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Whole Foods Market in 2014
Overview
Founded in 1980, Whole Foods Market had evolved from a local supermarket for natural and health foods
in Austin, Texas, into the most visible and best-known leader of the natural and organic foods movement
across the United States, helping the industry gain acceptance among growing numbers of consumers
concerned about the food they ate. The company had 2013 sales revenues of $12.9 billion and, in Spring 2014
had 379 stores in the United States, Canada, and Great Britain. Over the past 22 years, sales had grown at a
compound annual rate of 25.2 percent, and profits had grown at a compound average rate of 30.4 percent. In
2013, Whole Foods was the 8th largest food and drug retailer in the United States (up from 21st in 2009) and
ranked 232nd on Fortune magazine’s 2013 list of the “500 Largest Companies in the United States.” Over seven
million customers visited Whole Foods stores in 41 U.S. states, Canada, and the U.K. each week, and Whole
Foods was the #2 retail brand on Twitter, with 4 million followers.
Whole Foods’ mission was “to promote the vitality and well-being of all individuals by supplying the highest
quality, most wholesome foods available.” The core of the mission involved promoting organically grown foods,
healthy eating, and the sustainability of the world’s entire ecosystem. For many years, the company used the
slogan “Whole Foods, Whole People, Whole Planet” to capture the essence of its mission. John Mackey, the
company’s cofounder and Co-CEO, was convinced that Whole Foods’ rapid growth and market success had
much to do with its having “remained a uniquely mission-driven company—highly selective about what we sell,
dedicated to our core values and stringent quality standards, and committed to sustainable agriculture.”
Mackey’s vision was for Whole Foods to become an international brand synonymous with carrying highest
quality natural and organic foods available and being the best food retailer in every community in which Whole
Foods stores were located. The company sought to offer the highest quality, least processed, most avorful and
naturally preserved foods available, and it marketed them in appealing store environments that made shopping at
Whole Foods interesting and enjoyable. Mackey believed that marketing high quality natural and organic foods
to more and more customers in more and more communities would over time gradually transform the diets of
individuals in a manner that would help them live longer, healthier, more pleasurable lives.
The focus of the case is on Whole Foods’ strategy and operations in the ~$80 billion natural and organic foods
segment of the food retailing industry in the U.S. The company is interesting in several important respects: it is
a grocery chain—one that is making a name for itself and on the verge of becoming one of the top 20 leading
supermarket chains in North America. Whole Foods “walks the talk” in striving to live up to its core values. It
had made Fortune’s “100 Best Companies to Work For” list for 17 consecutive years (1998–2014), one of only
13 companies to make the list every year since its inception. And both its strategy and its operating practices are
worthy of careful study as examples of how to run a good company.
There are several issues that require action recommendations on the part of class members:
nAre more strategy changes needed to respond to changing market conditions and further stimulate sales
growth and additional customer traffic?
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TEACHING NOTE
CASE 3
:
Vision, Core Values, and Strategy
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273
nIs there anything more that Whole Foods can do to counteract the increased competition it is getting from
supermarket chains and companies like Wal-Mart that are stocking and promoting greater numbers of natural
and organic products in their stores?
nShould Whole Foods revamp its product offerings to include a much higher percentage of healthy, nutritional,
“good-for-you” products and to greatly reduce its offerings of high-calorie, high-fat, and less healthy
products. Should the company put even more emphasis on its recently-initiated “healthy-eating” campaign?
Suggestions for Using the Case
This is an excellent leadoff case for the course for 4 reasons:
nIt illustrates the CEO’s role as chief strategist and organization leader.
nIt provides students with a detailed look at how a company’s business principles and core values can (and
should!) link tightly to and drive its strategy and operating practices.
nIt gives students useful practice in evaluating a company’s direction and strategy when it is the leader in
a fast-growing market segment and then encounters an unexpectedly sharp economic recession, as well as
mounting competition from rivals.
nIt requires that students draw upon most all of the concepts discussed in Chapters 1 and 2 in assessing Whole
Foods situation and future prospects.
