UNIVERSITAS INDONESIA

CASE STUDY

WHOLE FOODS MARKET IN 2008:

Vision, Core Values, and Strategy

(Arthur A. Thompson, The University of Alabama)

MANAJEMEN STRATEJIK DAN KEPEMIMPINAN

Group 2

Chitarani Kartikadewi 1406524682

Desi Susanti 1406524695

Karina Ayu Ditriani 1406524713

Rahcoyoning Widianingrum 1406590570FAKULTAS EKONOMI

PROGRAM MAKSI-PPAK

FEBRUARY 2015

COMPANY BACKGROUND

Whole Foods Market was founded in Austin, Texas, when four local business people decided the natural foods industry was ready for a supermarket format. Their founders were John Mackey and Renee Lawson Hardy, owners of Safer Way Natural Foods, and Craig Weller and Mark Skiles, owners of Clarksville Natural Grocery. The original Whole Foods Market opened in 1980 with a staff of only 19 people. It was an immediate success. At the time, there were less than half a dozen natural food supermarkets in the United States. It has grown in leaps and bounds since the first store opened. Today, they are the worlds leader in natural and organic foods, with more than 310 stores in the North America and the United Kingdom (About Whole Foods Market). During its 31-year history, Whole Foods Market has been a leader in the natural and organic food movement across the United States, helping the industry gain acceptance among growing numbers of consumer concerned about the food they eat. The company seeks out the finest natural and organic foods available, maintains the strictest quality standards in the industry, and has an unshakeable commitment to sustainable agriculture. Add that to the excitement and fun they bring to shopping for groceries, and you start to get a sense of what they are all about. The growth of the company has been accomplished through mergers and acquisitions. The Company has developed to be an international Group of Retailers and Supermarkets, the Whole Food Group consists of:

Whole Food;s rapid growth and market success had much to do with having Remained uniquely mission-driven company, highly selective about what we sell, dedicated to our core values and stringent quality standards and committed to sustainable agriculture. At Whole Foods Market, "healthy" means a whole lot more. It goes beyond good for people, to also encompass the greater good. The Core Values are:

1. Sell the Highest Quality Natural and Organic Products Available

2. Satisfy, Delight and Nourish Our Customers

3. Support Team Member Excellence and Happiness

4. Create Wealth Through Profits & Growth

5. Serve and Support Our Local and Global Communities

6. Practice and Advance Environmental Stewardship

7. Create Ongoing Win-Win Partnerships with Our Suppliers

8. Promote the Health of Our Stakeholders Through Healthy Eating Education

Not like any other supermarkets, Whole Foods Market doesnt sell just anything. The products sold must meet their standards. From basic ingredients to farm animal welfare, seafood sustainability, body care, cleaning products and more.

Whole Foods Market motto is in terms of Whole Foods, Whole People, Whole Planet.

Whole Foods:This means that the company searches for the highest quality, least processed, most flavorful and natural foods possible because they believe that food in its purest state unadulterated by artificial additives, sweeteners, colorings and preservatives is the best tasting and most nutritious food there is.

Whole People: They see people as their company. Their employees are passionate about healthy food and a healthy planet. Employees also take full advantage of Whole Foods decentralized, self-directed team culture and create a respectful workplace where people are treated fairly and are highly motivated to succeed.

Whole Planet: The company is committed to helping take care of the world around us, and their active support of organic farming and sustainable agriculture helps protect the planet. And while they assist global neighbors through their Whole Planet Foundation micro-lending operations, they also step out the back door of each store to support food banks, sponsor neighborhood events and donate to local non-profit groups.

The vision of the Company is Become an international brand synonymous not just with natural and organic foods but also with being the best food retailer in every community in which Whole Foods stores were located..

