CASE STUDY

WHOLE FOODS MARKET IN 2008: VISION,

CORE VALUES AND STRATEGY

SUBMITTED BY:
SABA ALAM
 World Headquarters

Whole Foods Market, Inc.

550 Bowie Street
Austin, TX 78703-4644
512.477.4455
512.477.5566 voicemail
512.482.7000 fax

FACTS & FIGURES

More than 300 stores in North America and the United Kingdom.

Team Members: 54,000

Distribution Centers: 9

Regional Bake houses: 9

Commissaries: 5

Website: http://www.wholefoodsmarket.com
 Question # 1
What are the chief elements of the strategy that Whole Foods Market is pursuing?

Whole Foods Market was founded in 1980 as a local supermarket and has now become world’s
largest retail chain of natural and organic foods supermarkets. Whole Foods offers the highest
quality, least processed, most flavorful and naturally preserved foods available. Whole foods
market has its own private label brands of organics. Whole Foods Market aims to sell the
highest quality natural and organic products, satisfy and delight its customers and team
members, create wealth through profits and growth and care about communities and
environment.

Growth Strategy:

Till 2002 their growth strategy was to expand via a combination of opening its new stores and
acquiring small stores that were located in desirable locations. From 2002 the management
decided to drive growth by opening 10 to 15 bigger stores in metropolitan areas. It bought their
biggest rival wild oats and expanded their product offerings and reduced their prices which
improved the sales immensely in three months.

Store Sizes & Locations Strategy:

Whole Food’s store sizes range between 40,000 square feet to 60,000 initially. They increased
the store sizes and now their biggest store is of size 99,800 square feet located in London.
Other store sizes are 71,000 sq feet, 77,000 sq feet, 65,000 sq feet, 55,000 sq feet etc.

Their location strategy was to open stores in upscale areas of metropolitan centers. Their most
stores were located in high traffic shopping locations, some were freestanding, some were in
strip centers and some in high density mixed use projects. They have their own model to
analyze markets.

Store Layout & Merchandising Strategy:

Whole Foods Market did not have a standard layout for stores. Each store’s layout is designed
according to the particular site and building configuration. Their merchandising strategy was to
create an inviting and interactive store atmosphere. They use bright colors for product displays,
provide best quality of foods and customer service and maintain cleanliness everywhere.

Store Operations:

Whole Foods follows a team approach to store operations. It employs between 85 and 600
team members organized into minimum 13 teams. Each team is led by a leader. Whole Foods
has given its team members full authority to make many decisions at the store level regarding
merchandising, departmental operations and customer service. The team approach promotes
strong corporate culture and motivation among employees.
Product Line:

The products and brands offered vary from store to store because stores are of different sizes
and have different clientele. Whole Foods have around 30,000 natural, organic and gourmet
food products. The prices at Whole Foods are higher than conventional supermarkets. However
as it manages to provide customers the premium quality they are willing to pay higher price for
it.

Marketing & Customer Service:

0.5 percent of its revenue is assigned for advertising. They prefer primarily on word-of-mouth
recommendations. Each of its stores has a separate budget for marketing of particular store
through fairs, classes, product sampling etc. The corporate marketing budget is allocated to
region wide marketing efforts. Whole Foods has empowered its team members to do whatever
they want to please the customers.

Compensation & Incentives:

The company has a gain sharing program which is based on the profits of each store. It also
encourages stock ownership. Its salary limits the compensation of any team member to 19
times the average total compensation of all full-time team members in the company. It uses
Economic Value Added to measure performance.

Purchasing & Distribution:

Most of the purchasing of Whole Foods is from local, regional and national wholesale suppliers
and vendors. It owns two produce procurement centers that facilitated the procurement and
distribution of majority of its products. It operates nine regional distribution centers, nine
regional bake houses and five commissary kitchens.
 Question # 2
Do you think John Mackey has a good strategic vision for Whole Foods? Why or
why not? What do you like/dislike about the company’s motto “Whole Foods,
Whole People, Whole Planet”? Do the motto and the principles underlying it
really matter at this company or are they just nice words and cosmetic window
dressing? Explain

John Mackey’s vision for Whole Foods was to 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 food stores were located. He wanted whole food’s market to set the standard for
excellence in food retailing. His philosophy was that marketing high quality natural and organic
foods to more and more customers in more and more communities would overtime gradually
transform the diets of individuals in a manner that would help them live longer, healthier, more
pleasurable lives.1

John Mackey’s vision charts the company’s future strategic course. It explains what the
company wants to be, where it wants to go and what are the scopes of the company’s future.
When we see the popularity of the company in natural and organic food market we may realize
that John Mackey’s vision for Whole Foods is not unrealistic or unachievable. He does not want
to stop at just natural and organic food but also wants to capture the food retail business itself
and at the same time considering the health and happiness of the people. In my opinion if John
Mackey follows the strategies made by the company and continue carrying out the wonderful
business and pleasing the customers the chances of achieving the vision gets higher with time.