If you elect to delay assigning the case until class members have read Chapters 3, 4, and 5, then you can
probe deeper into Whole Foods’ resource capabilities and strengths in contending with competition from major
supermarket chains and its chief rivals in the natural and organic foods segment. But students will really have no
trouble wrestling with the various competitive issues and generating reasonable action recommendations without
the benefit of having read the material covered in Chapters 3, 4, and 5. Even if some class members have never
been in a Whole Foods store or one of its direct natural foods/organic competitors (like Trader’s Joe’s or The
Fresh Market), their familiarity with supermarket retailing and the fairly clear-cut issues and strategic thinking
required for this case will enable a lively and thought-provoking class discussion—which is why Whole Foods
makes such a good leadoff case.
We suggest use of a teaching plan that focuses on John Mackey’s strategic vision for Whole Foods, the company’s
core values (Exhibit 2) and socially responsible operating practices, the components of Whole Foods’ strategy
and the revisions that were instituted to combat the sudden downturn in customer traffic and purchases at Whole
Foods’ stores in 2008-2009, the shopping atmosphere that Whole Foods has managed to create in its stores, the
company’s team approach to store operations, and the reasons why Whole Foods has been regularly selected for
inclusion on Fortune’s list of “The Best Companies to Work for in America.”
Videos for Use with the Whole Foods Case There are two videos that you can use with the Whole Foods
Market case:
n A 6:22-minute February 7, 2013 YouTube video entitled “Whole Foods: How Radical CEO Created Grocery
Empire” that works well at the beginning of the class period. It can be accessed at http://www.youtube.com/
watch?v=f6c8oqK-OIk.
n A 2:02-minute September 22, 2014 video entitled “Organic Food Is Going Mainstream” that also works well
for showing at the beginning of class. It can be accessed at http://www.kgns.tv/home/headlines/Organic-
food-is-going-mainstream-276021731.html.
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The Connect-based Exercise for the Whole Foods Market Case. We made a point of creating an exercise
for Whole Foods Market for inclusion in the publisher’s Connect™ Management web-based assignment and
assessment platform because (1) the Whole Foods case is very appropriate for use early in the course and (2) one
of the purposes of the case exercises is to help get students off on the right track in understanding the demands of
case analysis and what it takes to come to class fully prepared for discussion of an assigned case (or to develop a
substantive written analysis or oral team presentation). If you plan to make use of any of the Connect-based case
exercises, then it makes sense for your early case assignments to be those cases with Connect exercises.
This particular Connect-based exercise involves developing answers to a subset of the recommended assignment
questions for the Whole Foods case, specifically:
1. What are the chief elements of the strategy that Whole Foods Market is pursuing?
2. Do Whole Foods Market’s core values as presented in case Exhibit 2 really matter? Are they “real” or just
cosmetic window dressing? What evidence can you cite to support your answer? Have Whole Foods’ core
values contributed to the company’s success? Why or why not?
3. Based on the financial statement data in case Exhibit 1 and the store operations data in case Exhibits 3 and
4, how well is Whole Foods Market performing? Use the financial ratio information in Table 4.1 of Chapter
4 (pages 81-83) to assist you in calculating a revealing set of` financial ratios and interpreting them.
4. How well is Whole Foods Market performing from a strategic perspective? Does Whole Foods enjoy a
competitive advantage over its 3 chief rivals—The Fresh Market, Trader Joe’s, and Sprouts Farmers Market?
Does the company have a winning strategy?
5. What recommendations would you make to John Mackey regarding the actions that Whole Foods’
management needs to take to sustain the company’s growth and financial performance?
