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Case 3 Teaching Note Whole Foods Market in 2014
281
• The company took advantage of opportunity buys offered by suppliers and lower costs in several
product categories, including fresh produce and meat, using those to push strong promotions and
The strategic initiatives were effective. Sales growth per store for the first quarter of fiscal 2010 was 3.5
percent (versus -4.0 percent in the first quarter of fiscal 2009), and total revenues were up 7.0 percent
Because comparable store and identical store sales growth continued to be strong in succeeding quarters
and years (see section B of Exhibit 4), top executives opted to make the new pricing strategy and
emphasis on value a permanent part of Whole Foods’ strategy. Going into 2014, Whole Foods had
competitively matched prices on thousands of items, extended the range of value-priced choices to its
nWhen Whole Foods began to experience adverse effects on sales and customer traffic owing to the sharp
economic downturn in September 2008, Whole Foods’ management also moved swiftly to institute a
series of cost-containment measures relating to cost of goods sold, direct store expenses, and general
and administrative expenses. Purchases from suppliers were scrutinized for possible cost savings. A
hiring and salary freeze was imposed and remained in effect until July 2009. In order to trim back
nWhole Foods spent much less than other supermarkets on advertising and marketing, preferring
instead to rely mainly on word-of-mouth recommendations, testimonials from customers, and the
positive experiences that people had shopping at Whole Foods to generate customer traffic and sales.
• Stores spent most of their marketing budgets on in-store promotional signage, product samplings,
• The corporate marketing budget was divided among national and regional programs, The Whole
Deal in-store value guide and e-newsletter, and activities for individual stores. The Whole Deal
• Store personnel were encouraged to extend company efforts to encourage the adoption of a natural
• Each store also had a separate budget for making contributions to philanthropic activities and
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• Competent, knowledgeable, and friendly service was a hallmark of shopping at a Whole Foods
nWhole Foods also connected and engaged with customers through social media and the company’s
website and blog at www.wholefoodsmarket.com. Management believed social media provided the
company with a powerful way to communicate and interact with Internet-savvy customers and thereby
Once the chief elements of the strategy have been brought out, you may want to poll the class on what they
think of the strategy. How good is it? What grade would they give to John Mackey and other top executives
for the caliber of the strategy they have crafted for Whole Foods? We think the company deserves an A for
its strategy and the recent strategy changes to respond to recessionary conditions. Some students may assign an
A– or B+, owing to the company’s weaker performance induced by the deep recession (but the recession was
If students have been exposed to the material in Chapter 5 at the time you discuss the case, then you should
ask the class which of the five generic competitive strategies Whole Foods is pursuing. Our vote is for broad
differentiation, although some students may argue (with merit) that the strategy is more akin to focused
differentiation since organic and natural foods have a limited market appeal and since Whole Foods target
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)?
In our view a very strong case can be made that Whole Foods’ strategy is quite well-suited to (1) capitalizing
on the growing consumer interest in natural and organic foods and a healthy-eating lifestyle and (2) the
sluggish economic environment of 2009-2014. Points that students might make in support of the tight fit
include:
nHeightened awareness among people of many ages and ethnic groups of the role that food, nutrition, and
nIncreasing consumer concerns over the purity and safety of food due to the presence of pesticide residues,
nGrowing belief that organic farming had positive environmental effects, particularly in contributing to
nUSDA standards for labeling organic food products should help Whole Foods’ efforts to promote the
nWhole Foods merchandising strategy, its appealing stores, and its wide product selection put it in
Case 3 Teaching Note Whole Foods Market in 2014
283
nHowever, conventional supermarkets are not standing idly by and are expanding their offerings of
natural and organic food products so as to better meet the needs and expectations of consumers shopping
nSince Whole Foods carries many household items in its product line and is becoming more of a one-stop
place where shoppers can buy grocery and household items, Whole Foods is in position to compete not
nWhole Foods management has made significant changes in the company’s strategy to address a slow-
Key Conclusion and Teaching Point: Whole Foods’ strategy meets one of the key tests of a “winning
strategy”: it is well matched to the industry situation. The company has put together an appealing strategy
calculated to attract a growing and loyal clientele. It appears to be excellently positioned to growth sales
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?”
We would give John Mackey an “A” for the job he has done in leading the task of developing a clear and
effective strategic vision for Whole Foods. What really is there to dislike or to criticize about what
Whole Foods is or does and the strategic path on which the company is headed?
nThe slogan “Whole Foods, Whole People, Whole Planet” that captures the essence of the company’s
mission “to promote the vitality and well-being of all individuals by supplying the highest quality, most
wholesome foods available” is very much in step with the growth of natural and organic foods. The
nWhole Foods has pursued its strategic course successfully, emerging as not only the clear industry
nThe company’s “Whole Foods, Whole People, Whole Planet” slogan might at first come across as
“pretentious” or “idealistic” or “pious pontification” or “just a bunch of nice words” when students are
Case 3 Teaching Note Whole Foods Market in 2014
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nBoth management and company personnel take the “Whole Foods, Whole People, Whole Planet”
statement and the core values set forth in Exhibit 2 very seriously—the core values are widely shared
4. Do WFM’s core values as presented in case Exhibit 2 really matter or are they just
nice words and cosmetic window dressing? Have they contributed to the company’s
success? Why or why not?
