Whole Foods Market is a leading retailer of natural and organic foods with a clearly defined set of quality standards that include featuring organic foods that are fresh, wholesome, safe to eat, free of artificial preservatives, colors, flavors, sweeteners, and hydrogenated fats. In its nearly 40 year history, Whole Foods Market has grown to a place in the top 100 of the world’s largest retailers with stores in the United States, Canada, and the United Kingdom. Relying on word of mouth and a loyal customer base, Whole Foods had $15.7 billion in sales, with its exclusive brands generating approximately $2.3 billion in sales, in 2016.
A situational analysis of Whole Foods reveals clear strengths, weaknesses, opportunities, and threats. Whole Foods’ strengths include strict high standards and shifts in consumer mindsets to healthier lifestyles. There are a number of weaknesses including a saturated retail industry, price sensitive consumers, price elasticity, and product alternatives to expensive products. To address these weaknesses, opportunities for growth include investments in future technologies and Amazon’s recent acquisition of the chain. Threats to Whole Foods’ success are challenges to sustaining the model, an inability to lower prices, and competitors’ replicating the model and challenging Whole Foods’ small market share.
Whole Foods’ marketing objectives include promoting mass public awareness, seeking out trendy new ventures, and collaborating with leaders in advertising ensure that consumers return for the unique shopping experience. This is done through a mix of product, place, promotion, and price: exclusive brands; in store and online purchase options; in-store promotions, weekly sales, and coupons on their mobile app. Whole Foods is focused on investing in new technologies and providing a heightened shopping experience to customers.
In its 40 year history, Whole Foods Market has grown from a small vegetarian natural foods store called SaferWay in Austin, Texas to a place in the top 100 of the world’s largest retailers. Today, calling themselves America’s healthiest grocery store, Whole Foods has 481 stores and 89,000 employees in the United States, Canada, and the United Kingdom. On average, the target Whole Foods customer is 25-44 years old, highly educated, middle-to-high-income individuals and families. Customers live in metropolitan areas, and tend to make small to mid-sized trips to the store.
Through its growth since 1979, while it is no longer a vegetarian store, Whole Foods’ focus on natural foods remains and is now supported by an additional commitment to the customer experience, as stated in their “Declaration of Interdependence”:
We are a purpose-driven company that aims to set the standards of excellence for food retailers. We are building a business in which high standards permeate all aspects of our company … The unique character of each store is a direct reflection of a community’s people, culture, and cuisine.
This strategy is supported by six core values:
Selling highest quality natural and organic foods
Satisfying and delighting customers
Promoting team member growth and happiness.
Creating win-win partnerships with suppliers
Creating profit and prosperity
Caring about the community and the environment
Known by its nickname “Whole Paycheck” because of its expensive products, Whole Foods Market is a leading retailer of natural and organic foods with a clearly defined set of quality standards that include featuring organic foods that are fresh, wholesome, safe to eat, free of artificial preservatives, colors, flavors, sweeteners, and hydrogenated fats. Approximately 55% of Whole Foods’ exclusive brand offerings are either certified organic or “Non-GMO Project Verified. Meat is evaluated based on the 5-Step Animal Welfare Rating that includes 100+ standards for beef, pork, chicken and turkey in sold in Whole Foods’ meat departments. According to Whole Foods, the system not only gives customers “the knowledge to make informed food choices and it encourages and rewards farmers and ranchers to improve their welfare practices.” Since 2005, all eggs sold are cage-free with additional options to support customers’ choices. Farmed seafood sold at Whole Foods is responsibly farmed and wild caught seafood is rated for ecological sustainability. In addition, they source their fresh produce and flowers from farmers who practice sustainable agriculture.
Whole Foods’ high standards extend to non-food products too, with Whole Foods providing industry-leading standards for organic skin care and banning more than 100 potentially harmful body-care ingredients. For cleaning products, while there are no requirements that ingredients be listed on products, Whole Foods developed the Eco-Scale rating system that requires that every ingredient be listed to support transparency.
