with favorable terms. Whole Foods is struggling with debt used to acquire Wild Oats and has recently issued new equity to pay down the amount of this debt. 4.1.3.5 Suppliers Whole Foods has developed valuable relationships with loyal suppliers and this has been a competitive advantage for the company. It is important to note that with the threat of future inflation, energy and commodity prices could increase throughout the value chain. 4.2 Major Insights of Internal Analysis Whole Foods has become successful due to a unique combination of tangible and intangible assets as well as organizational capabilities. They have expanded into different geographical areas, increasing tangible assets of land and buildings. Their rapid expansion has pared recently, yet it has built the tangible assets of the firm and created a competitive advantage within the traditional organic food industry. The intangible 27

assets of the firm are highly valuable and include the companys reputation, organizational morale, and experience of top management. These intangibles have greatly increased the companys competitive advantage and help to maintain a loyal customer base and productive workforce. They are difficult to imitate and will be sustainable in the future. A major organizational capability of the company is access to unique distribution channels obtained through the acquisitions of suppliers and from relationships with organic food producers. These distribution channels are based upon path dependent resources which make them difficult to imitate. The company has been innovative in developing organic products and through social responsibility. The company is also able to achieve coordination amongst decentralized locations effectively therefore providing another organizational capability. 4.3 Mission Statement The mission statement and motto of Whole Foods Whole People Whole Planet is an excellent summation of the organizations values and differentiation of its business. The Whole Foods aspect of the companys mission is the continual focus on quality and wholesomeness of the products sold. This is the primary reason that Whole Foods is differentiated in the industry and must remain a core focus of the company. The Whole People focus is another important part of the company mission. Whole Foods employees are a source of competitive advantage, and by believing in the company values of providing healthy food and supporting the environment, they work to achieve the overall company mission. The emphasis of Whole Foods on being environmentally conscious and supporting ecological initiatives is very important to the company image and reputation. This is accomplished through the Whole Planet element of the company mission. All three aspects of the company mission are critical to the success of Whole Foods and should continue to be emphasized. 4.4 Generic Strategy Our recommendation for the company is to continue to use a focus strategy with a differentiation base. Whole Foods has been successful largely because their products and company image are successfully differentiated from competitors. By continuing to emphasize product quality and health benefits they will maintain customer loyalty and create value for consumers. They also set themselves apart from competitors by having wholesome values and being socially responsible. This is appealing to many customers and creates loyalty and a positive company reputation and image. Whole Foods must continue to be social pioneers in the industry through support of environmental sustainability and other socially responsible causes to maintain the company image. They must differentiate their product by convincing new customers of the value of eating organic foods and continually develop unique organic products. A major reason they will be able to continually sustain providing quality organic products is due to the loyalty and relationships with suppliers. Their ability to attract highly skilled, creative employees who share the companys values has also played a role in differentiation. Whole Foods has primarily focused on a target market of affluent, educated consumers aware of the health benefits of organic products. Our recommendation is to broaden the target market focus to seek out additional customers who will switch from standard grocers to Whole Foods. This can be accomplished 28

through increased promotion and educating consumers who are unaware to the value of eating organic foods. Whole Foods is well established in many geographic areas in the US, Canada, and UK and can continue to grow the customer base in each location through increased promotion and education. 4.5 Long Term Objectives 4.5.1 Profitability Grow EPS by at least 15% and revenue by at least 12% over the next 5 years. 4.5.2 Productivity Increase operating margin to 5% over the next 5 years and continually improve. 4.5.3 Competitive Position Gain 5% market share in the traditional grocery industry over the next 5 years. 4.5.4 Employee Development Add one full week of training per year for all employees over the next 5 years. 4.5.5 Employee Relations Implement an employee feedback system over the next 5 years. 4.5.6 Technological Leadership Develop an online networking system for customers over the next 5 years. 4.5.7 Public Responsibility Every employee will contribute 8 hours of community service each year for 5 years. See Appendix H for in-depth analysis of objectives. 4.6 Grand Strategies Our recommendation is for Whole Foods to implement a concentrated growth strategy while also using a market development strategy to increase the targeted area for growth. Whole Foods has been successful by targeting a narrow target market of educated, wealthy consumers who choose to eat organic foods because of health benefits. They will continue to be successful in this market, yet it is necessary to broaden the target market to increase profitability and competitive position in the future. They can also use product development to broaden the target market to meet additional needs and taste preferences therefore attracting new customers. By targeting consumers who shop at traditional grocers with little awareness of the benefits of an organic diet, Whole Foods will take market share from large competitors. Increasing the customer base will increase profitability through revenue growth. Whole Foods is the gold standard for organic foods and will be able to convert consumers from standard products to premium organic products through increased promotion and educational awareness. By changing the content of promotion to focus on quality and benefits of organic products Whole Foods will develop new markets through increased differentiation from competitors products. They can also appeal to 29

new market segments by developing versions of current organic products to appeal to other taste preferences. This can be accomplished through product development, and utilizing feedback from consumers. They can also develop lower cost versions of current products to appeal to consumers who avoid Whole Foods solely because of costs. Attracting competitor customers is important to long term growth and competitive position. These two grand strategies are important to achieving the long term objectives previously addressed. Increasing the customer base and attracting competitors customers through market development and concentrated growth will increase profitability to the desired rate of annual growth. It will also take the targeted percentage of market share from competitors to improve competitive position. Implementing the technological objectives of increased awareness and promotion through online networking will assist to develop and broadened the market to concentrate growth within. The long term objective of increased community service will also attract customers due to the enhanced public image in communities where stores are located. Increased focus on employee feedback can potentially identify cost saving opportunities within existing processes, and the savings can be used for increased promotion. Increased employee development through additional training will improve productivity and employee satisfaction which are important to the long term growth and prosperity of Whole Foods. By focusing on broadening the target market and concentrating growth to the newly developed market Whole Foods will achieve and potentially exceed its long term goals. 4.7 Short Term Objectives |Short Term Obj. |Functional Tactics |Metric |Due Date |Accountability | |Improved Profitability | |Fully integrate Wild Oats Stores |Close underperforming stores, Remodel |Sales per square foot within |Quarterly status |Store operations | | |stores as needed, Provide training for|5% of existing stores |reports, 3/31/10 | | | |new employees | | | | |Reduce supplier turnover, create |Work backward in supply chain to |Average supplier contract |Quarterly status |Purchasing and Distribution | |lasting relationships with |cultivate supplier relationships and |duration increases by 10% |reports, 3/31/10 | | |suppliers |avoid poaching from larger suppliers, | | | | | |Support longer contract terms, help | | | | | |support supplier best practices, | | | | | |Leverage buying power within market | | | |

