Whole Foods

1. (a) Whole Foods operates in the organic, or natural and specialty foods retail industry. Leading the industry, Whole Foods Market is the world's most successful natural foods grocery chain. Having recently acquired one of its main competitors, Wild Oats Market, Whole Foods currently competes with two other large grocery chains--Kroger and Trader Joe's. The company also acquired Amrion, a company specializing in nutraceuticals (natural supplements with pharmaceutical-type benefits), creating considerable competition with General Nutrition Centers (GNC) nutritional supplements and dietary products. Additional competition is taking place in traditional grocery stores incorporating some organic products on to their shelves.

1. (b) The attractiveness of this industry and its potential for profit are functions of Michael Porter's five competitive forces model: barriers to entry, bargaining power of both suppliers and buyers, the threat of substitute products, and the depth of competition among rival companies.

Barriers to Entry

Currently, Whole Foods has no significant barriers to entry. Americans are becoming more food and health conscious and Whole Foods is catering to this demand by becoming the premier outlet for all-natural, organic food products, while creating a unique, cohesive brand. The company is growing a loyal customer base, and is offering the majority of its products at competitive prices. With more than 300 stores located in the US, the UK and Canada generating twice the revenue per square foot as almost all its competitors, the capital requirements for success are solid, and the switching costs for customers are low. Perhaps the only real barrier to entry is the minimal 3% requirement by the government for organic farming. With farmers only producing such a small supply of organic product, the lack of supply and increased demand could lead to price wars. Even with its prime locations in highly educated, prosperous cities, current economic conditions could also lead to reduction in demand for the premium type products that Whole Foods carries, though there is no evidence of this yet.

Bargaining Power of Suppliers

With the demand for organic products growing, the power will typically increase with suppliers. These types of agricultural goods are very critical to the success of the Whole Foods and the natural food market. Having acquired many of its smaller competitors and base suppliers, Whole Foods owns and operates a significant number of subsidiaries, currently keeping the bargaining power of its suppliers in control. However, with increased demand and limits on the amount of organic products produced, that power could shift and suppliers could take more control.

Bargaining Power of Buyers

Whole Foods has shifted from its typical 31,000 square-foot stores to larger than 50,000, and even 80,000 square-foot versions. According to the Food Marketing Institute, the rest of the industry is taking the opposite approach and downsizing its stores to an average 34,000 square feet. And with more than 300 Whole Foods locations, being this large a part of the industry, while still growing, and being able to purchase a large portion of the total output makes the buying power of Whole Foods very attractive. And this time, with the future possibility of increased demand, and possible price wars, the high amount of capital Whole Foods secures in the marketplace will help to maintain that bargaining power.

Threat of Substitute Products

The threat of substitute products that may exist in this industry lies with the choice of the consumer, at least when there is no significant price difference. With more than 70% of the items Whole Foods sells being common grocery items, the choice is whether to buy organic or non-organic. The organic product Whole Foods offers is a differentiated industry product where no significant price difference exists, and when the price differential does exist, it is currently treated as having more quality, thus more value than the non-organic traditional one. With shoppers being more food and health conscious, as well as morally conscious as to how the food is grown, obtained, packaged, presented, and how the business behind it supports the industry and the community, they are turning away from the traditional supermarket that has very little, if any, of the positive health or social attributes as the products at Whole Foods.

Intensity of Rivalry Among Competitors

Within the foods retail industry Whole Foods largest competitors are Wal-Mart, and Kroger. Within the organic foods retail industry, the competition is Trader Joe's and smaller localized organic grocery stores. Whole Foods also competes with GNC's dietary products and nutritional supplements. Most of the relationships are not equally balanced but industry growth in the organic market is increasing and this will raise the strategic stakes. There are no significant exit barriers so a moderately intense rivalry among the larger competitors will exist.

While the foods retail industry is highly competitive, Whole Foods has established a reputation and maintains a brand loyalty with its customers. Increased rivalry will occur in the larger grocery chains like Wal-Mart and Kroger, because of their flexibility in the products they can offer, and the pressures they can put on the sales growth and overall profits of Whole Foods. They have a larger cash and customer base, and the ability to better advertise their products, while Whole Foods still generates most of their customer base through word-of-mouth and limited advertising.

2. (a) The strengths and weaknesses of Whole Foods are the functions of its internal environment and the decisions management makes concerning the company's resources, capabilities, and core competencies.

Resources

Whole Foods currently has more than 300 stores in the US, Canada and the UK offering more than 1,500 privately labeled products. The company also owns and operates several subsidiaries including Allegro Coffee Co., Pigeon Cove Seafood Co., its east coast fresh seafood supplier, Select Fish Seafood Co., its west coast supplier, and Produce Field Inspection Office. Whole Foods also has multiple distribution centers, bake houses, and commissaries to help it maintain the standard of quality and brand name that its customers value. The stores employ skilled professionals, such as in-house chefs, massage therapists, and management with expertise in organic foods and the benefits of buying organic.

Capabilities

The resources of Whole Foods allow the company to