The mission is to offer the highest quality, least processed, most flavorful and naturally preserved foods available, to achieve the purpose of helping support the health, well-being, and healing of both people, customers, team members, and business organizations in general and the planet.Market expansionOne of the important events that happened to Whole Foods was in 2001. Whole foods acquired most of Harrys Farmers Market Inc.s assets for $35 million. Whole Foods at the time had current assets totaling $144.7 million. This acquisition increased Whole Foods total assets by about 24%, a very significant increase (Whole Foods Market Acquires Harrys Farmers Market Stores). Whole Foods received three perishable superstores, a distribution center, commissary kitchen, a bake house, and office facilities. This acquisition in 2001 allowed Whole Foods the opportunity to continue increasing its company. This acquisition gave Whole Foods presence in Georgia by having stores, a distribution center, a bake house, and office facilities. This allows Whole Foods to be able to operate in the southern United States and continue supplying and opening new stores.

Recently, in February 2007 Whole Foods acquired its largest competitor at the time. Whole Foods signed a definitive merger agreement with Wild Oats Markets. Whole Foods would acquire Wild Oats Markets outstanding common stock in a cash tender offer of $18.50 per share. Whole Foods spent $565 million for the merger and had to pay off Wild Oats debt of $106 million. This merger allowed for Whole Foods to increase its operations to over 300 locations and operate in 30 states. Whole Foods also acquired stores in Canada and in the United Kingdom, allowing them to further expand their company internationally. At the time Wild Oats was operating 110 stores with annual sales of $1.2 billion compared to Whole Foods who had 193 stores and net sales of $5.6 billion.

The merger worked out both for Whole Foods and for Wild Oats. Wild Oats was underperforming and was in transition period of operating without a CEO or CFO. Both of these situations are signs of a needed change. John Mackey, Whole Foods CEO, called the acquisition highly opportunistic. Mackey went on to say the timing was right to approach Wild Oats about a merger given the strategic gap at Wild Oats as evidence by the lack of a CEO and lack of a clear company vision (Whole Foods Acquires Wild Oats).

One of the biggest challenges that Whole Foods faces is its inability to open new locations. By merging with Wild Oats, Whole Foods has a stronger presence in the Rocky Mountains, Pacific Northwest, and Florida. These new acquired stores allows for Whole Foods to have new locations. It also gives Whole Foods the benefit of operating in these three regions; these three regions were where Whole Foods lacked presence. Now that Whole Foods is able to have a better presence in these regions it will allow for Whole Foods to continue increasing the amount of stores Whole Foods has.

As per December 31, 2007 the number of stores of Whole Foods Market opened are 276 stores worldwide with USD 6,5 billion sore sales of 7.1% growth compared to 2006.Well Matched Strategy

The strategy that Whole Foods has put into action is one of making change happen throughout the world, in all of the places that they are able to establish a store location. While their strategy does revolve around making a profit, their overall strategy is about creating a healthier world, through what consumers are eating and how our decisions are affecting the world. Right now, the natural and organic food segment of the food retailing industry is in a period of growth and change which really creates a great match between Whole Foods and the industry segment itself. Although Whole Foods has been around for a while, because they are distributing a product that very few consumers are demanding, they are just now reaching a point of rapid growth as an organization. With the go green and be healthy society pressures that are really becoming strong forces in day to day life, the organic and natural food segment is really beginning to take off. Both the strategy and the segment that Whole Foods is in are experiencing a time of rapid developments, high numbers of competitors trying to enter into the market, and growing consumer demand which makes they strategy they are currently employing a great fit to the current conditions they are facing within the industry.John Mackeys Strategic Vision

Whole Foods has a strong foundation on the words of their leader (CEO) John Mackey who initially wanted to open and develop Whole Foods into not only the best food retailer (in which Whole Foods was located), but to change the diets of individuals to help them live longer and healthier lives. Mackey developed the core values that employees of the Whole Foods organization follow each and every day and emphasized the importance of recognizing their ultimate goal, Whole Foods, Whole People, Whole Planet. Mackey had a great strategic vision for Whole Foods because he wasnt narrowing his focus on the financial success of the company; he was genuinely looking out for the well-being of his potential consumer base which should be at the core of every retailer out there. The motto creates a huge window of opportunities for the future of the company. This motto focuses on the three core elements that can make any business successful, by focusing on the product, consumers, and expansion opportunities.CASE STUDY ANALYSISAs a growing company, Whole Foods Market should develop its strategy to advance its competitive advantage in order to be the market leader in food retailer industry. The strategy should be able to adjust the current market conditions and outperform the competitors strategies. Therefore firstly, Whole Foods Market must analyze its strengths, weaknesses, market opportunities, and threats, using the SWOT Analysis.SWOT Analysis