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|Reduce costs of 365 branded foods |Support green initiative to reduce |Reduce costs by 2% |Quarterly status |Private label operations | | |packaging, Create economies of scale, | |reports, 3/31/10 | | | |Integrate Wild Oats branded foods | | | | | |under the 365 brand | | | | |Competitive Position | |Become a source for local foods |Use regional buyers to establish |Increase local food sales to |Quarterly status |Regional buyers | | |mini-stores within larger stores |1% of sales |reports, 7/1/09 | | |Improve value position |Position 365 brand as low price, |Increase 365 brand sales by |Weekly sales reports |Marketing, Store directors | | |sustainable foods at sustainable |10% above |beginning 6/1/09 | | | |prices | | | | |Short Term Obj. |Functional Tactics |Metric |Due Date |Accountability | |Employee Development | |Increase Product Knowledge |Have each full-time employee become a |Increase product knowledge |Begin program by 10/1/09|Human Resources | | |specialist in a specific department, |scores by 10% | | | | |but devote 20% of their time in other | | | | | |departments within the store | | | | |Create 15% Time Share for |Have each full-time employee work at |Increase product knowledge |Begin program by 12/1/09|Human Resources | |corporate employees |the store level for 15% of their work |scores by 10% | | | | |week | | | | |Employee Relations | |Create improved employee feedback |Create team leaders at each location |Improve employee feedback |9/01/09 |Human Resources | |mechanism |to provide human resources with |rates by 10% | | | | |employee concerns | | | |

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|Technological Leadership | |Create a free mobile app to |Develop store locator, recipe finder, |100,000 app users, 20% |12/31/09 |Marketing | |connect with customers |carbon foot print tracker, special |increase in web traffic | | | | |promotions | | | | |Public Responsibility | |Improve awareness of existing |Re-introduce existing social programs |20% increase in awareness |7/1/10 |Marketing, | |programs |to the market | | |Program Directors, Store | | | | | |Directors | 4.8 Executive Compensation Whole Foods has created an innovative and unique executive compensation structure. Whole Foods unique compensation plan strikes a balance between cash salaries and stock options. This balance allows the company to attract executive talent while attempting to maximize shareholder wealth and reduce agency problems. However there are a few areas for improvement. First, the average tenure of the executive committees is 8.2 years primarily due to John Mackeys 29 year service. Without Mackey, the average tenure is only 3.76 years[64]. Although high turnover is common to high growth industries, incentives should be created to encourage executive longevity. Second, the stock bonus program only uses EVA over a single year as a performance measure. A multiyear EVA metric should also be evaluated to encourage long-term thinking and value creation. Finally, restricted stock should be used as a tool to support sustainable growth and service longevity. 4.9 Effective Strategy Implementation Whole Foods leadership follows a hierarchical design and works through a top-down approach. The company itself has a functional structure partitioning the firm by business process. Within the Store Operations function, the structure necessarily follows a divisional structure divided by geographical regions. Given this structure, strategy must be embraced at the corporate level first, then move down through the business level to the functional level. Many layers of management can dilute the strategy. It is imperative that the strategic vision be clearly and concisely articulated by the executives, preferably John Mackey. Employees at all levels need to understand their role in the organization as a whole and how they can contribute to achieving the BHAG. The culture at Whole Foods is based on an extensive set of corporate values all of which relate to the mission statement, Whole Foods Whole People Whole Planet. Two strong themes emerge from the values which will allow a clearly defined strategy to succeed. The first theme is a shared destiny. Whole Foods has instilled in its employees 32

a sense that the companys success is determined by the actions of its employees. The second theme is an entrepreneurial spirit. Whole Foods promotes empowered workers, self directed teams and self responsibility. This symbiotic relationship can be leveraged to encourage participation in strategy execution. 4.10 Control Recommendations 4.10.1 Premise Control Any strategy is based on an underlying set of premises. The key to successful strategy implementation is constantly monitoring the industry and remote environment for changes that could alter the premises. The recommended strategy is based on: 1. An optimistic view of the economy. The United States will emerge from the recession in 2010, unemployment will decrease and personal incomes will increase. 2. Increasing competition in the organics industry. New competitors are entering the market and larger players are entering the industry. 3. Customers see real value in what Whole Foods does. Customers are willing to pay a premium for sustainable foods. However, consumers are price conscious. 4.10.2 Strategic Surveillance Whole Foods must try to anticipate changes that would affect the strategy and its implementation. Managers should monitor small changes in the environment that may signal larger transformations. This surveillance must be consistent and broadly focused. 4.10.3 Special Alert Control The company has been hurt by unexpected and rapid increases in commodity prices and by sharp declines in consumer spending. Management needs to be prepared to quickly revise its strategy when facing an unexpected event. Whole Foods should be particularly mindful of events that may damage large portions of organic crops, reduce consumer spending and significantly increase the cost of inputs. 4.10.4 Implementation Control As people and resources are committed to the strategy, Whole Foods must design tactics and specific measures to assess effectiveness of the strategy. First, the strategy must constantly be evaluated during the early strategic thrusts. Often small problems in the early stages of a project can result in exponentially larger problems later in the project. Second, specific milestones must be established as waypoints. Each milestone must be clearly defined, measureable and be tied to specific dates. At each milestone, management must examine any deviations from the established standards and implement immediate corrective action. It is recommended that milestones be set at quarterly intervals. Appendix A 33

