Competitive Forces and SWOT Analysis
Competitive Forces and SWOT Analysis
Whole Foods Market is an organization that is dedicated to retailing organic food, which are natural and healthy to people. It has grown from a supermarket to an international organization operating in the United States, Canada and the Great Britain. The company has become the market leader in the United States and is contributing to the growth of the industry. However, just like other organizations, it is affected by many forces negatively and positively; hence, it has its strong points and weak points. There are several strengths, weaknesses, opportunities, threats and internal and external forces influencing Whole Foods Market.
Impact of Trends in Organic Food Retail Industry on Whole Foods Market
Retailing of organic foods took an upward trend after new labeling regulations of organic food was introduced since it would have a marketing effect. “The U.S retail sales total came to$28.2 billion in 2006, up from $23.0 billion in 2005. Natural and organic foods and beverages were projected to reach nearly $33 billion in 2008,” (Thompson, 2010). The upward movement was due to increased awareness of the natural foods to the people who now became conscious of their nutrition, their worry about the chemicals used in processing food, and concern for the environment since they believed naturally grown food less affects the environment. There have been increased concerns globally about eating habits, health and environment. Any firm or products providing the three are bound to hit in the market. This caused the mainstream supermarkets to invest a great deal in natural foods.
In 2006, 31% of the organic food sales were through mainstream supermarkets and grocery stores. Leading natural food supermarkets such as the Whole Foods took a share of 24% of the sales. The rest was through small natural grocer stores. This meant that the natural food supermarkets were faced with a stiffer competition from these supermarkets, and the fact that many people would prefer to do their entire shopping ion one place added to their advantage. However, Whole Food being named as the leading natural food retailer was an advantage to its side, and the growing demand for organic food meant that the mainstream stores could not provide too fully and hence natural food supermarkets had a chance of growing significantly, considering they had a market share of 24% in 2006. The trend in retailing of natural and organic food is impacts on Whole Foods organization in both negative and positive ways.
Competitive Environment of Whole Foods Market
The competitive environment of organic food is concentrated since there is no significant firm that can affect the market.
Threat of new entrants
The threat of new entrants is high since this is a growing market. An example is shown where Fresh & Easy Neighborhood Markets emerged as a competitor to Whole Foods in 2007. Considering that this is a retail market selling food, products are almost the same except for branding and the way they are displayed. Fruits and vegetables are the same and there is no major way of creating barriers to entry. Big supermarkets easily entered the market and became competitors to the conventional supermarkets that concentrated on groceries. The costs involved
Threat of substitution
Most Americans buy out to eat rather than cook, which makes substitution of organic food very high since people would prefer to buy processed food, which is ready to eat. The price of inorganic food is lower than organic food since its production is cheaper compared to organic production, a factor that demands higher prices for organic food. Whole Foods Market prices its organic food at a higher price, which could be unfavorable to the low-income earners who are sensitive to the prices of goods. This increases the tendency of price sensitive consumers to continue preferring the conventional products; hence, threat of substitution is high.
The buyer power is very weak since this is a retail market of food where there is no significant buyer influencing the industry. Whole Foods Market is a retail chain of stores that handles many customers at all times, buying in small amount that cannot grant one buyer any power to influence price or product. Whole Foods is not affected by buyer power since they only take prices that are set by the industry.
Whole Foods buy its products from many suppliers across many regions and there supplier that is significant enough to influence the market in a significant way. The products are the same and come from farmers who plant them, and their influence on the market is weak since they are not directly attached to the retailers. Whole Foods use regional and national buyers to purchase their items and hence can have power to negotiate discounts. The largest supplier accounted for 24& of the natural and organic food (Thompson, 2010). The suppliers purchase the commodity products, and are many since there is no one supplier producing a product alone. Production is done by farmers (Quick MBA, n.d.).
In this market, rivalry is high due to many competitors in the industry and the nature of the product. In retail market, switching from one retailer to another is very easy since products are standardized and prices are almost similar in all the retailers firms. The products sold by Whole Foods such, as vegetables and fruits are the same in other retailing firms such as the mainstream supermarkets. The factors influencing rivalry are, a large number of firms, low switching costs, low level of product differentiation and the growing market that has a potential for profits making more firms compete (Quick MBA, n.d.).