When looking at Whole Foods and their industry, the true driving force at work is the growing demand of a small target niche desiring organic and natural food products. Organic and natural products have been around for quite some time however they were considered a high-end food product due to the simple fact that they are more expensive than normal food and produce. This growing demand is going to benefit the competitive structure favorably because it will create more competitive energy and dynamics within the organic/natural segment. A SWOT Analysis of Whole Foods shows that they are currently in a very stable place due to their strong brand name, broad product knowledge, and high employee satisfaction. Whole Foods has ample opportunities with minimal and controllable threats and weaknesses. The following SWOT Analysis information shows the top points in each of the sections within the SWOT.

Strengths

Broad product offerings wide selection/variety with over 30,000 items offered. Nationally known as organic/natural food seller. The environmental protection agency of United States has given it third place at the list of its 25 green power partners. Company's image that close to environmental care and healthy living. The stores are not standardized in order to provide a pleasurable experience and interactive store atmosphere. High employee retention no unions, above average hourly salary, solid benefits. Weaknesses

Higher priced products, 75% higher priced products compared equivalent non-organic products. The product sales is limited to natural and organic product, so the company still unable to compete with regular supermarket such as Wal-Mart. Because of the lack of supplier number, Company become very depending on the supplier of natural and organic products.Opportunities

The product sold is a unique product which the supplier cannot be found easily and be produced easily. So there are not many competitors. Increase demand for organic products. Hype right now is to eat healthier and protect the environment Go Green movement continues to increase within society. The company has a wide market target and not limited by age, gender, and region.

Threats

Intense competition may have adverse effect on profitability. Large competitors are adapting Go Green movement as well, for example Wal-Mart. Local farmers markets/independent retail chains can offer same products and offer lower prices without going through the manufacturer. High profit provokes new entrants in this industry.

High bargaining power from supplier of natural and organic foods.

John Mackeys internet postingsBased on the understanding of the company background we can conclude the following matters:

The motto

Whole Food, Whole People, Whole World

The vision

Become an international brand synonymous not just with natural and organic foods but also with being the best food retailer in every community in which Whole Foods stores were located.

The mission

To offer the highest quality, least processed, most flavorful and naturally preserved foods available by maintaining and improving:

Quality standards

Responsible farming

Seafood sustainability

Animal welfare Caring for communities

The purpose

Helping support the health, well-being, and healing of both people, customers, team members, and business organizations in general and the planet.

The core values

1.Sell the Highest Quality Natural and Organic Products Available

2.Satisfy, Delight and Nourish Our Customers

3.Support Team Member Excellence and Happiness

4.Create Wealth Through Profits & Growth

5.Serve and Support Our Local and Global Communities

6.Practice and Advance Environmental Stewardship

7.Create Ongoing Win-Win Partnerships with Our Suppliers

8.Promote the Health of Our Stakeholders Through Healthy Eating Education

Near term growth objectives

Have 400 stores and sales of $ 12 billion in fiscal year 2010. Long term objectives

Helping the industry gain acceptance among growing numbers of consumers concerned about the food they ate.

CRAFTING STRATEGIESAfter looking through the Whole Foods Case and evaluate the company condition by SWOT analysis, it appears that Whole Foods is operating under a focused differentiation competitive strategy. The strategies that should be developed considering the matters above are as follows:

MARKETING STRATEGIESWhole Foods has become the worlds largest retail chain of natural and organic foods supermarkets and appears to be in a rapidly growing market. Whole Foods has worked hard to set their products apart from other grocery retail chains and while their prices might still be considered high across the board, their products are geared towards a more health conscious individual who is willing to pay more for a healthier product. Through their acquisition of Wild Oats Market and new Whole Foods stores popping up everywhere, especially in metropolitan areas, Whole Foods have been hard at work to make it present in the food retail industry.