Whole Foods History The Early Years In 1978, twenty-five year old college dropout John Mackey and twenty-one year old Rene Lawson Hardy, borrowed $45,000 from family and friends to open the doors of a small natural foods store called SaferWay in Austin, Texas (the name being a spoof of Safeway, which operated stores under their own name in Austin at that time). When the couple got booted out of their apartment for storing food products there, they decided to simply live at the store. Since it was zoned commercial, there was no shower stall. Instead, they bathed in the Hobart dishwasher, which had an attached water hose. Two years later, John and Rene partnered with Craig Weller and Mark Skiles to merge SaferWay with their Clarksville Natural Grocery, resulting in the opening of the original Whole Foods Market on September 20, 1980. At 10,500 square feet and a staff of 19, this store was quite large in comparison to the standard health food store of the time. Less than a year later, on Memorial Day in 1981, the worst flood in 70 years devastated the city of Austin. Caught in the floodwaters, the store's inventory was wiped out and most of the equipment was damaged. The losses were approximately $400,000 and Whole Foods Market had no insurance. Customers and neighbors voluntarily joined the staff to repair and clean up the damage. Creditors, vendors and investors all provided breathing room for the store to get back on its feet and it re-opened only 28 days after the flood. Expansion Beginning in 1984, Whole Foods Market began its expansion out of Austin, first to Houston and Dallas and then into New Orleans with the purchase of Whole Food Company in 1988. In 1989, we expanded to the West Coast with a store in Palo Alto, California. While continuing to open new stores from the ground up, we fueled rapid growth by acquiring other natural foods chains throughout the 90's: Wellspring Grocery of North Carolina, Bread & Circus of Massachusetts and Rhode Island, Mrs. Gooch's Natural Foods Markets of Los Angeles, Bread of Life of Northern California, Fresh Fields Markets on the East Coast and in the Midwest, Florida Bread of Life stores, Detroit area Merchant of Vino stores, and Nature's Heartland of Boston. Whole Foods Market started our third decade with additional acquisitions of Food for Thought in Northern California and Harry's Farmers Market stores in Atlanta. In 2001, Whole Foods moved into Manhattan, generating a good deal of interest from the media and financial industries. 2002 saw an expansion into Canada and in 2004, Whole Foods Market entered the United Kingdom with the acquisition of seven Fresh & Wild stores. www.wholefoodsmarket.com Appendix B Whole Planet Foundation Our Mission The Whole Planet Foundation's mission is to create economic partnerships with the poor in those developing-world communities that supply our stores with product. Through innovative assistance for entrepreneurship - including direct microcredit loans and tangible support for other community partnership projects - we seek to unleash the 34

energy and creativity of every human being we work with in order to create wealth and prosperity in emerging economies. Whole Planet Foundation's Approach Whole Planet Foundation, a private, nonprofit organization established by Whole Foods Market, provides grants to microfinance institutions in Latin America, Africa and Asia who in turn develop and offer microenterprise loan programs, training and other financial services to the self-employed poor. Whole Planet Foundation is authorized to work in developing countries where Whole Foods Market sources products. Priority is given to projects that demonstrate financial leverage and potential financial sustainability over time. We look for strategic partnership opportunities in areas of relative political stability. History of the Foundation The Whole Planet Foundation represents a significant expansion of Whole Foods Market's mission to actively participate in our communities. With more than 270 stores and 54,000 Team Members, we now have the scale and scope to give back to the global community. The creation of this foundation directly connects Whole Foods Market customers and Team Members to the villages in developing countries that supply us with products. Establishing these community partnerships will contribute to the economic well-being of the communities where we source products. Founded The Whole Planet Foundation was established in October of 2005 issuing its first grant in April 2006, to Grameen Trust for the operation of a microfinance program in Costa Rica. Who Microcredit ignites the tiny economic engines of the rejected underclass of society. Once a large number of tiny engines start working, the stage can be set for bigger things. Whole Planet Foundation was formed with the entrepreneurial spirit of Whole Foods Market in partnership with Professor Muhammad Yunus and Grameen Bank, corecipients of 2006 Nobel Peace Prize. Yunus, founder of Bangladesh's Grameen Bank, is a pioneer of microcredit, a tool to empower the poor. In Professor Yunus's own words: "Microcredit ignites the tiny economic engines of the rejected underclass of society. Once a large number of tiny engines start working, the stage can be set for bigger things." We are also partnering with Fundacin Adelante, Pro Mujer and other microfinance institutions implementing microcredit programs. What Microloans are small loans - usually $200 or less - requiring no collateral or contract. They are offered to the poorest of the poor, with a focus on women, wanting to finance 35

self-employment projects that will generate income. Whole Planet Foundation is focusing efforts on the villages and rural communities that supply our stores with products such as tropical fruit, vegetables, tea, and coffee. Giving the poor in these communities access to credit through microloans will enable them to escape the vicious cycle of poverty by allowing them to use their own energy and creativity to help themselves. Why The Whole Planet Foundation was born out of Whole Foods Market's desire to give something back to those who have helped us succeed while focusing on the persistent problem of world poverty and hunger. www.wholeplanetfoundation.org Appendix C Green Movement Green Mission Wise moms everywhere remind us that actions speak louder than words. We can all talk about saving our planet but making those smart and sometimes challenging choices every day is whats going to get the job done. Whole Foods has been trying to make green choices since they opened their first store. They understand that companies can have a large impact on our environment. Whole Foods was the first major retailer to offset 100% of their energy use with wind energy credits. And they are glad to see that some of the worlds largest retailers are following the example theyve set in green building, the use of solar power, companywide recycling programs, internal green mission programs and support for organics. When more companies take green steps, we all win. Do they have a perfect track record? Nope. Have they found solutions for all of the green issues affecting their stores? Not yet. But they are working on it. They promise you that their team members are concerned, driven people who are searching for ways to do more every day. If that sounds passionate, well, it is. The people who work there from the CEO on down are passionate about food, good health and the future of this little blue dot that we all call home. The 3 R's: Reduce, Reuse, Recycle Everyone around Whole Foods strives to honor this golden rule of environmental stewardship. Reduce Their stores are taking the initiative in many areas to reduce their impact on the earth and its resources including: Implementing paperless ordering systems to reduce paper waste. Supporting carpooling and public transportation for team members. 36