In the fiscal year 2016, Whole Foods had $15.7 billion in sales, with 97% of sales coming from its American stores. Led by their 365 Everyday Value brand, Whole Foods’ exclusive brands generated approximately $2.3 billion in sales in 2016. Overall, this represents a small part of U.S. food retail sector, with Whole Foods capturing 1.7% market share as of 2016, though this is expected to grow with Amazon’s acquisition. Despite its strong brand in natural foods, Whole Foods has lost market share in recent years as Kroger and Costco have launched their own private-label products, and it has struggled to respond to that challenge.
Related to its small market share, Whole Foods has been reluctant to run ads, relying instead on brand awareness and a loyal customer base. From 2005-2015, Whole Foods’ marketing expenses were been less than 0.5% of sales. Recent figures for marketing indicate that Whole Foods spent $113 million on global ad spending in 2017.
There are many strengths to consider when analyzing Whole Foods. Based on the description of Whole Foods’ products and service, that Whole Foods sells organic food and upholds the strictest standards when it comes to maintaining sustainable agriculture is its greatest strength. The reason for being so is the population nowadays. According to the United States Census of 2015, millennials make up about 25% (83.1 million) of the nation’s population. This is a strength because “millennials in particular – those who came of age at the turn the century – are leading the charge by making health-promoting diet and lifestyle choices a priority, as recent studies indicate.” The article goes on to state that millennials have a huge impact on the social and cultural movements that shape the economy. With Whole Foods offering organic food of the highest standard, this puts the company in a favorable position. Combined with their position as the largest natural foods store and increasing public awareness through Amazon’s acquisition, when millennials think which grocery store can fulfill their needs and match their values, Whole Foods will be the first to come to mind.
One of the biggest weaknesses in Whole Foods is their pricing. Whole Foods must charge a high price to consumers because of their rigorous quality and sourcing standards. An article from Progressive Grocer mentions a report done by Morgan Stanley where it states that 70% of consumers are not shopping at Whole Foods due to higher prices. Products that have many substitutes (i.e. other grocery stores that sell the same items) are said to be highly elastic, meaning that a 1% increase or decrease in price can have a significant change in demand for those products. With such high prices, cost-conscious consumers are likely to pick a cheaper option at another grocery store. Another weakness is that with Amazon acquiring Whole Foods, consumers were expecting dramatic price cuts. While prices did drop since the acquisition, they were not enough to change the minds of consumers. A third weakness is that Whole Foods are commonly found in crowded metropolitan areas, making it difficult for populations who live outside of urban areas to frequently shop at their stores.
As mentioned before, the acquisition of Whole Foods by Amazon can be viewed as an opportunity. With Amazon’s market cap and established presence, Whole Foods can significantly lower their prices to match or even beat their competitors without lowering their already high standards. Lower prices are not the only opportunity that this acquisition promotes. Last month, in a shareholder letter, Amazon CEO Jeff Bezos stated that there are over 100 million Amazon Prime subscribers, representing 100 million potential new Whole Foods customers. Considering the speed of Amazon’s delivery system available to Prime subscribers, there is an opportunity to combine the speed of delivery with Whole Foods’ product offerings.
One of the major threats would be the inability for Whole Foods’ high standards to continue to be sustainable, especially with the push to lower prices. Another threat would be if another grocer is able to copy Whole Foods’ business model and steal market share. Food Dive states “The large-format grocery segment — which includes supercenters and big food/drug combos — may be approaching the saturation point. Too many stores mean too few shoppers to go around for all of them to be successful.” One-stop superstores such as Walmart and Kroger (although their expansion has slowed down dramatically as well) can take away most of the market share in the grocery industry.
PORTER’S FIVE FORCES:
Whole Foods’ main competitors are Sprouts Farmers Market and Trader Joe’s, because both companies promote the healthy, organic lifestyle that Whole Foods stands for as well. Apart from companies that have the same ideals as Whole Foods, other competitors include super one-stop grocery stores such as Walmart and Target. With competitors such as Sprouts Farmers Market and Trader Joe’s, the competition is intense. Due to the intense competition, customers who would normally shop at Whole Foods may prefer Trader Joe’s because of their lower prices.