By the opportunities of the growing number of people who is concern about living healthy, Whole Foods will have to stay offering natural and organic foods by developing the following market strategies:

New StoresWhile their prices are higher, the lifestyles of consumers are changing to one which is more health conscious and many consumers have said theyre willing to pay more for a healthier product. With this recent shift in consumer lifestyles, Whole Foods is one step ahead of many of the other grocery retailers in the industry and this gives them the competitive edge they need to stay a leader in the market. Whole Foods needs to increase the number of stores that they have throughout the world, and expanding to the other continents. New Product Line

Whole Foods will need to stay ahead of their competitors when it comes to the products they offer and establish a strong consumer base. With these other retailers jumping onto the natural and organic bandwagon, the prices of these products will begin decreasing and consumers will have more options as to where to shop and get the same products, so Whole Foods must work hard now while theyre growing to attract a steady customer backing so when this market hits its mature stage, which it will once all of these other retailers establish a natural and organic brand of their own, Whole Foods doesnt have to focus on attracting customers to keep their head above water. Instead, they can look ahead to what is next for Whole Foods in their expansion of stores and product line. Create Competitive PriceBased on the research, most people are not buying organic and natural foods because they are more expensive. It means losing of demand. Whole Foods should consider reducing the price a little by expanding its option of suppliers and considering to produce its own product. Today most of the suppliers come from inside the United States, Whole Foods should expand its selection to farmers abroad, especially countries which have the advantage in farming.

Another option in reducing price is using promotional marketing such as discount and bundling products.

Brand Image AwarenessTo increase the sale the company should create brand awareness first. In Whole Foods Market case, the brand awareness can be emerged itself by promoting the importance of living healthy to people across the world. The promotion can be done by making the healthy eating promotion in universities and schools in order to decrease the number of children with obesities. The important thing that should be included in the promotion is how people can live healthy without spending much money and still having a delicious meal. The promotion can also be done on local media to create people awareness.

Since e-marketing is the most powerful and efficient way to create the brand image, the Whole Foods website should give information and educate costumer about the company and the product sold, the differentiation from other retailers, and some information related to the store, such as price, promotion, etc. The company can also give some additional features, such as share receipts to others, cooking consultant, and online customer service.OPERATING STATEGIES

Whole Foods Market did not have a standard store design, each of the store are customized to fit the particular site and building configuration. The driving concept of Whole Foods merchandising strategy was to create an inviting and interactive store atmosphere that turned shopping for food into a fun, pleasurable experience. Though, some strategies should be developed to increase the effectiveness and efficiency of operational activities, such as:

Maximum UtilizationThe company is currently known as the premium market attended by moms and elderly society. The opening hours are restricted to the regular working hours. Each store usually has a large space with a lot of unutilized space. Today, the trend of healthy living starts to grow to the younger society. Therefore, the store concept should follow the current trend. The store concept can be altered to be more fun and suitable for teenagers and young adults, rather than focusing on rustic atmosphere. Though, the rustic atmosphere should still exist, since it is the unique competitive advantage of the market. By improving the store concept, the store can be opened to more than working hours and the unutilized space can be utilized as a restaurant/caf. Technology OrientedUsing more technology oriented operation process (green technology if applicable) to reduce operating cost such as online Supply Chain Management, so that Whole Foods can reduce inventory cost and other costs from fast moving and perishable products.

Key Performance Index (KPI)

Since Whole Foods Market system is decentralized, the quality standard may become an issue. So, it is better to create a Key Performance Index (KPI) for each store. So, the managers can evaluate which branch performs well or below the standard. It will lead to an improvement for the operation of the store.

FINANCIAL STRATEGIES

The financial strategies that had been done by the Whole Foods Market is expanding its business by acquiring its competitor, Wild Oats Markets. Though, based on the case the acquisition of Wild Oats wasnt significantly increasing the total sales of the company. This happens because many of Wild Oats store size were smaller than the average of Whole Foods store size and the Wild Oats store werent renovated to Whole Foods. The direct expenses also increase as well as the increasing of store size (fixed cost). So they might consider finding a small size Wild Oats store that has a low contribution margin and sell it as soon as possible. The larger store size will impact to a higher direct store expense, which can reduce the store contribution margin. So, Whole Foods can use the strategy to reduce the average store size, in order to increase the store contribution profit margin.

