According to its annual report for the year 2010, Whole Foods Market (WF) is the first and leading certified organic grocer in the United States of America. The mission of the company is to promote life and health of all individuals around the globe by supplying them with high quality wholesome food products available in the market. The company fulfills its mission by advocating for organically grown food products and advocating for sustainability of the ecosystem by the food producers. By the year 2010, the company operated more than 300 stores within the USA and more than 10 stores across the UK and Canada (Whole Foods Market, 2010).
Trends in Retailing of Organic Foods and the Impact of these Trends on Whole Foods Market
Studies indicate that one of the trends affecting the retailing of organic foods is an increase in the market for organic food products across all distribution channels (Dimitr & Oberholtzer, 2009). For instance, the year 2009, sales for organic foods was approximately US $68 billion, a 10 percent increase from the previous year. The same trend was observed in the year 2010. The likely impact of this trend on WF is increased market for its products. This means that the company is likely to experience more annual sales within the next five or more years, before more competitors gain entry into the market. Another trend affecting the retailing of organic foods is requirement by the US department of Agriculture (USDA) that all manufacturers of organic foods should label their products as organic (Dimitr & Oberholtzer, 2009). Precisely, USDA requires that all food products labeled as organic should contain 95 percent organic products. Food products with less than 70 percent content of the organic ingredients should not be labeled ‘organic’ and they should not contain the USDA seal. The likely impact of this trend to WF is the need to focus on the production of purely organic food products in order to obtain USDA seal on its products. This is likely to increase its marketability among various groups of consumers, hence gain the competitive advantage over its competitors who process food products whose ingredients contain 70 percent (or less) of organic products.
Another emerging trend in retailing of organic foods is an entry of many participants in the market (Dimitr & Oberholtzer, 2009). Currently, the top participants in the organic food market include Kraft, General Mills, Dean Foods, Del Monte, Tyson Foods and Campbell Soup, among others. This trend indicates that the market for organic foods is perfectly competitive: many buyers and sellers. Therefore, there are limited barriers of entry and exit to the market. The most likely impact of this trend to WF is increased competition in the near future. Therefore, the company needs to develop better marketing strategies to enable them remain competitive in the future.
The Competitive Environment of Whole Foods Market
According to Dimitr & Oberholtzer (2009), WF is ranked the 24th in the grocery retail market. Some of the top retailers of grocery products are Wal-Mart, Costco, and Kroger. Studies indicate that the percentage of sales made by WF makes a very small percentage of total sales made by the top grocers in the US market. However, when classified under the Natural and Organic Foods market segment, the company ranks the first. This is because it offers a large selection of natural and organic food products than any other participant in this particular segment. Based on this analysis, it is clear that the company is relatively competitive in the Natural and Organic Foods segment than in the entire grocery market.
Porter’s model provides five forces, which affect the competitiveness of any given firm in the industry in which it operates. One of these forces is the competitive rivalry. The intensity of rivalry in a market is determined by concentration ratio, which indicates the size of the market held by the top three largest firms in a given market (Porter’s Five Forces Model, 2009). In the market in which WF operates, the top three firms hold 9.4 percent, 7.8 percent, and 4.3 percent for Wal-Mart, Kroger, and Costco respectively. It is clear that the top three firms do not hold big market shares in the grocery market. This means that the level of rivalry in the grocery market is low, but the number of rivals (competitors) is high.
Porter’s model also provides the existence of substitute goods as another force, which affects the competitiveness of any given firm. Existence of substitute goods generally affects an industry through the price competition. In the grocery market, substitute products for natural and organic food products are the non-organic food products. In its 2010 annual report, WF refers to a survey conducted by its R&D department, which found that only 36.7 percent of grocery consumers were loyal to non-organic foods. The survey found that many consumers were concerned about the purity and presence of pesticides in their foods, and the environmental impact of non-organic food production. This indicates that WF is not likely to experience a heavy impact from the threat of substitute products.
The bargaining power of buyers in the natural and organic foods segment can be said to be low. This is because, despite the presence of many suppliers of organic food products in the market, the prices of these products remain high. Therefore, WF is not likely to be heavily affected by the bargaining power of the buyers. However, the bargaining power of the suppliers in the grocery market is strong. This is because of the presence of high number of suppliers, and possible forward integration between suppliers of raw material, processers/manufacturers, and retailers. Threat of new entrants is the biggest force, which is likely to affect the competitiveness of WF. This is because, as earlier mentioned, the market in which it operates is perfectly competitive and there exists no entry barriers.
Environmental Factor that Poses the Most Significant Threat to Whole Foods and what the Company Can Do To Combat It
The environmental factor that poses the most significant threat to WF is the entry of Tesco’s subsidiary: Fresh and Easy Neighborhood into the Natural and Organic Foods segment. This is because its presence in the market is likely to slow the growth of the company in this segment through competition. However, WF can combat this threat by creating alliances with individual grocers of natural and organic products. This would result in a creation of strong market for health groceries, hence beating competition forces driven by retailers of non-organic substitutes.
One of the greatest strengths of whole foods is the ability to supply over 30,000 varieties of organic and natural food products. In addition, the company offers a very exiting shopping experience for its customers, which its competitors have so far not been able to duplicate (Matson, 2011). However, the company does not have strong advertising and marketing programs. This weakness has prevented the company from expanding its market share through intense advertisement and marketing. Another weakness is presence of a very huge debt with external financiers: US$700 million (2010 Annual report, 2010).
On the other hand, the company has an opportunity to form partnerships/alliances with the individual grocers in the US, in order to strengthen its marketing activities, as well as acquire economies of scale. Furthermore, the company’s biggest opportunity is its ability to expand its customer base given the fact that many consumers are becoming conscious about their health and the environment. However, the company should develop strategies for coping with the threat of competitors in the market, specifically the giant retailers such as Wal-Mart (Matson, 2011).
How Whole Foods can use its Strengths and Opportunities to achieve a Sustained Competitive Advantage
As indicated above, one of the greatest strengths that WF has is ability to supply its customers with more than 30,000 varieties of organic and natural food products. The company can utilize its strength to achieve the competitive advantage by ensuring that it continues to surprise its customers with more varieties of organic food items including indigenous and international organic food items. Besides, the company can display to its consumers the various method of preparing the various organic food items into the delicious meals. In addition, the company can utilize its opportunity of expanding its customer base by offering more ‘Disneyland like’ shopping experiences to its customers, which are fun and reflect its mission to provide quality and healthy organic food items to its customers (Matson, 2011). This would help to attract more and more customers to its stores.