The exercise should take class members roughly 45 minutes to complete, assuming they have done a conscientious
job of reading the case and absorbing the information it contains. All aspects of this particular exercise are
automatically graded and entered in your electronic grade book that is part of the Connect platform, which makes
it easy for you to evaluate the caliber of each class member’s preparation and prowess in evaluating Whole
Foods’ situation.
If you have had your class purchase the Connect software package that is available for the 20th edition, then we
strongly urge that you consider requiring all class members to complete this particular Connect™ exercise—
preferably before coming to class on the day the case has been assigned. Students that do a conscientious job
of completing the exercise will be better prepared to make meaningful contributions to the class discussion, as
opposed to merely giving off-the-cuff opinions. Insisting that class members bring printouts of their work to use
as notes during the class discussion enables them to argue their positions more forcefully and completely.
What to Tell Students in Preparing the Whole Foods Case for Class. To give students guidance in
what to do and think about in preparing the Whole Foods case for class discussion, we strongly recommend two
things:
1. Have class members complete the Connect-based exercise for the Whole Foods case in the event you
have adopted the Connect software for your course.
2. Provide class members with assignment questions and insist that they prepare good notes/answers to
these questions before coming to class. Our recommended assignment questions for the Whole Foods
case are presented in the next section of this TN. You may wish to have the class concentrate their
attention on a subset of these questions, depending on how you want to handle the class discussion.
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To facilitate your use of assignment questions and making them available to students, we have posted a file of
the Assignment Questions contained in this teaching note on the instructor resources section of the Connect
Library. In all instances, these assignment questions correspond to the assignment questions in the teaching
note for the case.
In our experience, it is quite difficult to have an insightful and constructive class discussion of an assigned case
unless students have conscientiously have made use of pertinent core concepts and analytical tools in preparing
substantive answers to a set of well-conceived study questions before they come to class. In our classes, we
expect students to bring their notes to the study questions to use/refer to in responding to the questions that
Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that immediately follows Case 31 in the text. The content of this
Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis. The
range of issues in the Whole Foods case and the rich information it contains make it suitable for both oral team
What is your assessment of John Mackey’s strategic vision for Whole Foods Market, the core values that
Whole Foods displays in its operations, the company’s strategy, and the manner in which the company
Assignment Questions
1. What are the chief elements of the strategy that Whole Foods Market is pursuing?
2. Is Whole Foods’ strategy well matched to market conditions in the food retailing industry (one of the criteria
for a winning strategy discussed in Chapter 1)?
3. 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 mission “to promote the vitality and well-being of all individuals by supplying
the highest quality, most wholesome foods available?”
4. Do Whole Foods Market’s core values as presented in case Exhibit 2 really matter? Are they “real” or just
cosmetic window dressing? What evidence can you cite to support your answer? Have Whole Foods’ core
values contributed to the company’s success? Why or why not?
5. Based on the financial statement data in case Exhibit 1, how would you assess the company’s financial
performance since 2009? Use the financial ratio information in Table 4.1 of Chapter 4 (pages 81-83) to assist
you in calculating a revealing set of` financial ratios and interpreting them.
6. Based on the store operations data in case Exhibits 3 and 4, how well is Whole Foods Market performing
from a strategic perspective? Does Whole Foods enjoy a competitive advantage over its 3 chief rivals—The
Fresh Market, Trader Joe’s, and Sprouts Famers Market? Does the company have a winning strategy?
7. What recommendations would you make to John Mackey regarding the actions that Whole Foods’
management needs to take to sustain the company’s growth and financial performance?
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Teaching Outline and Analysis
1. What are the chief elements of the strategy that Whole Foods Market is pursuing?
Whole Foods strategy has a number of elements that class members should identify:
nThe company’s growth strategy has been to expand via a combination of opening its own new stores and
acquiring existing stores.
