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Competitive Forces and SWOT Analysis: Whole Foods Market Essay

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Updated: Jun 18th, 2019

Introduction

Whole Foods Market is a leading company in the organic foods industry. The company’s core business is sourcing and retailing a wide variety of organic foods (Whole Foods Market, 2011). The company’s product portfolio consists of food items in the following categories: snacks, frozen foodstuffs, supplements, beverages, pantry and staples (Whole Foods Market, 2011).

Other products include seafood, meat, poultry, educational books and gift baskets (Whole Foods Market, 2011). Whole Food Market has its headquarters in Austin, Texas and boasts of 300 stores and 9 distribution centers that are located in North America, Canada and the UK.

The company’s mission is “to promote the vitality and well-being of all individuals by supplying the highest quality and most wholesome foods available” (Whole Foods Market, 2011). This paper will analyze the competitive environment of Whole Foods Market using the porter’s five forces model and the SWOT analysis.

Trends in Retailing Organic Foods

Retailing organic foods is associated with two main trends namely, high competition and steady growth. The organic foods industry in North America and UK is undergoing a revolutionary change as firms compete for clients and quality products. Thus there are high levels of product differentiation and innovation.

This has prompted Whole Foods Market to focus on customer oriented strategies through emphasis on high level of quality standards (Whole Foods Market, 2011). The competition is a threat to the company’s growth plan. The industry recorded $ 76 billion in sales in the last financial year which is 5 % higher as compared to the pervious year (Whole Foods Market, 2011).

The increase is attributed to three factors which are as follows. First, there is increased awareness among the clients on the role of organic foods in promoting long-term health. Second, the clients are well educated and have the purchasing power that encourages spending on organic foods. Finally, the concerns over environmental degradation promote the production of organic foods.

These factors present growth opportunities to Whole Foods Market in two ways. First, the company can increase its revenue by taking advantage of the high demand for organic foods. Second, the company can obtain cheap supplies as organic farming becomes more popular due to the concerns over environmental degradation.

Porter’s Five Forces Model

Threat of New Entrants

The company enjoys economies of scale due to its large number of stores and distribution centers. The firm focuses on high level of product differentiation and the same applies to other firms in the market. The capital requirement for joining the industry is low due to the fact that investors can establish profitable but small organic food companies.

The switching cost is also low since the investors can easily shift to a different line of business such as selling non-organic foods at low costs. Thus the threat of new entrants in the market is low. This means that Whole Foods Market can not run out of business due the competition that is attributed to entry of new firms in the industry. However, the sales of the firm will reduce as more firms join the industry.

Power of the Supplier

The industry has a high number of suppliers. There are many substitute products which are basically non-organic foods. The customers (retailers) are also very important to the suppliers since the later depends on the former for the distribution of their products. The suppliers’ products are less differentiated since they mainly consist of raw foodstuffs.

This means that the suppliers have a low bargaining power in the industry. Therefore, Whole Foods Market can not be exploited by suppliers through high costs of supplies. The suppliers are price takers thus dominant firms like Whole Foods Market will determine the price at which they obtain the supplies. Hence Whole Foods Market will be able to increase its profit margins.

Power of the Buyer

There is a low concentration of buyers (retailers) as compared to suppliers in the industry. The retailers’ switching costs are low since they can easily move from one business to another. The suppliers’ products are not differentiated in the market. However, the suppliers’ products are very important to the quality of the retailers’ products.

This means that the buyers (retailers) have a fair bargaining power. Consequently, Whole Foods Market has the opportunity to negotiate for cheaper supplies. By obtaining the supplies at reduced prices, the firm will be able to reduce the price of its products thus increasing sales.

Intensity of Competitive Rivalry

The intensity of competition is high in the market since there are many competitors. The industry’s growth rate is also slow but steady. The fixed costs are high since the industry is labor intensive. The storage costs are also high due to the fact that organic foods are highly perishable and thus require special storage facilities.

The strategic stake of Whole Foods Market is high since it focuses only on one segment of business. Thus shifting from the sale of organic foods will mean running out of business or moving to a different industry. The intense competition undermines the company’s efforts to grow and maximize profits.

Threat of Substitutes

The threat of substitutes is high due to two reasons. First, the substitutes are relatively cheaper. Second, the substitutes are highly differentiated. This means that the sales volume of Whole Foods Market is adversely affected by the competition attributed to substitute products.

Most Significant Threat

The high intensity of competition and the threat of substitutes are the environmental factors that pose the most significant threat to Whole Foods Market. The significance of their threat relates to the fact that they limit the company’s sales volume. This translates into reduced revenues, low profits and a smaller market share.

The company can responded to these challenges through an effective marketing plan. This will involve educating customers on the benefits of organic foods in order to counter the threat of substitute products. Product differentiation will enable the firm to distinguish its self from the competitors thus retaining its market share.

By focusing on a perfect product mix, the firm will be able to satisfy the needs of the customers who will be loyal in return. Finally, the company should put more emphasis on excellent customer services in order to remain competitive in the market.

SWOT Analysis

The company’s strengths include a well established brand that is known for the best quality in the industry (Whole Foods Market, 2011). The firm has a good distribution channel that consists of 300 stores and 9 distribution centers. This enables it to reach the targeted market easily. The firm’s financial stability has enabled it to effectively implement its marketing and growth plan (Whole Foods Market, 2011).

The main weakness of the firm is that it focuses on only one segment of business. Thus it can not enjoy the benefits associated with diversification of investments. The main opportunity to the company relates to the rising popularity and demand for organic foods in a wealthy population. The firm faces two threats namely intense competition and the threat of substitute products.

Proposed Strategy

Given the above discussed strengths and opportunities, the firm should pursue a cost leadership strategy. This means that the firm should focus on maintaining its market share through low prices and product differentiation. By using its financial muscle and economies of scale, the firm will be able to reduce cost.

Thus it will be able to sell its products at the lowest possible prices thereby increasing or maintaining its market share. The firm can capitalize on the opportunities accruing from low supplier power, low threat of new entrants and a relatively high power of the buyer in order to benefit from the rising demand of organic foods.

References

Dess, G., & Lumpkin, G. (2009). Strategic management: creating competitive advantages. New York: McGraw-Hill.

Whole Foods Market. (2011). Annual report: FY2010. Retrieved from

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