 Implementing the use of power monitors and other technology to reduce our energy consumption. Using biodegradable supplies for food and wine sampling. Composting, which has reduced our landfill waste by up to 75% in some regions. Banning plastic grocery bags. Reuse They reuse material of all kinds whenever possible. For example: They strongly encourage using reusable grocery bags by providing affordable bags and by paying at least a nickel-per-bag refund. They are implementing the use of reusable and biodegradable plates and bowls in their dining areas. They save packing peanuts and donate them to local shipping stores, plus they work with suppliers to eliminate Styrofoam use in shipping. Recycle Theyre excited about our pioneering composting program. Spoiled produce and other biodegradable waste that used to go into landfills is now being backhauled by their delivery trucks to regional facilities where it is turned into compost. Then, they donate it to community gardens or sell it in their stores, reducing their landfill waste by up to 75%. Other examples of recycling initiatives include: Replacing disposable batteries with rechargeable ones. Holding company and community recycling drives for electronics. Using recycled paper with a high percentage of post-consumer waste whenever possible. Providing receptacles for glass and plastic recycling in their dining areas along with collection boxes in many stores for cell phones and ink jet cartridges. Alternative Energy Wind Power In January of 2006, they made their first landmark purchase of renewable energy credits from wind farms to offset 100% of the electricity used in all of their stores and other facilities in the United States and Canada. This green action and others earned them the Environmental Protection Agency Green Power Partner of the Year 2006 and 2007. Additionally, the Environmental Protection Agency recognized them for our green power purchases with a Green Power Leadership Award in 2004, 2005 and 2006. Solar and Biomass Individual stores from several regions supplement their wind credit purchase with power from solar panels and power generated by biomass. A typical solar installation can: Produce and save more than 2.2 million kilowatt hours over 20 years 37

 Result in more than 1,650 tons of CO2 emissions avoided, the equivalent of removing 440 cars from the roadways Reduce the impact on our country's power grids In 2002, their Berkeley store became the nation's first major food retailer to introduce solar energy as its primary lighting power source. More of their stores followed suit; for example their Brentwood, California, store uses solar energy for 24% of its power source and their Edgewater, New Jersey, store boosts an impressive array of 14,000 square feet of solar panels providing more than 20% of the stores power needs. Green Building Green building techniques conserve natural resources by reducing the use of virgin raw materials and minimizing the amount of toxic resins and volatile organic compounds (VOCs) off-gassed by traditional building materials such as laminates, paint and carpeting. Their store in Sarasota, Florida, received LEED (Leadership in Energy and Environmental Design) Silver Certification by the United States Green Building Council (USGBC), the first-ever environmentally-friendly supermarket designed in accordance with the LEED Green Building Rating System. New store construction includes innovative green materials such as MDF (medium density fiberboard), made from 100% recovered and recycled wood fiber, Marmoleum, a natural linoleum product and FSC (Forest Stewardship Council) Certified Wood. Organics Organics is at the root of everything they do. Organic agriculture produces food that promotes the health of consumers, farmers and the earth, with an eye to maintaining that health far into the future. Organic farming is a hopeful enterprise, practiced with compassion and empathy for the land and the creatures upon it. Organic agriculture: Builds healthy, vital soil that's rich with microorganisms and nutrients so it holds moisture, resists erosion and absorbs CO2 to help thwart global warming. Promotes biodiversity, reducing the danger of large scale crop failure and plant disease. Relies on natural prevention instead of poison. No persistent pesticides, fungicides or herbicides are allowed on organic farms. Preserves the integrity of meat and dairy products by prohibiting the use of antibiotics and artificial growth hormones. Honors the role that domestic animals play in the cycle of life. Protects the safety of food and the integrity of soil and crops by prohibiting the use of genetically modified organisms (GMOs). Safeguards water quality by eliminating harmful runoff from artificial fertilizers and other toxic chemicals. Saves energy through reduced reliance on fossil fuels. Biodegradable food packaging They are in the process of replacing traditional plastic and paper prepared food containers and utensils with all-natural fiber packaging that is environmentally friendly. Made from renewable resources such as sugar cane pulp, corn 38