Rivalry Poses the biggest threat to Whole Foods Market
Rivalry is much intensified in the market, from the above paragraph; it is evident that rivalry is the biggest threat in the natural and organic food market. This intensifies competition in the industry leaving each firm to find means of impressing consumers to survive. Whole Foods is doing well, however, this threat keeps it on its toes in innovating ways of winning more customers since more and more stores that are conventional are entering the organic market that seems to be growing globally. Through innovation, Whole Foods can maintain their position. Innovations such as making shopping more interesting has helped Whole Foods and it is up to them as market leaders to continue with the trend to keep position. Whole Foods can use powerful competitive strategies such as differentiation of its services from other competitors by seeking to satisfy customers in a unique way. Use Cost leadership to favor all economic classes through lowering prices when they achieve economies of scale, and through focus strategy, which aims at focusing on certain market segments such as low prices at stores located in lower class environment, and higher prices for higher-class places.
Whole Foods has strength from its innovations that allow customers to enjoy shopping and the way they display their products. Their stores are very conveniently located such as in New York on Columbus Circle in Manhattan, and they sought to relocate the small ones to bigger places with ample space and parking, and in places that are more visible. Whole Foods have a strong team of expertise that do innovations and assessing of the market. Some of the weaknesses of Whole Food are out of its huge capital expenditure that resulted due to opening of many stores, which increased its expenditure above the cash flow from operations resulting to a debt increase of up to $929 million. Its overheads were high, and this reduces their ability to reduce costs.
Whole Foods has a number of opportunities to exploit that accrue due to its large size and position in the market. One opportunity is the developing market of organic food, where more and more consumers are shifting to the natural and organic food. This poses an opportunity for continued profitability. The acquisitions that Whole Foods has made increase its opportunities since it will earn the consumers of this firms that it acquired hence increased market share. The firm has entered new international markets in Canada and Great Britain where it made significant revenues. This is another opportunity for its growth. The firm has ability to move into new markets that offer potential profits, which is an advantage to keep its position as the leader (Bohm, 2009).
Whole Foods faces a lot of competition from other firms, which presents threats to the firm since some of them are very close rivals. One of them is the new competitor, Fresh & Easy Neighborhood Market that entered the market in 2007. Whenever there is a newcomer, threats are usually there since it means another competitor for ones customer. The new firm came with new strategies and services such as packaging in a way that consumers could see what was inside, low prizes, and offering consumers to taste before they buy. Another threat is on the prices with sunflower Farmers Markets, who laid a strategy of minimizing costs on the same products to reduce their counter prizes. This is threat to Whole Foods since their prices are higher and the likelihood of its customers changing to the other firm is high and easy.
Ways that Whole Foods can use to Capitalize on its Strengths and opportunities
Whole Foods has a number of strengths and opportunities that it can use to stay competitive. One of its strengths is the location of its stores, which are convenient and in high-populated areas such as New York. They can design the stores in ways that increase sales per square fit without adding more space. The firm can use its expertise to come up with ways of impressing consumers, and studying the market trends to find out the most favorable markets to exploit. The firm can use its opportunities such as the new markets in the international markets, by bringing in innovative ideas that exceed those already existing. Since people want new taste all the time, this could be a great way of using the opportunity. Through its acquisitions, the firm can use the strategies used by the firms before to continue keeping the customers and achieve diversity (Bohm, 2009).
Whole Foods Market is currently the leader in the organic food market, which is growing steadily due to increased awareness, and the task of maintaining the position is on them. Good use of competitive strategies is crucial for the firm, and they should exploit their opportunities fully and work to change their weaknesses to strengths and threats into opportunities. They have a bigger advantage because they arte the leader and keeping the position is easier than acquiring it, hence sound strategies are crucial in this market.
Bohm, A. (2009). The SWOT Analysis. München, Germany: GRIN Verlag.
QuickMBA. n.d. Porter’s Five Forces: A Model for Industry Analysis. Retrieved from http://www.quickmba.com/strategy/porter.shtml
Thompson, A.A., Strickland, A.J., & Gamble, J.E. (2010). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases: 2009 custom edition (17th ed.). New York, NY: McGraw-Hill-Irwin.