We suspect most class members will agree that the stated core values in case Exhibit 2 definitely matter at
Whole Foods Market is a company dedicated to its “Whole Foods, Whole People, Whole Planet” mission. It
is “crusading” for what it believes in. And it practices what it preaches. Such qualities are to be admired and
In 1997, when Whole Foods developed the “Whole Foods, Whole People, Whole Planet” slogan to
This slogan taps into perhaps the deepest purpose of Whole Foods Market. It’s a purpose we
seldom talk about because it seems pretentious, but a purpose nevertheless felt by many of our team
members and by many of our customers (and hopefully many of our shareholders too). Our deepest
purpose as an organization is helping support the health, well-being, and healing of both people
To stimulate class discussion of Whole Foods’ “Whole Foods, Whole People, Whole Planet” slogan and
whether the company’s core values are genuine or cosmetic, you may wish to pose some of the following
questions to class members:
nWhat evidence is there that John Mackey is committed to conducting the business of Whole Foods in a
manner consistent with the company’s core values?
• The activities and efforts that comprise the company’s comprehensive social responsibility and
citizenship strategy are fully consistent with the company’s core values.
• Students should be quick to acknowledge that the company’s core value of selling the highest quality
natural and organic products available is definitely genuine and is reflected by the merchandise
stocked in the company’s stores, by its purchasing strategy
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• Another core value was “We appreciate and celebrate the difference natural and organic products can
make in the quality of one’s life.” Commitment to this core value seems evident in the company’s
product line, in the company’s educational programs, and in the enthusiasm with which employees
promote the company’s products with customers.
nWhat evidence can you cite that indicates the company’s core values are merely cosmetic window
dressing—as opposed to a genuine commitment?
We think students will be hard-pressed to come up with convincing arguments or much evidence that
Whole Foods is not trying to live up to its stated core values. One thing that class members might
cite as “out-of-place” is that despite all the company’s talk about healthy eating, there are numerous
On the whole, though, we think one of the most impressive things about Whole Foods is that this appears
nWhat do you think about Whole Foods’ policy of having a salary cap that limits the compensation
(wages plus profit incentive bonuses) of any Team Member to 19 times (formerly 14 times until 2007
and 8 times until 2003) the average total compensation of all full-time Team Members in the company?
Do you think employees like this policy? Why or why not?
• Such a cap is part of the company’s core values—see the Shared Fate item under Team Member
Concluding Thoughts As one reads through the core values in Exhibit 2, one cannot help but be very
impressed with the extent to which these core values are highly visible in the company’s stores, in its
operating practices, and in its strategy. Whole Foods management has done a rather remarkable job of using
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 to assist you in calculating a revealing set of financial ratios and
interpreting them.
Students who do a conscientious job of crunching the numbers (such activity is a significant part of the
Connect-based exercise for this case) should come up with the following:
nFrom fiscal 2009 through year-end fiscal 2013 (case Exhibit 1), Whole Foods revenues have grown at a
Case 3 Teaching Note Whole Foods Market in 2014
286
nNet income climbed from $119 million in fiscal 2009 to $551 million in fiscal 2013, a CAGR of 46.7%
(case Exhibit 1).
nBasic and diluted EPS have likewise exhibited big increases. For instance, basic EPS rose from $0.42 in
fiscal 2009 to $1.48 in FY 2013, equal to a CAGR of 37.0% (case Exhibit 1).
nWhole Foods’ profitability and expense ratios and assorted other financial performance measures (calcu-
lated from data in case Exhibit 1) are displayed in the table below:
2013 2012 2011 2010 2009
Gross profit margin (gross profit as a %
of sales revenues)
35.8% 35.5% 35.
0
%34.8% 34.3%
Direct store expenses as a % of sales revenues 25.4% 25.5% 26.
0
%26.4% 26.7%
Store contribution as a % of sales revenues 1
0
.4% 1
0
.
0
% 8.9% 8.4% 7.6%
General and admin expenses as a %
of sales revenues
3.1% 3.2% 3.1% 3.
0
% 3.
0
%
Several pertinent conclusions can be drawn from the above calculations:
• There have been significant across-the-board improvements in the company’s financial performance
• The company’s long-term debt for the past three years has been negligible.
• Net cash provided from company operations has climbed significantly in the past three years and
Conclusions: All things considered, WFM’s financial performance since 2009 has been good, despite the
sluggish economic environment that has prevailed throughout 2009-2013. The company has come through
6. Based on the store operations data in case Exhibits 3 and 4, how well is Whole Foods
Market performing from a strategic perspective? Is the strategy working? Does the
company have a winning strategy?
This question is intended to force students to critically review and evaluate the data in case Exhibits 3 and
4. If they do this conscientiously, they should come up with most of the following:
nTotal sales revenues have grown every year since 2009 (case Exhibit 3B).
nAverage weekly sales per store have grown from $549,000 in 2009 to $711,000 in 2013, a CAGR of
6.7% (case Exhibit 3B).