starch and bamboo, they are completely compostable and, because they are unbleached, free from chlorine and dioxins. Biodiesel They are gradually converting their truck fleet to biodiesel fuels, reducing CO2 emissions into the atmosphere. Their fleet is also being fitted with aerodynamic aprons to cut down on wind resistance resulting in less fuel consumption. These trucks also use a fuel-saving (and emissions-cutting) system that allows the engine to be turned off completely at loading and delivery, rather than remain idling. Water Conservation Some stores converted to flush-less urinals; each will save approximately 40,000 gallons of water per year (average use). 5% Day Donations A significant number of their individual stores 5% Days have an environmental mission helping clean up air, rivers, oceans and landfills, to name a few. Cleaning Supplies Some stores are using Green Seal certified cleaning supplies and others are transitioning to the use of environmentally friendly cleaning and maintenance products. Printing Standards They carefully evaluate the need for everything they print, and when they do print, they insist on recycled paper, soy inks and solvent-free printing processes. Appendix D Empowering Work Environments Their success is dependent upon the collective energy and intelligence of all of their Team Members. Whole Foods strives to create a work environment where motivated Team Members can flourish and succeed to their highest potential. They appreciate effort and reward results. Self-Responsibility They take responsibility for their own success and failures. They celebrate success and see failures as opportunities for growth. They recognize that they are responsible for their own happiness and success. Self-Directed Teams The fundamental work unit of Whole Foods is the self-directed Team. Teams meet regularly to discuss issues, solve problems and appreciate each others' contributions. Each team member belongs to a Team. Open & Timely Information They believe knowledge is power and they support their Team Members' right to access information that impacts their jobs. Their books are open to their Team Members, including their annual individual compensation report. They also recognize everyone's right to be listened to and heard regardless of their point of view. Incremental Progress Their company continually improves through unleashing the collective creativity and intelligence of all of their Team Members. They recognize that everyone has a contribution to make. They keep getting better at what they do. Shared Fate They recognize there is a community of interest among all of their stakeholders. There are no entitlements; they share together in their collective fate. To that end they have a salary cap that limits the compensation (wages plus profit incentive bonuses) of any

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Team Member to nineteen times the average total compensation of all full-time Team Members in the company. www.wholefoodsmarket.com Appendix E The External Environment Remote Environment There are five factors which compose Whole Foods remote environment: economic, social, political, technological, and ecological. In regards to the current economic environment, food prices are getting higher, consumer spending is decreasing, there are extremely high levels of unemployment, and there has been a contraction of GNP and GDP. All of these events can be attributed to the current economic crisis and are all important things for Whole Foods to consider when evaluating their strategy. There are a number of things occurring in the external environment, socially, right now as well. First of all, consumers are becoming more and more health-conscious. This is an extremely important attribute considering Whole Foods healthy options. Additionally, the green movement is becoming more and more important to consumers. As a green corporation, Whole Foods will have an excellent chance of bringing in these conscious consumers. Finally, philanthropy and social awareness is becoming more important to consumers. With the changing political times, there are important political factors that Whole Foods should consider. First of all, the new administration is liberal and tax increases should be expected for Whole Foods. Additionally, the recent economic stimulus plan could have strong impacts on Whole Foods. The stimulus plan put more money into the economy and included a number of incentives for green consumers. However, the economic stimulus plan also created even more debt for the United States and is something Whole Foods should consider when forecasting into the future. Whole Foods should also prepare for any possible future encounters with the Federal Trade Commission and, finally, should take into account the possibility of future FDA food labeling requirements. Whole Foods should also consider technological factors in its remote environment. As technology becomes more and more advanced, there will be improvements in communication, distribution, and agriculture. All of the improvements will help to make Whole Foods more efficient in the future. Finally, as a company that is extremely focused on a Whole Planet, Whole Foods should take ecological factors into account. As discussed earlier, the green movement becomes more and more popular all the time. This increasing popularity will continue to bring in customers for Whole Foods. Additionally, more emphasis is being placed ecologically on the reduction of carbon footprints and renewable energy. Whole Foods should continue to make strides in these areas. Finally, the increased emphasis worldwide on eco-efficiency will prove extremely important for Whole Foods, as they continue to lead the way in this area. Industry Environment As defined by Michael Porter, there are five forces that shape competition in an industry. Coping with these competitive forces in an industry is the essence of strategy formulation. See the chart below regarding the way these forces drive competition in

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the grocery industry and whether these forces can be considered strong or weak in this industry. Operating Environment Whole Foods operating environment comprises factors in the competitive situation that affect a firms success in acquiring needed resources.*65+ These factors include their competitive position, their customer profiles, their suppliers, their creditors, and the labor market. The first factor of Whole Foods operating environment is their competitive position. Although Whole Foods has a strong market share, experience, effectiveness, strong personnel, community reputation, and more of the competitive position criteria often included in an analysis, Whole Foods has been losing some of their competitive position due to increasing organic lines in major grocery chains and major price cuts amongst all retailers in the industry. Another factor to consider is Whole Foods customer profiles. Whole Foods does extensive work researching their customer profiles, as discussed in Section 1.3.3, and these customer profiles are not likely to change. An additional factor for Whole Foods to consider is their relationships with their suppliers. Although input prices are increasing throughout the industry and commodity inputs in the value chain are expected to increase in price sometime in the future, Whole Foods maintains extremely strong relationships with its suppliers. Another factor for Whole Foods to consider is its relationship with its creditors. With the Wild Oats acquisition, Whole Foods acquired a great deal of debt. Additionally, credit is extremely hard to come by in the current economic crisis. However, as long as Whole Foods continues to pay off their debt, they should be able to maintain their relationships with creditors and easily attain credit in the future as they work to expand and grow. The final factor in Whole Foods operating environment is the nature of the labor market. Although Whole Foods is currently anti-union, there have been threats of unions creeping up recently. However, with the current high unemployment, labor market conditions are favorable for employers due to the availability of strong workers. Due to its reputation, wages, and benefits, Whole Foods should have no problem attracting and keeping strong, creative, quality employees, even if they do not currently unionize their workers. Appendix F Grand Strategy Selection Matrix[66] Appendix G SWOT Analysis Strengths Reputation as socially and environmentally responsible Whole Foods has carefully crafted its image as a socially and environmentally responsible company. The core values are reflected in the mission statement Whole Foods, Whole People, Whole Planet. The mission statement is prominently displayed in stores, online and on promotional material. Whole Foods strives to purchase organic 41