• Most of the company’s growth has come from internal efforts to open new stores. As a general
rule, most new Whole Foods stores were opened in high-traffic shopping locations on premier real
estate sites; some were freestanding, some were in strip centers, and some were in high-density
mixed-use projects. For a number of years, Whole Foods favored store locations on high-traffic
thoroughfares in the upscale areas of large metropolitan areas. The company’s “sweet spot” for the
• During 1992-2001, Whole Foods’ most significant acquisitions consisted of seven small chains
with a total of 45 stores ranging in size from 5,000 to 20,000 square feet. The company entered
• The 2007-2008 acquisition of Wild Oats Market was far and away the company’s biggest and
most important acquisition—and also something of a departure for Whole Foods, given the smaller
• Whole Foods acquired only 8 stores during fiscal years 2010-2013, opting to drive growth by
• Whole Foods became more active in making acquisitions in 2014. In February 2014, Whole Foods
seized the opportunity to acquire leases from Safeway for seven Dominick’s supermarket stores in
Chicago; plans were underway to remodel these stores and reopen them as Whole Foods stores in
nThe economic slowdown that began in 2007 and then quickly accelerated into a deep recession in
2008–2009 forced a major overhaul of Whole Foods’ store expansion strategy. In November 2007,
when Whole Foods had 87 new stores in varying stages of development, the company announced it
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However, as the effects of recession gradually wore off and modest economic growth resumed in 2011-
2013, Whole Foods management grew more confident about the company’s growth prospects and began
to accelerate new store openings. By May 2014, the company had a record 114 new stores averaging
40,000 square feet in varying stages of development (as shown in case Exhibit 5). Management
There is merit in taking a couple of minutes of class time for students to look at and comment on
all of the new store development statistics for 2005-2014 that are displayed in case Exhibit 5—the
strong pickup in new store development activity is in from 2010 to 2014 is very evident.
nIn 2008-2009, the construction and store development teams for Whole Foods’ new stores adopted a
leaner and more disciplined approach to design and building, including plans for smaller stores with
• The layout of each Whole Foods store was customized to fit the particular site and building
• The cash investment needed to get a new Whole Foods Market site ready for opening varied with
the metropolitan area, store size, amount of work performed by the landlord, and the complexity
of site development issues—the average capital cost for new stores was about $8 million in 2010-
• Whole Foods had its own internally developed model to analyze potential markets according
to education levels, population density, and income within certain drive times. After picking
a target metropolitan area, the company’s store development group considered several possible
sites, developing sales and profit projections for each location and working with regional teams to
estimate the costs of opening a store at each site under consideration. Before entering into a lease for
nThe driving concept of Whole Foods’ merchandising strategy was to create an inviting and interactive
• Stores had colorful decor, and products were displayed in an attractive manner that both welcomed
close inspection and stimulated purchases (see case Exhibit 7). The effect was to project Whole
Foods as an authentic retailer of natural and organic products, a lifestyle brand, and a supermarket
playground with both a unique environment and unusually appealing food selections (some
wholesome and safe to eat, some “must try,” and some definitely calorific with mouthwatering eye
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• Most stores featured hand-stacked produce, in-store chefs and open kitchens, scratch bakeries,
• Whole Foods got very high marks from merchandising experts and customers for its presentation—
• Management believed that the extensive and attractive displays of fresh produce, seafood, meats
and house-made sausages, baked goods, and prepared foods in its larger stores appealed to a broader
• To further a sense of community and interaction with customers, Whole Foods stores typically
included sit-down eating areas, a healthy-eating center where shoppers could speak with trained
• There were “Take Action” centers for customers who wanted information on such topics as
• Cooking classes were offered at 39 stores, and 30 Whole Foods stores had state-of-the art culinary
• A few stores offered valet parking, massages, personal shopping, and home delivery.
