The organic and natural foods market has increased steadily in the US. Noteworthy, this is in line with the society’s modern trend of adopting a healthy and active lifestyle. Moreover, this industry presents an enormous potential for both Whole Foods Market and its competitors. In light of this, all the businesses in this market are remodeling their business structure with an objective of being market leaders. Arguably, a market leader in a closed market such as the organic and natural foods industry has the strategic ability of been a price maker. This paper will explore the strategic measures that Whole Foods Market has developed in order to strategically position itself as a market leader. Importantly, it will evaluate the company’s generic and intensive strategies, its competitiveness using Nadler-Tushman congruence model as well as evaluate its recent financial performance. Finally, it will form a conclusion using the results of the in-depth investigation and analysis of Whole Foods Market.
Keywords: WFM, competition, growth
Congruence Model of Organizational Behavior: Whole Foods Market Strategy
In an ever changing business field, a company’s survival is as good as its ability to formulate and adopt dynamic and new business strategies. In order to continue been competitive, Whole Foods Market (WFM) has developed a new business strategy with an aim of ensuring it remains a market leader in the sale of organic foods. Basically, the organic food market in the US has been growing steadily and this has led to the entrance of new and strong competitors into this industry. Some of the main competitors that have emerged are Wal-Mart, Kroger, and Costco.
Established in 1978, WFM is a greengrocer company that sells organic and natural foods in USA, Canada, and the UK. WFM has continuously held the top spot as the best retailer in organic foods in the US till 2014 (Bells, 2015). However, the company has currently come under intense pressure from competitors. In order to remain competitive, the company has aggressively remodeled its business by formulating various strategies aimed at promoting sales and reducing the costs of its products.
Generic and Intensive Growth Strategies
Generic strategies refer to the use of innovative methods that concentrate on differentiation, focus, and low-cost production of goods and services. Essentially, these methods are based on Porter’s model. Noteworthy, WFM is faced with two internal and external challenges. Firstly, the company faces stiff competition from supermarkets such as Kroger Company, Costco Wholesale Corporation, and Wal-Mart Stores. Secondly, the cost of organic foods is high. In light of this, the company must find ways of selling its products at competitive prices just like its competitors.
WFM Generic Strategic Model (Porter’s Model)
Differentiation. Whole Foods Market has been able to clearly distinguish itself from its main competitors. To begin with, the company specializes in the sale of organic and natural farm products. In light of this, the company has created a brand for itself. Moreover, the company also sells WFM branded products in its retail shops. In essence, these products assure customers of their quality as being natural and purely organic. Finally, the company uses unique sizes for its stores to attract customers. In brief, the company’s stores are usually big and spacious and offer a wide variety of products (Johnston & Szabo, 2011). To enumerate, the company stores are usually about 40,000 square feet while competitors are about 10,000-20,000 square feet. In effect, the company’s stores give consumers ample space and variety when shopping (Bells, 2015).
Focus. Markedly, the company has been able to focus on the production of natural and organic food products for a long time. Basically, the company has been consistently operating in this field since 1978. In turn, this has enabled the company to gain the brand of a reliable supplier of high-quality organic products (Bells, 2015). Primarily, this has been fundamental in enabling the company to venture into foreign markets such as the UK and Canada because it is a recognized household name. Notably, WFM products focus on people of all ages and gender. Consequently, its products have a wide market base which provides a viable current and future market.
Low cost. Noteworthy, WFM has been consistently accused of selling its products at inflated prices. Worse still, most of these costs are beyond the company’s control. Ostensibly, this is because the costs of organic and natural foods are usually higher than those that are non-organic (Jaradat, Alomomani, & Bataineh, 2013). In the wake of competition, the company has decided to increase its efficiencies as a means of reducing its overall costs. Importantly, the company reduced its overall number of employees by 1500 individuals in 2015 in order to reduce its overall production costs (Huddleston, 2015). In addition to this, the company recently introduced its new chain of small stores called 365 Stores. Remarkably, this method will ensure that it is able to sell its products to all possible clients using this small retail shops. Generally, this is because the 365 Stores can be located in most towns in the US.
Nadler-Tushman Congruence Model
Nadler-Tushman congruence model posits that an organization’s subparts must be congruent in order for it to have operational efficiency. More specifically, the business subparts must be consistently structured and managed to ensure that the activities of each department are aligned with the overall objective of the organization (Nadler, Tushman, & Hatvany, 1980). In light of this, the business inputs must match its outputs.