products whenever possible. Suppliers must meet strict guidelines before their products can even be considered for distribution. Whole Foods supports a wide variety environmental and social initiatives through company programs and charities. Focused growth strategy The company targets a very specific customer. Before new stores are constructed, Whole Foods does extensive market research about potential locations. The company further targets its customer by tailoring its in-store inventory to the unique needs of the geographic region. Large Portfolio of Company Branded Products Whole Foods has created a wide variety of company branded products from seafood to beauty. The company produces products under the 365 Everyday Value, Whole Foods Market, Allegro Coffee and other brands. Additionally, many stores offer foods prepared in-house which provide customers with fresh alternatives to packaged foods. Weaknesses Slow Integration of Wilds Oats Stores Whole Foods acquired Wild Oats in 2007. The acquisition was challenged by the FTC and was settled only a month ago. Under the agreement with the FTC, Whole Foods must sell 31 stores in 19 states and relinquish any rights to the Wild Oats brand. Although most of the acquired stores now carry the Whole Foods Market name, the company may have to do extensive remodeling to bring the stores up to standard. Since Wild Oats and Whole Foods used to compete in similar neighborhoods, many stores may become self cannibalizing. Fragmented Supply Chain Organically grown foods represent a small percentage of agriculture industry. Therefore, Whole Foods must rely on a patchwork of smaller suppliers to stock its store shelves. The result is a reduced buying power for the company. Weak International Operations Whole Foods operates seven stores in Canada and seven stores in London. The stores were acquired through acquisitions of competitors. Such small scale operations make it difficult to obtain economies of scale and have resulted in higher prices. Established competitors are better positioned to offer lower prices and better value. In tough economic times, it will be difficult for Whole Foods to expand internationally and reduce costs in foreign markets. Perceived as Whole Paycheck Whole Foods has developed a reputation as Whole Paycheck. Customers perceive the company as charging excessive prices without delivering additional value. The company has done little to counter this image. The perception of high prices will negatively impact the companys sales during hard economic times. Opportunities Expansion in the UK and Canada Europe represents 47.40% of the market value of the world wide organics industry and sales of organic foods and drinks is expected to double in the next five years[67]. This provide an opportunity for Whole Foods to capitalize on increasing sales while building economies of scale. Value Proposition

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Whole Foods extensive private label portfolio allows the company to create a value proposition and reduce product prices. The 365 Everyday Value brand could be used as an opening offer to pull customers in to stores. Advertising Whole Foods currently does little traditional advertising, choosing to rely primarily on word-of-mouth. The company has an opportunity to promote its position as a leader in the organics industry. Increased advertising would also allow the company to explain the extra value of its products. Threats Increased Competition Traditional grocers are moving into the organics market by carrying an increased number of organic products in their stores. Many stores are emulating the look and feel of Whole Foods Market stores. Large, established competitors like Wal-Mart could easily capture a significant segment of the organics market. These competitors could also leverage their buying power and established supply chains to undercut Whole Foods prices. Economic Recession The US officially entered a recession in early 2008. This has created increased unemployment and decreased spending. Customers may perceive Whole Foods and organic products as luxuries and switch to more traditional and lower priced items. Maturing Organics Industry For the past 10 years, growth in the organics market has exceeded 15% annually. Datamonitors 2009 report on the industry anticipates the annual growth rate to decline to 8% in the next five years. Whole Foods may not be able to sustain its ambitious growth without expanding into new markets or adding additional products. Appendix H Long-Term Objectives Profitability Over the next 5 years Whole Foods needs to increase profitability through reducing costs and increasing revenues by gaining market share and customers. Although the company experienced very rapid earnings growth previously, it is more realistic to strive for year over year earnings per share growth of at least 15%, with annual revenue growth of at least 12%. Since last years profitability was affected by the economic recession, 15% EPS growth should be attainable in 2009. Beyond Productivity To increase long term productivity over the next 5 years Whole Foods must focus on efficiency and cost savings. They can also focus on reducing consumer complaints to ensure customer satisfaction and retention. To reduce costs Whole Foods can streamline logistics systems and develop efficiencies in production and store management. This can be measured through an increase in operating margin. According to the company income statements from 2004-2009 the current operating margin is 3% while the 5yr average is 4.8%. By reducing costs operating margin should be at least 4.8% with 5% being a solid benchmark to achieve. This figure of 5% should continually be improved upon. Whole Foods can implement a customer relationship management system to increase responsiveness to customer complaints and improve customer satisfaction. 43

Competitive Position Competitive position is very important for Whole Foods long term success. They are a leader in the traditional Organic Grocery Store, yet in the overall grocery segment they are only a small player. Through market development and concentrated growth they can take market share from traditional grocers. Over the next 5 years an achievable goal would be to gain 5% market share in the traditional grocery store industry while remaining the leader in organic products. Increased promotion and consumer education can increase awareness to the benefits of an organic diet and convert customers who only shopped at traditional grocers to switch to Whole Foods. Employee Development Continual employee development is crucial to the long term health of Whole Foods. By increasing employee training and education employees will increase productivity and contribute more useful ideas for future innovation and growth. Employees are a critical focus of Whole Foods and they emphasis the term Whole People in their mission statement. Increasing employee training over the next 5 years by giving every employee one additional week of education and training is a reasonable objective, and will encourage employee development. Each year the topic will be customized to meet the developmental objectives of each employee. Employees should be educated on not only their specific job duties, but also on related duties that are inputs or outputs related to their efforts. The employees can be quizzed at the end of each week of training and the employees in the top 10% of grading can be given an award. These weeks of training will increase an employees understanding of the whole process as it relates to their individual jobs, and will assist in employee development. Employee Relations Employee satisfaction is very important to maintaining organizational morale and supporting the continual growth of the company. Whole Foods emphasizes open communications and has thus far been effective in promoting positive employee relations. One way to improve even further on this is to implement an employee feedback system over the next 5 years in which employees contribute ideas and feedback on the organizations procedures and processes. This could lead to improvements in processes and could support cost reductions. It also would give employees a chance to vent frustrations and voice opinions on matters that could improve employee satisfaction and morale. Each employee should offer at least three comments per year in an attempt to encourage feedback and communication. Technological Leadership The increased emphasis on technological innovation has created opportunities that all companies should take advantage of. The recent online networking craze over the past several years has offered great opportunities for interaction between consumers and businesses. Over the next 5 years Whole Foods can develop an online networking system linked to their website in which customers can voice complaints and suggestions to be addressed in the future. It can also provide educational videos and recipes arranged by categories specific to the products offered at Whole Foods. The educational component can increase consumer awareness about organic products. The objective can be measurable by the amount of traffic to the site and should increase by at least 20% each year for the next 5 years. Public Responsibility Whole Foods has been a leader in public responsibility particularly for environmental issues. They have already developed several committees and 44

