Case Study for Whole Foods 2014
Whole Foods is an organic food supermarket, looking to change the way that the world eats food. Their CEO and Founder, John Mackey is leading the company to achieve higher sales and market share while face stiff competition from other companies such as Trader Joes, Sprouts Farmers Market and the Fresh Market just to name a few. While organic food seems to be the new fade in the grocery stores, other non-direct companies have placed their hat in the ring with Whole Foods such as Walmart and Costco and all major supermarkets have an organic section to their selections.
With competition coming from all around it is important that John Mackey and his ...view middle of the document...
Therefore, in a way supporting Whole Foods is supporting local farmers and suppliers. This goes back to their vision to not only supply a great product but also to support the communities that they do business with.
The Market maneuvering and jockeying for buyer patronage among rival sellers:
Many companies, such as Kroger, Costco, and Wal-Mart, realize the sales potential in natural and organic food offerings and are jockeying for market share. While demand for this segment is growing, it still only represents 3% of grocery sales. Whole Foods and Wal-Mart have similar and sometime identical product offerings, with Wal-Mart’s being priced much less so it is less costly for consumers to switch brands. Wal-Mart has collaborated with Wild Oats to put their products on Wal-Mart’s shelves.
Threat of New Entrants:
The threat of new entry comes more from existing Supermarkets expanding their offerings to include more natural and organic foods. Traditional grocery stores have initiated this on a smaller scale, offering a small section of natural and organic foods in their store. With the rise in popularity of these foods, this may expand in these stores. As previously mentioned, Wal-Mart has partnered with Wild Oats to sell their products. Supermarkets and superstores pose the largest threat rather than a new company similar in make up to Whole Foods.
From 2002-2011, an average of over 10,000 new organic farms were created each year. New suppliers can apply directly with Whole Foods, there is a page on this on their website. With the growth of organic food demand, supplier power will rise if the growth in farms does not match the growth of buyer demand. Whole Foods also offers a program where they loan potential new farmers money to help them get started (local producer loaner program).
Buyer Power: (consumer and companies):
Currently, Whole Foods approach to buying is to establish good relationships with their suppliers and lock them in for 10 year contracts which will be reviewed every five years. Competitors such as the large chain stores push their suppliers hard to keep the prices as low as possible.
While the organic market is growing each year, the entire market currently is not very large. Therefore, the new entrants to the market (large chain stores expanding their offerings) coupled with the smaller market has combined to make the rivalry become more intense.
Threat of Substitution:
Substitute products are available; and buyers do view the substitutes as comparable in quality and price. Therefore, the threat of substitution is high.
With more sellers wanting to cash in on the growing natural and organic food segment, expect competition to increase for several reasons. New entrants in the form of existing super stores will expand their offerings (strong). Supplier power may increase with the growing demand for the product they grow (moderate). Buyer power,...