• Management’s intent was for Whole Foods stores to play a unique role as a third place, besides
• Management continually experimented with new merchandising concepts to keep stores fresh and
exciting for customers. According to a Whole Foods regional manager, “We take the best ideas from
• Whole Foods’ merchandising skills were said to be a prime factor in its success in luring shoppers
nBecause Whole Foods stores were different sizes and had different shopper clienteles, the product and
brand selections varied from 20,000 items in small stores to 50,000 items in the largest stores. Whole
Foods’ product line included natural, organic, and gourmet food and nonfood items in the following
principal categories:
• Fresh produce—fruits; vegetables; displays of fresh-cut fruits; and a selection of seasonal, exotic,
• Meat and poultry—natural and organic meats, house-made sausages, turkey, and chicken products
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• Fresh seafood, some wild caught and some farmed using safe and environmentally responsible
practices. A portion of the fresh fish selections at the seafood station came from the company’s four
• A selection of daily baked goods—breads, cakes, pies, cookies, bagels, muffins, and scones.
• Prepared foods—soups, packaged salads and sandwiches, oven-ready meals, rotisserie meats,
• Fine quality cheeses, olives (up to 40 varieties in some stores), chocolates and confections.
• Frozen foods, juices, yogurt and dairy products, smoothies, and bottled waters.
• Coffees and teas. The company’s Allegro coffee subsidiary supplied all stores with specialty and
• Grocery and household products—canned and packaged goods, pastas, soaps, cleaning products,
• A body care and nutrition department with natural and organic body care and cosmetics products,
along with assorted vitamin supplements, homeopathic remedies, yoga supplies, and aromatherapy
• A family of private-label and exclusive brand offerings that were a key component of the company’s
differentiations strategy. The private-label offerings were led by its “365” and “365 Organic
Everyday Value®” brands that spanned many product categories and were less expensive than
comparable name brands. Whole Foods had also created a “Whole” family of brands (including
• Natural and organic pet foods, treats, toys, and pest control remedies.
• A oral department with sophisticated ower bouquets and a selection of plants for inside and
outside the home.
• Educational materials and books relating to healthy-eating, cooking, healing and alternative
healthcare, and lifestyle.
Whole Foods was the world’s biggest seller of organic produce. Organic products, outside of bakery
goods and prepared foods, accounted for an estimated 30 percent of Whole Foods’ total sales in fiscal
2013. In fiscal year 2013, Whole Foods’ private-label and exclusive brands accounted for approximately
16% of the company’s non-perishable sales and approximately 12% of total retail sales, up slightly from
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nWhole Foods Market sold foods that met strict standards and that were of high quality in terms of
nutrition, freshness, appearance, and taste—case Exhibit 6 shows the company’s quality standards.
nWhole Foods pricing strategy was to sell the highest quality products that it could find at the most
competitive prices possible. While the majority of the company’s private-label products and some of its
other offerings were “value-priced,” prices at Whole Foods were normally higher than at conventional
supermarkets. This was in part because the costs of growing, distributing, and marketing organic products
The fallout from the Great Recession of 2008-2009 caused Mackey and other Whole Foods executives
to act swiftly and decisively to change the company’s pricing strategy to better match the economic
climate and allay customer concerns about the higher costs of doing their grocery shopping at Whole
• Drawing upon new pricing research capabilities to monitor the prices of its supermarket rivals,
Whole Foods trimmed the prices of items it considered as “key” to boosting the value perceptions
of shoppers. Signs were placed on store shelves calling attention to items with price reductions
and to hundreds of value-priced items, many of which were at such popular price points as $0.99,
• To help put good value front and center, the company began using aisle displays with accompanying
signage to feature weekly hot deals, everyday-low-priced products, budget-priced cheeses and
wines, and out-of-the-ordinary products with budget prices; formerly, the practice was to use most
• Stores began featuring new family-sized prepared food selections for $17.99, prepared food items
• An in-store value guide, The Whole Deal, was created that contained cents-off coupons, highlighted
products with everyday low prices, and offered low-budget recipes and meal-planning advice to help
shoppers stretch their food dollars. The Whole Deal proved quite popular among customers, prompting