The company’s motto “Whole Foods, Whole People and Whole Planet” covers the three most
important factors of success of food retail business. It focuses the quality of products being
offered, it focuses the employees of the company and it also covers the social responsibility of
the company. However the company’s main motto does not mention the factor of customer
satisfaction. It should mention the importance of customers for the company as customers
should be the first priority of any company. The good thing about Whole Foods is that it follows
its motto in running the business. These are not just the nice words written by the company to
impress people. Whole Foods provide the best quality, least processed natural and organic food
to its customers. In its each store they have made teams and its employees are very satisfied
with the respectful workplace. It has fulfilled its commitment of team based management to its
employees. Each store of Whole Foods has as many as 13 teams each led by a leader. This
has given empowerment to employees increasing their satisfaction level. Whole Foods Market
is also fulfilling its social responsibility by donating to educational organizations. It has also
established a not for profit Whole Planet Foundation. It has stopped using disposable plastic
bags and has started converting its distribution fleet vehicles to biodiesel fuel. It is also involved
in promoting proper animal farming etc.

Question # 3
1
Arthur A. Thompson, The University of Alabama, 2008
 How well is Whole Foods Market performing from a financial perspective? Do
some number crunching using the data in Exhibits 9 and 10 to support your
answer. Use the financial ratios present in table as a basis for doing your
assessment of the company’s financial statement and financial condition.

Whole Foods’ business generated cash flows from operations of $452.7 million in 2006 and
$398.6 million in 2007. Most of the capital expenditures of the company go into funding the
development or acquisition of new stores and acquisition of property and equipment for existing
stores.

2006 2007
Gross Profit Margin 34.94% 34.84%

Return on sales 5.689% 4.512%

Return on stockholders’ 0.14516 0.1252

equity

Net return on sales 0.0363 0.0277

Return on total assets 0.0998 0.0581

Earnings per share $1.46 $1.30

Current ratio 1.224 0.8514

Quick ratio 0.824 0.4842

Working capital 114211 (116530)

Debt-to-asset ratio 0.0042 0.2290

Long term debt-to-equity ratio 0.00612 0.504

Long term debt-to-capital 0.00609 0.335

ratio

Inventory Turnover 17.90 14.907

Inventory Turnover per day 26 days 20 days

We can see from the above given comparison that the performance of Whole Foods Market has
somewhat declined in 2007. However this decline is not major and threatening to the company’s
performance. Sales return has decreased by 1% and the current ratio is also less than
2006.The reduction in working capital can be a problem to the company hence it should look
into that. The debt-to-equity ratio and the debt-to-capital ratio have increased which is not so
beneficial for the company. As the gross profit margin is almost equal in both years the
company is visibly performing well from financial perspective. The inventory turnover per day
has also decreased in 2007.

Question # 4
How well is Whole Foods Market performing from a strategic perspective? Does
Whole Foods enjoy a competitive advantage over its rivals? Does the company
have a winning strategy?

Whole Foods Market is performing exceptionally well from strategic perspective. All its work and
doings are in accordance with the strategies they have made, their motto and their core values.
Whole Foods makes sure that it makes the right strategies and decisions at the right time and
also do necessary efforts to implement these strategies. It has made strategies for all major
aspects of their business for example it had a growth strategy and when the need came for
change they changed their growth strategy in 2002. The company has made strategies for its
stores, their location, and Whole Food’s product line, the design of the stores, the product
quality, and marketing and for providing their customer most satisfactory service. It follows the
strategy of team based management for store operations. It also offers compensation and
rewards to its employees.

It has also made strategies that are feasible for the purchasing and distribution of items. All
these strategies are in accordance with the company’s requirement and thus the company
maintains a competitive advantage over its rivals due to its sustainable implementation of
strategies for achieving its goals and managing the company. It acquired one of it biggest rivals
Wild Oats in 2007. The company’s strategy has helped it in gaining the high position in the
market.