In brief, inputs refer to resources that the business has to work with in order to achieve its desired goals and objectives. Basically, the inputs are classified as environment, resource, history, and strategy. Environment refers to all factors outside the organization (Nadler, Tushman, & Hatvany, 1980). In the case of Whole Foods Market, the environment may refer to activities by its competitors, suppliers, and food regulators. Resources refer to the organization physical, financial, human, and intellectual capital. History refers to a business culture and traditions and the manner that they influence its operations. Finally, strategy refers to the methods that a business arranges its resources to achieve its desired objectives.
Environment. Whole Foods Market environment presents it with a wide range of opportunities and challenges alike. To begin with, the company is faced with challenges of the emergence of new competitors in the market such as Wal-Mart, Kroger, and Costco. Noteworthy, these competitors present a lot of challenges to the company as they threaten to usurp the company’s market (Bells, 2015). Notably, they now control a significant size of the organic and natural foods market. Moreover, they sell their products at a much lower cost than WFM.
Resources. In general, WFM has a large access to financial, physical, and intellectual capital which it utilizes for its own development. Primarily, the company has a wide access to financial resources since it is a public company. Impliedly, the company can always raise more financial capital to expand its business through the sale of shares. Moreover, the company has 433 stores which act as reliable supply chains for its products. In addition, the company aims at increasing its stores to 1200 in the US and this will enable it to retain its position as a market leader (Bells, 2015).
History. WFM has cut for itself a strong market presence as a reliable leader in the provision of high-quality horticultural products. To explain, the company was the first one to start the trade in natural and organic food products in the US. Consequently, it has been able to develop a good reputation as a retailer of organic farm products. Further, the company has for a long term been a market leader in the sale of farm products (Bells, 2015). As a result, it has a positive reputation of having a strong return in earnings per share to its shareholders. Overly, these positive historic results serve as targets in both quality and profits that the management must maintain or surpass in their day to day activities.
Strategy. WFM has developed strong and realistic strategies through which it aims at competing in the current market. To begin with, the business has a strong and experienced team of management that is able to critically evaluate the underlying external and internal business environment. Primarily, the management has formulated a few strategic measures aimed at increasing the business sales. Firstly, the management has reduced the number of the company’s employees by 1500 (Huddleston, 2015). Effectively, this has led to a reduction in the business overall costs, and correspondingly led to a reduction in the cost of its products.
Another strategic plan that the business has implemented is the targeting of low-end consumers by the opening of the 365 Stores. 365 Stores are designed to sell products at low costs in various towns. Further, the company is in the process of opening up many stores for its customers in both the short-term and long-term (Bells, 2015). In the long-term, the company aims at having more than 1200 stores in the US alone. Evidently, this huge number of stores will have a positive effect of increasing the business’ profits.
Outputs refer to the goods and services that the business produces for its customers. Importantly, the business must align its resources to produce the desired type of outputs. At the organizational level, the business must focus on the attainment of its goals and objectives, adequate resource utilization, and adaptability to the changing business environment. In particular, the business must align its four major components which are tasks, individuals, formal organization arrangement, and informal organization arrangements. Ideally, the alignments of these resources will facilitate the achievement of the company’s goals and objectives.
Tasks. In brief, tasks refer to the particular activities that individuals need to do in order to produce their goods and services. In particular, tasks entail activities such as packaging processing, forming contracts with suppliers, and proper linkage of the producers and the market (Nadler, Tushman, & Hatvany, 1980). In light of this, WFM tasks entail organizing the manner in which the products reach its stores from the various suppliers, processing, packaging, payments, and recruitment of individuals with the necessary skills and experience. In order to achieve these objectives, the company has four processing companies for its products. Moreover, it has various contracts with its dedicated farmers who assure it of a constant supply of farm produce. Finally, the company has an organized supply chain that ensures its products reach its stores when they are fresh.
Individual. WFM has a dedicated team of highly competent individuals who are able to conduct their activities in a professional manner. In this regard, the huge supply of human resource in the company ensures there is a specialization of talent. Consequently, individuals in each department have an in-depth understanding of the company’s goals and objectives. In this regard, the business is able to ensure that customers’ needs are well served by its competent personnel.