organizations, and should continue to support these initiatives. Over the next 5 years Whole Foods can support local communities by having each employee perform one 8 hour workday of community service in the community where each store is located. This will enhance public image on a community level and can increase customer loyalty and sales at each location. WORKS CITED About Whole Foods Market | WholeFoodsMarket.com. Whole Foods Market: Natural and Organic Grocery. 2009. 04 Mar. 2009 . A Big Delivery For Whole Foods. WDIV ClickOnDetroit.com. 9 Mar. 2009 . Dess, Gregory G., and Joseph C. Picken. Changing roles: Leadership in the 21st century. Organizational Dynamics (2000). ScienceDirect. Auraria Library, Denver. 8 Mar. 2009 . Dvorak, Phred. Limits on Executive Pay: Easy to Set, Hard to Keep. Yahoo! Finance. 20 Apr. 2007. 09 Mar. 2009 . Fair Trade Certified | Transfair USA | Press Releases. Transfair USA | Welcome. 17 Mar. 2009 . Fishman, Charles. Whole Foods Is All Teams. Fast Company. 18 Dec. 2007. 09 Mar. 2009 . Green Mission | WholeFoodsMarket.com. Whole Foods Market: Natural and Organic Grocery. 2009. 04 Mar. 2009 . Gottschalk, Mary. Whole Foods locations still a go; construction costs cause delay. Mercury News 16 Dec. 2008. 8 Mar. 2009 . Hamner, Sussana, and Tom McNichol. Ripping up the rules of management. Business 2.0 May 2007. CNNMoney. 8 Mar. 2009 . Hytrek, Nick. Whole Foods Grocery Chain to Buy Locally Produced Organic Food from Innovative Iowa County. Sioux City Journal 14 Sept. 2006. Organic Consumers Association. 28 Mar. 2009 . Leadership Team | WholeFoodsMarket.com. Whole Foods Market: Natural and Organic Grocery. 2009. 04 Mar. 2009 . Moore, Angela. Whole Foods profit slips, but shares rise. Market Watch. 31 July 2007. 4 Apr. 2009 100 Best Companies to Work For: Whole Foods Market. Fortune Magazine. 02 Feb. 2009. 04 Mar. 2009 Organic Food Industry Profile. Organic Food Industry Profile. 08 Mar. 2009. Auraria Library. 10 Apr. 2009 . Our Core Values | WholeFoodsMarket.com. Whole Foods Market: Natural and Organic Grocery. 2009. 04 Mar. 2009 . "Our History | WholeFoodsMarket.com." Whole Foods Market: Natural and Organic Grocery. 4 Mar. 2009 . Pearce, John A., and Richard B. Robinson. Formulation, Implementation, and Control of Competitive Strategy. 11th ed. New York: McGraw-Hill/Irwin, 2009. Porter, Michael E., and Mark R. Kramer. "Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility." Harvard Business Review 84 (2006): 78-92. Academic Source Premier. EBSCOhost. Auraria Library, Denver. 7 Mar. 2009 .

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Real Estate Development | WholeFoodsMarket.com. Whole Foods Market: Natural and Organic Grocery. 30 Mar. 2009 . "Section 14A Whole Foods." EDGAR. 26 Jan. 2009. Securities and Exchange Commission. 10 Apr. 2009 . Shaddock, Samantha. Grocery Stocks: Safeway Sacked. Stock Quotes, Financial Market & Wall Street News. 26 Feb. 2009. 04 Mar. 2009 . Tapscott, Don. The High Performance Enterprise: Bridging the Strategy-Execution Gap. Rep. Sept. 2002. 8 Mar. 2009 . The Winning Ways of Whole Foods Market. Brand Autopsy. 16 Oct. 2005. 08 Mar. 2009 . WFMI: Major Holders for Whole Foods Market, Inc. Yahoo! Finance. 04 Mar. 2009. 04 Mar. 2009 . Whole Foods 2008 Annual Report. Rep. 2008. Whole Foods Market. 7 Mar. 2009 . "Whole Foods Market, Inc." Hoover. EBSCO. Auraria Library, Denver. 15 Apr. 2008. Keyword: Whole Food Market. Whole Foods Profit. Business, financial, personal finance news - CNNMoney.com. 18 Feb. 2009. 04 Mar. 2009 . Wojcik, Joanne. "Bonuses, commissions spur workers to better health | News, Analysis & Articles." Business Insurance. 09 Mar. 2009 . Zolezzi, Anthony. "Company Insights, Whole Foods vs. Wild Oats; Anthony Zolezzi.com." Anthony Zolezzi.com; Organically created tools for positive change. 04 Mar. 2009 . ----------------------*1+ Our History | WholeFoodsMarket.com. *2+ About Whole Foods Market | WholeFoodsMarket.com. *3+ About Whole Foods Market | WholeFoodsMarket.com. *4+ About Whole Foods Market | WholeFoodsMarket.com. *5+ About Whole Foods Market | WholeFoodsMarket.com. *6+ About Whole Foods Market | WholeFoodsMarket.com. *7+ Green Mission | WholeFoodsMarket.com. *8+ Our Core Values | WholeFoodsMarket.com. *9+ WFMI: Major Holders for Whole Foods Market, Inc. [10] Zolezzi, Anthony. *11+ 100 Best Companies to Work For: Whole Foods Market. *12+ Whole Foods Profit. *13+ Whole Foods Profit. [14] Porter, Michael E., and Mark R. Kramer. *15+ A Big Delivery For Whole Foods. *16+ Fair Trade Certified | Transfair USA | Press Releases. [17] Moore, Angela. *18+ Fair Trade Certified | Transfair USA | Press Releases. [19] Whole Foods 2008 Annual Report. [20] Whole Foods 2008 Annual Report. [21] Gottschalk, Mary. [22] Whole Foods 2008 Annual Report. *23+ The Winning Ways of Whole Foods Market. [24] Tapscott, Don. [25] Hamner, Sussana, and Tom McNichol. [26] Dvorak, Phred. 46