Another strategy to grow the company is to increase sales by increasing the quantity to sell. They have to continue increasing the size of their store across the country based on their store size standard. By increasing the size, they might increase their sales.Based on the financial statements, the company do their financing mostly from debt, especially when they did the acquisition of Wild Oats. The company should minimize the debt and use equity financing for their investment, in order to bring back the company financial health. The healthier company will attract more investor.Crafting and Executing Strategies

1. Whole Foods management decided to drive growth by opening 10 to 15 decidedly bigger stores in metropolitan each year stores that ranged from 40,000 square feet to as much as 70,000 square feet and were on the same scale or even larger that the standard supermarkets operated b Kroger, Safeway, Publix and other chains.

Action

The averages of Whole Stores stores opened were 16 stores/year. The biggest is the acquisition of Wild Oats in late August 2007.

2. Whole Foods stores had an open format and generated average annual sales of about $32 million.

Action The company relocate some of the smaller stores to larger sites with improved visibility and parking.

They have 45,000-60,000 square feet, the biggest was a 99,800-square-foot store in London.

Whole Foods prefer store locations in the upscale areas of urban metropolitan centers, frequently on premier real estate sites, high-traffic shopping locations,

The average annual sales only achieve $22 million based on the calculations which the data taken from Exhibit 5.

3. Regarding their commitment to customer, Whole Foods sell foods that met strict standards and that were of high quality in terms of nutrition, freshness, appearance, and taste. They guaranteed 100 percent satisfaction on all items.

Action The company maintained a list of ingredient that unacceptable in food products. Meat and poultry products are natural, minimal processing, and raised without the use of artificial growth hormones, antibiotis or animal by-product in their feed.

Seafood product is wildcaught or sourced from aquaculture farms where environmental concerns are a priority.

They offered premium products, so that they charged customers with the premium price.

4. The driving concept of Whole Foods merchandising strategy was to create an inviting and interactive store atmosphere that turned shopping for food into a fun, pleasurable experience.

Action Stores had a colorful dcor, and products were attractively merchandised. Most of stores featured hand-stacked produce, chefs are working in open kitchens. A few stores offered valet parking, home delivery, and massages.

To interact with the community, Whole foods have a comment board and take action centers for customers who wanted infotmation.

5. The corporate marketing budget was allocated to regionwide programs, marketing efforts for individual stores, and a national brand-awareness initiative focused primarily aon national in-store marketing programs.

Action Store spent most of their marketing budgets on in-store signage and store events such as taste fairs, classes, and product samplings.

Going out into the community and conducting a proactive public relations campaign, making contributions to philanthropic activities and community outreach programs.

6. Whole Foods market empowered team members to do whatever it took to meet or exceed customer expectations on every shopping trip.

Action Store personnel were personable and chatty with shoppers

Meat department personnel provided customers with custom cuts, cooking instructions and personal recommendations.

7. Whole Foods strived to create a shared-fate consciousness on the part of team members by uniting the self-interests of team members with those of shareholders.

Action Gain-sharing program that rewarded a stores team members according to their stores contribution to operationg profit. This program added 5 to 7 percent to team member wages.

The company also encouraged stock ownerhip on the part of team members.

Using Economic Valued Added to measure performance. EVA at the store level was based on store contribution (store revenues minus cost of goods sold minus store operating expenses).

8. Much of the buying responsibility was located at the regional and national levels in order to put the company in a better position to negotiate volume discounts with major vendors and distributors.

Action United Natural Foods was the companys biggest supplier

Whole Foods owned two produce procurement centers that facilitated the procurement and distribution of the majority of the produce Whole Foods sold. Whole Foods bought from Pigeon Cove, regional bake houses and commissary kitchen and the companys of Allegro brand of coffees.

9. Action for social conscience and community citizenship:

In fiscal 2007, Whole foods made charitable donations of just under $15 million, equal to 8 percent of after-tax profits in fiscal 2007.

Using all natural fiber packaging at its salad and food bars.