Formal organizational arrangements. WFM uses a formal and highly organized structure to ensure that its employees are competent and that the business has a regular supply of high-quality products. To explain, all the employees have their formally designated roles and duties. Moreover, the company is organized into various departments which ensure there is a smooth functioning of activities (Bells, 2015). For example, the company requires all employees to work in teams. In this regard, every level of the company has teams which ensure there is a streamlined running of the entire organization. Interestingly, the business uses the teams in the hiring of new personnel. Basically, the team members select the individuals whom they would be comfortable working with. Consequently, this participative approach ensures there is a smooth transitioning of the employee into the company’s culture and ethics.
Informal organization arrangement. WFM semi-formal organization structures are formulated in such a way that they increase efficiency and smooth operation of the company’s activities. Ideally, the company encourages the use of open communication at all levels to establish efficiency in the operation of its activities. Moreover, this form of communication ensures that corrective actions in the company can be implemented as soon as necessary. Further, this system breaks the unnecessary bureaucratic decision-making process which has the potential of compromising the company’s efficiency.
In the same breath, the company has integrated the principle of transparency in its activities. WFM open policies make its stakeholders to have an understanding of the company’s operations and challenges. In brief, this culture makes workers and shareholders to appreciate the company’s activities. Subsequently, this leads to higher productivity and low staff turnover rates.
WFM performance was on a decline in 2015. However, despite this negative trend coupled with the increase in competitors’ activities, the company’s future business strategy is positive. Markedly, the current US organic foods market is positive with an increasing demand for these products. Currently, the demand is about 20% and it is expected to jump to around 80% by 2025. In turn, this market presents enormous potential for the company in future.
WFM had gross profits of 5,416,000, 5,044,000, and 4,629, 000 for year 2015, 2014, and 2013 respectively. Evidently, this shows a steady rise in the company’s profits in these three years. Nevertheless, the company had a reduction in its net income over the three years which showed there was a reduction in earnings per share. Basically, the net income applicable to common shareholders over this period was 536,000, 579,000, and 551,000 (WFM Whole Foods Market, 2016). Essentially the reduction in returns to shareholders in 2015 showed a reduction in profitability levels of the business. Reduction in profitability levels in the business can be explained by the steady rise in the business’ administrative and selling costs. In year 2015, 2014, and 2013 these expenses were 4,472,000, 4,032,000, and 3,682,000 respectively. WFM has resulted in the reduction of its employees by 1500 in order to reduce the administrative costs (Huddleston, 2015).
WFM assets in the property plant and equipment category have shown a steady increase in their value. Primarily, this is in line with the company’s policy of increasing the number of stores to 1200 in the long term, and the introduction of the 365 Stores. Basically, property, plant and equipment in 2013, 2014, and 2015 were 2,428,000, 2,923,000, and 3163,000 respectively. Liabilities for the company have also been on a steady increase. In 2015, 2014, and 2013 they were 1,972,000, 1931,000, and 1,660,000 respectively (WFM Whole Foods Market, 2016). Expectedly, an increase in business operations is usually accompanied by an increase in debt levels. Therefore, the increase in the business debt is within the expected margins.
To sum up, given the company’s current policies of reducing the number of employees and increasing the number of stores in order to leverage on the growing demand for natural organic foods, WFM will make profits in the long run. In principle, this method will enable the business to achieve both its long-term and short-term business objectives. In practice, the business short-term objectives are to make immediate profits and to offer high-quality products at the most affordable prices. In the long-term, the business aims at having a lot of branches all over the US that will enable it to comfortably hold the position of the market leader in this industry.
Bells, S. (2015). Introducing Whole Foods: America’s organic food market. Retrieved from http://marketrealist.com/2015/11/introducing-whole-foods-americas-organic-food-market/
Huddleston, T. (2015). Whole Foods is cutting 1500 jobs. Retrieved from http://fortune.com/2015/09/28/whole-foods-jobs/
Jaradat, S., Alomomani, S., & Bataineh, M. (2013). The impact of Porter model’s five competence powers on selecting business strategy. Interdisciplinary Journal of Contemporary Research in Business, 5(3), 457-470.
Johnston, J., & Szabo, M. (2011). Reflexivity and the Whole Foods Market consumer: The lived experience of shopping for change. Agriculture and Human Values, 28(3), 303-319.
Nadler, D., Tushman, M., & Hatvany, N. (1980). A model for diagnosing organizational behavior: Applying a congruence perspective. Toronto: Little, Brown and Company.
WFM Whole Foods Market. (2016). Yahoo finance. Retrieved from https://finance.yahoo.com/quote/WFM/financials