The range of competitors within the overall industry include chain and independent supermarkets (Krogers, Safeway, others); mass merchandisers and super centers (Wal-mart,Target); convenience stores; wholesale clubs (Sam’s); restaurants and fast food chains andnatural food stores (Whole Foods, Wild Oats Generally the concentration of competitors has been fragmented by geography. However, through recent consolidations, the emergence of regional and national chains has started to prevail along with the decline of the independent/local shops. This consolidation activity has allowed many companies to spread their fixed costs over a wider range of output, thus creating more efficiency in operations. Often, it is cheaper for a company to acquire an incumbent due to the location of their stores and access to customers rather than to raise the capital for entirely new stores, which is how Whole Foods has been able to expand following their growth model strategy. Whole Foods acquisition growth plan has helped them to gain enough economies of scale to better compete with the Wal-marts and Sam’s Clubs.
Threat of Substitutes
Price of substitutes plays a role in determining a company’s profitability. Organic food is priced at a premium to conventional food reflecting the high labor costs in cultivating the product. The price premium may be one reason why organic food has not become mainstream. Another reason is that consumers either lack education about its benefits (or don’t care) so that the price premium does not appear to be justified. However, when comparing upscale organic and prepared foods to competitors such as restaurants, the benefit/cost ratio appears more justified.
Market research conducted shows that “20 percent of shoppers as dedicated to healthy eating”.(PRNEWSWIRE, 2013) These shoppers tend to be better educated, more affluent, couples or singles without children, and generally in better physical shape than the rest of the population. These individuals that actively seek out health and nutritional information, are younger to middle aged, and have medium to high household incomes. Thus, this market segment likely has a higher propensity to substitute than the segment above, but still is probably lower than the overall market. In total, the organic segment of the market has captured “73 percent of consumers as of 2008”.(QSRMAGAZINE, 2013)
The retail grocery market is typically considered somewhat resistant to economic downturns, thus, to some degree, consumers’ food budgets are price insensitive. However, there is risk that consumers will switch from high quality / high margin stores to mass merchandisers (Walmart, Shop N Save) to stretch declining incomes further in a downturn market. Furthermore, while individual consumers typically lack significant buyer power to affect the specific prices of products, collectively, they can exert influence on retailers to sell or not sell specific types of products.
The organic food suppliers are not highly concentrated, so natural food retailers have some power over them. Also, the natural food retailers may have the ability to backward integrate with partnerships and joint ventures with local growers. In addition, there is a trend for top conventional food manufacturers to invest in national/organic food companies as shown by the following excerpt * Kraft (NYSE: KFT ) :
Boca Foods, Back to Nature
* PepsiCo (NYSE: PEP ) : Naked Juice
* General Mills (NYSE: GIS ) : Cascadian Farm, Muir Glen * Dean Foods: Horizon, The Organic Cow of Vermont, Alta Dena, White Wave/Silk * ConAgra (NYSE: CAG ) : Lightlife, Alexia Foods
* Kellogg (NYSE: K ) : Morningstar Farms, Kashi, Gardenburger, Bear Naked * Coca-Cola (NYSE: KO ) : Odwalla
* M&M Mars: Seeds of Change
* Hain Celestial (Nasdaq: HAIN ) : Nile Spice, Health Valley, Bearitos, Earth’s Best, Walnut Acres (FOOL, 2013) Thus, the larger number of suppliers of organic products, the less influence one supplier can have in the market. Threat of New Entry
Because the retail grocery market is typically low margin, “typically in the mid-single digit range”.(VALUELINE, 2013) It is critical for companies to have some type of cost advantage over peers, the larger chains may be able to obtain better and cheaper access to products than the independent stores(economies of scale). Labor is also a significant cost to retail grocers, representing 50% to 53% of total operating costs (EHOW, 2013). Other operating costs (including rent, utilities, transportation, and technology) are controllable by the company.
Lastly, technology costs are key in the retail grocery industry in order to increase efficiency in operations and aid marketing aids. Point-of-sale systems can help to increase inventory turnover and sales and lead to better targeted customer marketing (COUNTERPOINTPOS, 2013) Other areas that affect new entry into a market include capital requirements, economies of scale, and brand identity. All of these factors have been discussed to some degree under other forces. Retaliation by incumbent competitors is an important element in determining the threat of new entry. Specifically, Whole Foods faces a threat from conventional supermarkets and mass merchandisers who may move to carry organic products within their stores.