Whole Foods has an interesting relationship with their suppliers that puts them in a favorable position. Whole Foods states that “We view our trade partners as allies in serving our stakeholders. We treat them with respect, fairness and integrity – expecting the same in return. We are part of an interdependent business ecosystem. There are tens of thousands of suppliers that we depend on to create an outstanding retail shopping experience for our customers.” This statement tells us two things. First, there are many suppliers involved with Whole Foods which mean that suppliers don’t have the power to drive the price. Second, Whole Foods’ supplier relationship is a positive one where one helps the other so they both work to benefit each other.
This is one of the forces in which Whole Foods is lacking. The customer has great power to drive the price down. This can be seen in the consumers’ choices to shop in places which offer lower prices. With the recent acquisition of Whole Foods by Amazon, this force could be helped and the power of the buyers to drive down price can be mitigated.
Threat of Substitution and New Entry:
As stated before, Trader Joe’s and Sprouts Farmers Market are clear alternatives for Whole Foods. Superstores such as Target and Walmart sell organic food to a lower degree. These are all perfect substitution for Whole Foods. The threat of substitution is high, while the threat of new entrants is low, because the market is already saturated. The growth in the supermarket industry isn’t lucrative as well. This would not incite new companies to enter the grocery industry or for existing companies to start selling more expensive organic products.
As stated in the situational analysis, consumers of Whole Foods are those that are not just health-conscious, but also aware and concerned with the environment. While Whole Foods would be attractive to a lot of young consumers, the high prices drive them away.
Whole Foods is a great deal more expensive to its competitors. Customers are frustrated that prices have not gone down noticeably since Amazon’s acquisition. Another critical issue that Whole Foods faces is the saturation in the market. Since there are many grocers, most of which offer organic food just as Whole Foods does, then Whole Foods faces aggressive competition. Another problem with saturation in the grocery industry is that expansion (growth) is limited as well as the possibility that supply could exceed demand.
Marketing Goals and Objectives
Whole Foods primary motive is to provide customer satisfaction, return on capital investment, improvement in the state of the environment and local and larger community support.
Goals and Objectives for FY 2018:
-Leverage new parent (Amazon) to fund new loyalty programs that they were originally unable to afford; ie. data mining to create a more personalized and seamless experience “If these customers add just one more item per trip, the sales potential is significantly greater than with any other segment.”
-Use Amazon’s expertise and technology regarding supply chain while staying, “committed to local producers and local products”
Marketing Strategies to Create Value
Whole Foods segments the $100 billion natural and organic foods supermarket industry. WFs shopper segment consist of health and environmentally conscious:
-Working parents 37-50 or Millennials 21-36
Whole Foods has decided to target millennials (age ranging between 21-36) and working parents (with age ranging between their early 30s to late 40s). This segment of consumers in the food industry proves to be most deserving of Whole Foods investment for development, due to the politically correct mindset this segment these prospective consumers are diverse, multicultural, and ultimately have a open mind towards trying new foods. These consumers are educated professionals living in cities and suburban areas, who seek a premium service, and are more than willing to afford premium prices in order to receive a specific shopping experience. These customers prove to show great propensity in providing a lifetime of service and value to Whole Foods, due to reality that these customers incomes are well above the national average. Having the financial ability to pay premium prices allows Whole Foods the ability to bring in sustainably sourced fish, organically-grown produce/meats and remain true to their six core values.
