For Strategic Management
Author: Matthew Farnand
Subject: Whole Foods Market – Strategic Re-Alignment Post-Recession: Short-Term vs Long-Term Growth Restriction
Whole Foods Market (WF) has weathered the financial pressures of the 2008-2010 economic recession, regaining in more recent years the losses it experienced at the beginning of this demand shock. Whole Foods must now recognize that its original losses were an industry condition, rather than a strategic condition specific to itself, and that return to better profits experienced in the past year and a half are a function of both short-term value-focused strategy as well as widespread industry recovery.
Whole Foods Market must return to its original core values and recent growth strategy for new stores to capitalize on enduring environmental trends and avoid long-term strategic alignment with short-term economic factors.
- Ensconce the value-focused economic strategy as one aspect of core values 2, 4 and 6, but reduce visibility and marketing of “value deal” and “sale item” products.
- If per/square foot sales remain high, retain reduced overall size of new stores, but return proportion of perishable goods in store layout and product spread.
- Re-focus core marketing efforts on core values of health-conscious, environmentally friendly food, delightful service and sustainable community development.
Whole Foods must consider carefully a thorough environmental analysis in its long-term strategic planning. Much of its decisions to reduce prices and focus on a very visible, high-profile campaign to stress “value” are reactionary to seeing its growth decline drastically through 2007-2009. They are wise to notice this decline, particularly as growth fell through the floor to contraction of -3.1% in 2009.
The cost reductions have seen bottom lines increase in late 2009 and early 2010, and their value focus did increase top-line revenues projected at 8.5 to 10.5 percent.
Although this value focus has worked, management was wrong to believe that the decline was a function of negative brand image for WF. The “Whole Paycheck” rebuff may have had an impact on Mr. Mackey and senior management, who are sensitive to criticism of WF values.
An examination of competitors shows that the Supermarket industry as a whole contracted in the same period; Walmart* (-.8% 2010 comparable US store sales) Kroger (0.3% revenue growth 2009 vs 6% 2008), Supervalue (-1.2% 2009, -5.1% 2010), Safeway ($4B revenue loss 2009) Costco* (-4% comparable sales growth).
True environmental trends, such as a healthy, organic and sustainable foods and business, will persist past any short-term economic impact. In 2009 sales of organics continued to climb, ignoring recessionary influences, with revenue growth of over $6 B total.
Whole Foods should not trade a price-neutral customer base for a price-sensitive one.
By restoring its more recent strategy, WF will place itself once more inside enduring market trends, while including recession gains in value pricing and cost-cutting will see the bottom line grow quickly back to growth.
*total revenue including grocery
Competitor Financial Highlights
2010 2009 2008 2007 2006
Net sales (millions) $405,046 $401,087 $373,821 $344,759 $308,945
Net sales increase 1.0% 7.3% 8.4% 11.6% 9.8%
Comparable store sales in the United States -0.8% 3.5% 1.6% 2.0% 3.4%
Walmart U.S. -0.7% 3.2% 1.0% 1.9% 3.0%
Sam’s Club -1.4% 4.9% 4.9% 2.5% 5.0%
2009 2008 2007
Sales ($millions): 76 733 76148 70336
2010 2009 2008 2006 2005
Net sales(millions) $ 40,597 $ 44,564 $ 44,048 $ 37,406 $ 19,864
Identical store retail sales increase
(decrease) (5.1)% (1.2)% 0.5% 0.4% (0.5)%
2010 2009 2008
Sales and other revenue $ 41,050.0 $ 40,850.7 $ 44,104.0
Gross profit 11,607.5 11,693.5 12,514.8
Operating profit (loss) 1,159.4 (628.7) 1,852.7
Net income (loss) attributable to Safeway Inc. 1 589.8 (1,097.5) 965.3
Diluted earnings (loss) per share1 1.55 (2.66) 2.21
Cash paid for capital expenditures 837.5 851.6 1,595.7
2010 2009 2008 2007
Comparable Sales Growth 7% -4% 8% 6%
Industry and Whole Foods Market Financial and growth statistics from:
Thompson, Arthur A. “Whole Foods Market in 2010:Vision Core Values and Strategy” 2010 Arthur A Thompson