Case 3 Teaching Note Whole Foods Market in 2014
287
7. Has Whole Foods’ strategy produced a competitive advantage over such rivals as
Trader Joe’s, The Fresh Market, Sprouts, and other rivals in the natural and organic
foods segment? Does it have a competitive advantage over traditional supermarket
chains when it comes to natural and organic foods?
At this juncture, you have a golden opportunity to press the class for whether Whole Foods strategy’ has
given it a competitive advantage over Fresh Market, Trader Joe’s, Sprouts, and other rivals in the natural/
organic foods segment. You might remind the class that one of the big tests of a winning strategy is success
in building a competitive advantage over rivals.
In our view, Whole Foods definitely appears to have a competitive edge over these rivals as concerns:
nProduct breadth and selection—it also has much bigger stores
nGeographic coverage
nWal-Mart and Whole Foods do not appeal to the same grocery shopping clientele. People who shop for
groceries at Wal-Mart Supercenters are unlikely to be strong candidates for shopping at Whole Foods,
and vice versa. The customer overlap between these two grocery rivals is relatively small. The price
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Another question you can pose is whether Whole Foods Market has a winning strategy based on the
three criteria discussed in Chapter 1. We think students ought to be able to make a strong case that the
company’s strategy passes all three tests of a winning strategy:
nThe strategy seems very well matched to both its external and internal situation.
nThe strategy seems to have produced a competitive advantage over Fresh Market, Trader Joe’s, Sprouts
8. What recommendations would you make to John Mackey regarding the actions that
management needs to take to sustain the company’s growth and financial performance?
Class members should probably come up with most of the following recommendations:
nContinue with the same basic strategy for the immediate future. No dramatic strategy changes seem
nContinue to open large numbers of new stores, including somewhat smaller stores in the 25,000 to 30,000
square-foot range for lesser-sized geographic areas. Over the next 5 years, WFM needs to establish a
bigger geographic footprint.
• Whole Foods needs to work hard to perfect its smaller-store business model and strategy, so as to
• In the very near-term, Whole Foods should begin expanding its market presence in smaller cities
(populations of 100,000 to 300,000). Stores in these areas will necessarily have to be smaller-scale
nDefinitely make value-pricing a permanent feature of Whole Foods’ strategy.
nIt may be time for Whole Foods to resume making dividend payments. Internal cash flows seem to be
more than sufficient to cover the costs of new store openings and other capital requirements.
You might poll the class on whether Whole Foods should revamp its product offerings to include a much
nWe think there is room for class members to debate either way (pro or con) whether Whole Foods
revamp its product offerings to (a) include a much higher percentage of healthy, nutritional, “good-for-
you” products and (b) greatly reduce its offerings of high-calorie, high-fat, and less healthy products.
It is one thing to put greater merchandising emphasis on the newly-initiated “healthy-eating” campaign
Case 3 Teaching Note Whole Foods Market in 2014
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Winding Up the Class: You can end the class by pointing out that Whole Foods Market is a perfect
example of a company that
nHas a good strategy and
nIs executing the strategy quite well.
Whole Foods is a company that illustrates why Chapter 1 stressed the point that
Epilogue
In November 2014, Whole Foods reported FY 2014 sales revenues of $14.2 billion, up 10% over the prior year.
Net income for FY 2014 was $579 million, versus $551 million in FY 2013. Diluted EPS in FY 2014 was $1.56,
compared to $1.47 in FY 2013. Comparable (or identical) store sales increased an average of 4.3%, versus 6.9%
in FY 2013; average weekly sales per store were $722,000, versus $711,000 in FY 2013. A total of 38 new stores
were opened, bringing the company’s store total to 401.
Whole Foods generated $1,088 million in cash flow from operations in FY 2014 and had capital expenditures of
$710 million on capital expenditures, of which $447 million related to new store development costs. Free cash
flow was $378 million.
In FY 2015, top management at Whole Foods was expecting sales growth exceeding 9%, comparable store sales
growth in the low to middle single digits, square footage growth of 9% to 10% based on opening 38 to 42 new
stores (including 5 to 6 store relocations), and a return on invested capital greater than 14%. The company had
signed leases for 114 new stores, with average square footage of 41,000; 17% of the new stores in development
were in new geographic markets. However, WFM management said it was expecting a decline in its gross profit
margin in FY 2015 that was somewhat greater than the decline in FY 2014—WFM’s gross profit margin was
35.5% in FY 2014 and 35.8% in FY 2013.
Other noteworthy news announced in the fourth quarter of 2014 included:
nIntroduction of a new “Responsibly Grown” rating system for the products in its stores
nLaunching the company’s first-ever national brand campaign
nBecoming the first national supermarket chain to accept Apple Pay
nPartnering with Instacart to offer one-hour delivery of online grocery orders in 15 major U.S. cities
nLaunching a new Wine Club featuring home delivery of exceptional wines
For more recent developments at WFM, please check the company’s latest financial results and press releases at
www.wholefoodsmarket.com.