Whole Foods will continue their success attracting non-users by showing them that WFs will receive the best organic, socially responsible, and environmentally friendly products to them with little ease. They will also have to convince current customers to buy more groceries more often and gain customers from other competitors. WFs will achieve this by focusing their main efforts on market penetration, to increase market shares and profit, by: increase brand awareness, image, and loyalty through various forms of advertising and public relations; carefully venture into new advertising mediums (ie. radio, national tv, digital in/out of home); and ensuring products are “perceived by customers as healthier choice over their competitors” Whole Foods will promote the higher quality of their food as opposed to pricing. WFs will take on marketing via the internet by promoting a comprehensive website that includes information regarding the company, email subscriptions that include recipe sharing events and cooking classes, forums and blogs.26
Marketing Mix- Four P’s
When discussing marketing mix, we cover the four P’s, which consist of product, place, price, and promotion. When discussing the product aspect of marketing mix, Whole Foods prioritizes their wide range of variety in high quality natural and organic products. A majority of the product that is sold in stores, are quite unique in the fact that a lot of products are locally sourced and cannot be found in other neighboring supermarkets. Whole Foods holds a very high standard for the quality of their product, primarily focusing on their health status as a corporation. For example, Whole Foods does not sell any sugary drinks, (i.e. soda, energy drinks, etc.) which have been known to cause obesity nationwide. In fact, they offer healthier alternatives for those products that may not meet their standard of health. When someone thinks about Whole Foods, their first perception is “expensive”, but with Whole Foods’ 365 Everyday Value, it allows for customers that are consciously aware of the prices, to be able to shop in their stores, due to their reasonable prices on select products. On the other hand, Whole Foods Market Brand consists of their premium products that are comparably higher than most standard supermarkets, due to the lack of accessibility of their product elsewhere. Lastly, Whole Foods incorporated the Engine 2 Plant-Strong product line, to help differentiate their products to vegetarian and vegan consumers. The Engine 2 Plant- Strong line’s objective is to put out product that an entirely plant based, while also following strict guidelines such as, no animal products, no added oil, 100% whole grain, minimal added sugar (if at all), and a less than 1:1 ratio of milligrams of sodium to the number of calories.
When discussing the place perspective of marketing mix, Whole Foods has two options as to where customers can purchase their product. Customers can choose online and in-store purchasing, but Whole Foods contains a majority of their purchases in-store. Whole Foods has just recently incorporated themselves in the market of delivered groceries, by signing an exclusive partnership with Instacart, which allows customers to get all their usually groceries from Whole Foods shipped directly to their door. Being that Whole Foods prioritizes the in-store sales, they are very meticulous on choosing the proper location for a new store. On average, a Whole Foods location can range from 35000 to 40000 square feet of space. This allows for abundant parking space for those locations that are outside of urban cities (New York City, Chicago, etc.). A standard Whole Foods location will have around 200,000 people living within a 20-minute drive to the nearest store, which allows for a growth in popularity in their brand. Usually a large number of those that live near a Whole Foods location, are college-educated residents, who may in fact have the salaries to be able to afford consistent shopping in a supermarket like Whole Foods. Lastly when establishing a proper location, Whole Foods also takes into consideration the accessibility to major roads, which ultimately allows for their store to be regularly viewed, even by customers that may shop elsewhere.
While discussing the price aspect of marketing mix, we can refer back to what was earlier discussed on how Whole Foods’ standard of only selling high quality products, which in fact predominantly come hand-in-hand with expensive prices. Although many of Whole Foods’ regular customers are not particularly price sensitive, in order to attracted other customers who may shop at supermarket such as Trader Joes, they knew adjustments had to be made. As discussed earlier the 365 Everyday value allows for Whole Foods to compete with lower-cost competition, while still upholding their standard of quality with their exclusive Whole Foods Market Brand. In order to help alleviate some of those products from their steep prices, Whole Foods has begun offering coupons to its customers via their new app, or in the entrance of select stores, where weekly coupon books are placed.
The last aspect of marketing mix, is the component of promotion. Whole Foods has been generally averse to run ads in either print or visual media. They heavily rely on their brand awareness to get customers to their stores, wanting to ensure a positive shopping experience and ultimately entice customers to come back to shop. The company also relies a lot on a positive message being spread by its customers and their integration in social media. Whole Foods’ marketing team is active on Pinterest, Twitter, Facebook and Instagram with a total following of 11 million. The main marketing investments has been on the community, by teaming up with non-profit organizations which help grow small businesses and the local communities, all while promoting their brand.(28)