[27] Wojcik, Joanne. *28+ The Winning Ways of Whole Foods Market. [29] Fishman, Charles. [30] Leadership Team | WholeFoodsMarket.com [31] Dess, Gregory G., and Joseph C. Picken. [32] Whole Foods 2008 Annual Report. *33+ Real Estate Development | WholeFoodsMarket.com. [34] Hytrek, Nick. *35+ About Whole Foods Market | WholeFoodsMarket.com. *36+ Our History | WholeFoodsMarket.com. [37] Pearce, John A., and Richard B. Robinson. [38] Pearce, John A., and Richard B. Robinson. [39] Pearce, John A., and Richard B. Robinson. [40] Pearce, John A., and Richard B. Robinson. [41] Pearce, John A., and Richard B. Robinson. [42] Pearce, John A., and Richard B. Robinson. [43] Pearce, John A., and Richard B. Robinson. *44+ Fair Trade Certified | Transfair USA | Press Releases. [45] Pearce, John A., and Richard B. Robinson. [46] Pearce, John A., and Richard B. Robinson. [47] Whole Foods 2008 Annual Report. [48] Whole Foods 2008 Annual Report. [49] Whole Foods 2008 Annual Report. [50] Whole Foods 2008 Annual Report. *51+ The Winning Ways of Whole Foods Market. *52+ The Winning Ways of Whole Foods Market. [53] Hamner, Sussana, and Tom McNichol. [54] Dvorak, Phred. [55] Whole Foods 2008 Annual Report. *56+ The Winning Ways of Whole Foods Market. [57] Fishman, Charles. [58] Whole Foods 2008 Annual Report. [59] Whole Foods 2008 Annual Report. [60] Whole Foods 2008 Annual Report. [61] Whole Foods 2008 Annual Report. [62] Whole Foods 2008 Annual Report. [63] Whole Foods 2008 Annual Report. [64] "Whole Foods Market, Inc." [65] Pearce, John A., and Richard B. Robinson. [66] Pearce, John A., and Richard B. Robinson. [67] "Organic Food Industry Profile." ----------------------Remote Environment Economic Factors - higher food prices 47

- consumer spending - high unemployment - contraction of GNP & GDP Social Factors - health-conscious consumers - green movement -emphasis on philanthropy Political Factors - liberal administration - potential tax increases - FTC regulations - FDA food labeling requirements - economic stimulus plan incentives & future impacts Technological Factors - agricultural, distribution, and communication improvements - social networking & blogging Ecological Factors - green movement - eco-efficiency - renewable energy - reducing carbon footprint - agricultural improvements THE FIRM: Whole Foods Market Operating Environment Competitive Position - losing market share - major grocery chains increasing organic and lowering prices Customer Profiles - Whole Foods works with customer profiles, as discussed in section 1.3.3 - these will not change much Suppliers - prices of commodity inputs in the value chain will increase down the line - energy costs increasing Creditors - credit availability is rough for everyone and will continue to be for awhile Labor Market - threats of unions - current labor conditions (with high unemployment) are favorable for employers Industry Environment Threat of Entry 48

- low threat due to difficulty of economies of scale and access to unique distribution channels - weak force Powerful Suppliers - suppliers are not powerful due to size and low concentration - weak force Powerful Buyers - buyers are powerful due to standard industry products and significant buyer expenditure on the product - strong force Substitute Products - large availability of substitute products - strong force Jockeying for Position - lots of jockeying for position with numerous competitors who are roughly equal in size and power - strong force Threat of substitution = STRONG Substitutes Suppliers Determinants of Supplier Power = WEAK Differentiation of inputs very little differentiation Concentration less concentrated than industry Presence of substitutes many substitutes available Switching costs probably high for industry Forward integration little threat of integrating to major players level Importance of volume to supplier industrys business is crucial to supplier Buyers Determinants of Buyer Power = STRONG Concentration buyers purchase in large volumes Switching costs very low Product differentiation little differentiation within industry Substitute products many substitutes Buyer profits buyer earns low profits, will want to lower purchasing costs Backwards integration low possibility, but consumers could grow own food at home New Entrants Industry Competitors Intensity of Rivalry 49

Determinants of Rivalry = STRONG Industry growth - slow Fixed costs/perishable products perishable products=temptation to cut prices Concentration and balance competitors roughly equal in size and power Differentiation little differentiation within industry Switching Costs very low Diversity of competitors diverse personalities of competitors Exit barriers high due to size Determinants of Entry = WEAK Economies of scale large in grocery industry big players Proprietary product differences basic food products little differentiation Brand identity easy to overcome Switching costs very low Capital requirements need large amounts of capital to compete Access to distribution limited channels Absolute cost advantages high learning curve Government policy FDA, but little else Concentrated growth Market development Product development Innovation Horizontal integration Concentric diversification Joint venture Vertical integration Conglomerate diversification Turnaround or retrenchment Divestiture Liquidation IV III I II Internal (redirected resources within the firm) Maximize strengths 50

External (acquisition or merger for resource capability) Overcome weakness

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