In conducting the Nadler-Tushman Congruence Model, of Whole Foods Market’s inputs and how they align with the strategy. I have resubmitted the model for your review The congruence model has four modals for analysis:
1. Inputs – resources used by the organization but also its history and its social, economic and market position. Resources include people, technology, capital and reputation 2. Strategies – what strategies best match the inputs to produce and how to produce those outputs from the available inputs. 3. Organizational components – allows the analyst to isolate the individual influences and adjust them for a good fit 4. Performance -include the ability to pinpoint where performance is not adequate and to trace the reason back to a lack of congruence in the model’s part (SMALLBUSINESS 2013) The model is good for input diagnosis and it can be broken down with the following steps:
The work itself does not need any specific skill set or knowledge except to be as personable as possible and like dealing with people. While there are materialistic rewards to working at whole Foods the other reward is the ability to have a vote in how things happen in the company. Whole Foods runs on “democratic capitalism; where all of the work is teamwork.”(Fastcompany, 2013) the system itself tends to creative while at the same time it is mechanistic as everything has to be in its correct spot just so-so. The work flows from the top down with a healthy response for the department teams. The department teams have the sole discretionary right to hire and approve new hires which upper management screens first. The work is through, caring and precise. The teams are interdependent as they are all an integral part of the stores success as a whole together.
The people of Whole Foods are a team oriented group with a single mindedness to have their store succeed with a democratic disciplined outlook. Most of the employees are young, well-educated individuals whose participation reinforces attention to performance and profit.
The organization is set up as a virtuous circle which has a two way avenue to company policies to improve the company’s bottom line. Whole Foods has a knack to please their customers and every employee is empowered to correct as discrepancy that is brought to their attention by a customer. Each department is s3et up as a team which has a direct bearing on bonuses through “gainsharing”. (Fastcompany, 2013) Sales per labor hour the productivity metric at Whole Foods, democracy reinforces discipline. If someone doesn’t do the work and gets a poor rating then the team suffers in lost bonus money.
People work as a team to get the product out the door and keep customers happy and returning for repeat business. With that said the company’s success is driven by their employee’s attention to detail and satisfying the customer. Whole Foods has open salary concept where everyone knows what everybody else makes salary and bonuses. Also every store knows what another store is doing in sales, salary and bonuses. With that being known an individual wanting to transfer to another store or state knows what that store is doing financially and is able to make a well informed decision as to what to do with their career. There appears to be no political intrigue involved with the company and the “Hill” as most of the food wholesale segment is already tightly monitored as far as food safety and other regulation.
The above listed modals are in in alignment with the major strength of Whole Foods in comparison to the Congruence model and Porters Five Forces Model. Their strength is the fact tht they can withstand entry of new competition due to their market chare and market segmentation. While company’s can enter into the retail food market they would be hard pressed to copy Whole foods business strategy in empowering their employees and making it work as far as satisfying their customers and meeting Whole Foods profit margin. Porter’s five forces strength model aligns quite well with the resources modal of the congruence model and several of the segments blur as everything is not cut and dried and able to be placed in the puzzle of what is Whole Foods.
As a whole the strategies under the congruence and Porters model align with the complete Porter’s Five Forces Model well to give a rounded view of what Whole Foods is and what they can do if they stick to their mission statement and core values. Under the restraints of this report all of the congruence segments critical to the analysis as broken down the model reinforce Porters with their strength segment. As listed above the three input factors complement each other in regards to the strengths of the company as a whole. Also if you review my earlier reports all of my suppositions are supported and well documented as to how Whole Foods supports its marketing style and fills a niche with customers in search of alternatives to non-natural food stuffs..
Percent health food consumers retrieved February 2013 from http://www.prnewswire.com/news-releases/new-survey-shows-shoppers-eating-more-meals-at-home-cooking-meals-to-save-money-62056997.html Flat Lining Organics retrieved February 2013 from http://www.prnewswire.com/news-releases/new-survey-shows-shoppers-eating-more-meals-at-home-cooking-meals-to-save-money-62056997.html Investing in organics retrieved February 2013 from http://www.fool.com/investing/high-growth/2009/01/16/investing-in-organics.aspx Retail grocery market industry analysis retrieved February 2013 from http://www.valueline.com/Stocks/Industry_Report.aspx?id=7243 calculate food
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