Ended the use of disposable plastic bags

Converting its distribution fleet vehicles to biodiesel fuel.

Purchased renewable energy credits to offset 100 percent of the electricity used in all of its locations in North America.

Blood donations, giving a loan for local producers of organic and natural agriculture, etc.

Evaluating Performance and Initiating Corrective Adjustments18

Sheet1

No.BrandYear JoinedInformation

1Wellspring Grocery1991Wellspring Grocery offers high quality and great nutrition, and to encourage consumers to be more connected with the food they ate.

2Bread & Circus1992Bread & Circus was the largest natural food retailer in the Northeast. The first Bread & Circus sold natural foods and wooden toys, hence the unusual name.

3Mrs. Goochs1993Mrs. Gooch's held its rigorous standards: no harmful chemicals or preservatives, no artificial colors or flavorings, and no white flour, refined sugar, alcohol, caffeine or chocolate.

4Fresh Fields1996Fresh Fields had 22 stores open in four different market areas: Washington/ Baltimore, Philadelphia, New York/New Jersey/Connecticut and Chicago.

5Bread of Life1997The Bread of Life is popular for its organic foods and live entertainment, "Jazz Goes Natural," featuring Richie Gerber and the Free Radicals.

6Amrion1999Amrion offers the bioenergy nutrients.

7Merchant of Vino1997They established an excellent reputation in wine retailing. Over the years they began to pick up more and more gourmet and natural food items and produce meat/seafood, and prepared foods were added as well as nutrition and bodycare.

8Allegro Coffee1997Allegro coffees are widely recognized as the pinnacle of quality in the specialty coffee industry.

9WholePeople.com1998This is the virtual store of Whole Foods Market

10Nature's Heartland1999Nature's Heartland's quality standards requires unbleached flour, naturally raised meat and poultry, and featuring as much organically grown produce as possible.

11Food For Thought2000Food for thought is one of the first business in the natural food industry.

12Harry's Farmers Market2001Known for fresh, delicious foods, produce and gourmet products in United States.

13Fresh & Wild2004Known for friendly and informative style of natural food retailing.

14Wild Oats Markets2007Founded in 1987 known as one of the largest supermarkets that serves natural food and vegetarian foods.

Sheet1

No.BrandYear JoinedInformation

1Wellspring Grocery1991Wellspring Grocery offers high quality and great nutrition, and to encourage consumers to be more connected with the food they ate.

2Bread & Circus1992Bread & Circus was the largest natural food retailer in the Northeast. The first Bread & Circus sold natural foods and wooden toys, hence the unusual name.

3Mrs. Goochs1993Mrs. Gooch's held its rigorous standards: no harmful chemicals or preservatives, no artificial colors or flavorings, and no white flour, refined sugar, alcohol, caffeine or chocolate.

4Fresh Fields1996Fresh Fields had 22 stores open in four different market areas: Washington/ Baltimore, Philadelphia, New York/New Jersey/Connecticut and Chicago.

5Bread of Life1997The Bread of Life is popular for its organic foods and live entertainment, "Jazz Goes Natural," featuring Richie Gerber and the Free Radicals.

6Amrion1999Amrion offers the bioenergy nutrients.

7Merchant of Vino1997They established an excellent reputation in wine retailing. Over the years they began to pick up more and more gourmet and natural food items and produce meat/seafood, and prepared foods were added as well as nutrition and bodycare.

8Allegro Coffee1997Allegro coffees are widely recognized as the pinnacle of quality in the specialty coffee industry.

9WholePeople.com1998This is the virtual store of Whole Foods Market

10Nature's Heartland1999Nature's Heartland's quality standards requires unbleached flour, naturally raised meat and poultry, and featuring as much organically grown produce as possible.

11Food For Thought2000Food for thought is one of the first business in the natural food industry.

12Harry's Farmers Market2001Known for fresh, delicious foods, produce and gourmet products in United States.

13Fresh & Wild2004Known for friendly and informative style of natural food retailing.

14Wild Oats Markets2007Founded in 1987 known as one of the largest supermarkets that serves natural food and vegetarian foods.