Whole Food

Whole Foods market generated $8. 0 billion in sales in fiscal 2009, an increase of 1. 0% over the previous years. Yet in fiscal 2009 same-store sales were down 4. 3% over the previous years. Operating income for Whole Foods was $284. 3 million in fiscal 2009, up to 20. 4% over the previous year. This improvement was largely due to stringent cost-containment measures that Whole Foods put into place in the face of the recession economy. The ratio comparison in table in the appendix suggests that Whole Foods Market inc. is in good shape financially, healthy company.

Whole Foods market is liquid company; it has high liquidity- strong cash flow to cover its debts and future projects. Our analysis of Whole Foods Market ratios indicates that the firm’s current financial position is outstanding compared with the industry norm. Thus, after examining 3 years and overall company’s history, the company is in the worse financial position in 2008 and 2009 than it was in previous years. This is caused by recent economic conditions and Whole Foods high demographic standards and target market.

But company managed its marketing strategies and financial operations to get back on track and its revenues picked up again in 2010. Overall, company managed well through recession and its prospects of growth are high. By examining Whole Foods market’s history, we can see significant, successful fast growth and superior financial results and management. Based on our findings, we can state with complete confidence that Whole Foods market is a superstar at managing its income statement, keeping its costs of goods and operating expenses extremely low relative to its sales (as indicated by its high operating profit margin).

In terms of managing assets, the firm has much less inventory per dollar of sales than competing firms, which is good. Going Forward Overall, Whole Foods has relatively clean financial statements. The company received unqualified audit opinion and reward for superior finance performance from Ernst&Young. The company was growing at a strong rate while debts remain relatively low. Sales growth over past five years exceeded 15. 8%. Thus, sales declined from 2008 and were only one percent in 2009. Also, net profit margin significantly dropped from 3. 5 % the highest to 1. % in 2008 and now it went up to 1. 8 %.

But company generated positive cash flows from operating activities. By comparing Whole Foods market to its competitor Safeway Inc. , we can conclude that Whole Foods uses effective marketing strategies and financial management (flexible adjustment with current economic, political situation; adjusted differentiation market strategy to cost leadership strategy). Safeway had huge losses-around 8%, it had negative cash flows in 2009 and its debt ratio is very high-88%. Whole Foods return on assets for 2009 was 3. 8%, compare to Safeway (-6. 8%).

This shows that Whole Foods is able to charge higher prices for their products, which one is of the advantages of selling organic foods. According to L. Sandberg, consumers in the organic industry are not really looking for the best price, but instead the best quality. Research has shown that “the retail grocery market is typically considered somewhat resistant to economic downturns, thus, to some degree; consumers’ food budgets are price insensitive” (Lytel). We believe in the future Whole Foods market will pick up again and its sales and profits will rise at expected, forecasted target level.

Despite the fact that Whole Foods market did not reach its target sales till 2010, it is great that expensive grocer still had 1 % of sales growth, compare to much bigger Safeway, which had 8 % loses. Whole Foods Market Inc. , said quarterly profit more than doubled and raised its 2010 sales forecast, reflecting an improving economy that’s bolstering organic and specialty grocers. Large, traditional grocery chains, such as Kroger Co. and Safeway are struggling to emerge from recession and are locked in price-cutting battles for market share with Wal-Mart Stores Inc.. Little, if any sales growth is expected for major food retailers this year.

Introduction

Whole Foods Market is one of the biggest organic and natural whole food suppliers in the world. They provide a wide variety of select foods that are without hormones or antibiotics and are stamped with the U.S. Department of Agriculture’s stamp of approval. They value the fact that they can provide people with access to healthy food and be identified with being socially and environmentally responsible.

History

Whole Foods Market started off as being Safer Way natural grocery store in 1978. However they were not successful due to location and only being vegetarian. Eventually what made the company grow is when they combined with Clarsville Natural Grocery to become Whole Foods Market. Whole Foods Market’s strategy was to grow as big as possible. The first initiative they took was to own and operate several subsidiaries which were anything from coffee roasting to seafood processing. The n ext thing they did they took their company to new heights were mergers and acquisitions which the biggest acquisition was with Wild Oats which came under much criticism from the FTC. Lastly Whole Foods has also grown into other markets around the globe which provides them with the potential to grow.

SWOT Analysis

Internal Strengths and Weaknesses

Whole Foods Market has since its inception had great strengths. They were among only a few that provided natural whole and organic foods. One of their greatest strengths has been their location. They strategically placed stores in areas of affluent neighborhoods. They target people who have education and who would be more knowledgeable and conscientious of healthy living. They strategically designed their stores to be more inviting and warm for their customers. Another great strength that Whole Foods have is the strategic planning of placing as many stores as possible around the country. A weakness that Whole Foods have is their reputation. A reputation for a grocer is key to its survival and they have the reputation of being very expensive or some call it “whole paycheck.”

External Environment

One of the biggest external environmental threats against Whole Foods is increases in domestic competition. At its inception Whole Foods was one of the only providers of organic foods. However now there are many rivals who have taken apart of this ever going interest in our society for better living. Stores such as Wal-Mart and Target have joined the bandwagon of providing their customers with organic foods. With many stores now offering organic foods this has put a dent in the availability of organic foods in other words has shorten the supply of organic foods to Whole Foods. Another external environmental threat was the economy. When the economy went down during the recession many people had to make tough choices when it came to their finances and one of the biggest things that were changed was the amount that they spent on groceries. Many people just simply deemed natural organic foods as being expensive and not a necessity. A major opportunity that Whole Foods have embraced was that during the recession Whole Foods recognized that they need to make adjustments decrease the overall prices. Another major opportunity that they need to embrace is marketing the necessity of whole organic foods. Letting people know that eating right is vital to survival and their overall health.

Evaluation

The company overall is in a strong competitive position. With the acquisition of several subsidiaries it was able to expand their market even bigger. The stores’ environment provides an exceptional shopping experience for the customers with a very clean environment and a helpful staff. Whole Foods has many opportunities to turn their threats into opportunities. One of their major threats are other organic whole foods competitors. Competitors like Trader Joe who offers organic foods at competitive pricing while still remaining at high quality standards. What Whole Foods can do is see what the competition is offering and offer something even better to its customer base. Another threat that they can turn into an opportunity is do what they see competitors do such as offer specific products through sales which will attract a larger customer base.

Whole Foods Market Inc. is a big name in the natural and organic food industry. Company currently operates in 11 different geographical locations along with 275 stores. Whole Foods Market offers different product lines to its valuable customers like meat, poultry, cereal, seafood, cheese, beers, wines, household products, etc. In addition, company also provides catering services to the end users. In the current year, company expanded its business operation in different segments and is looking to explore newer target market.

Whole Foods Market Inc’s current ratio is slightly lower than the industry average and indicates a lower margin of safety with respect to meeting current obligations. Whole Foods Market Inc’s current ratio will not allow them to take more debt as compared to previous years. Although, Whole Foods Market Inc. has made short-term investments but still there is no significant impact on the current ratio. The overall condition of current ratio reveals the fact that the current ratio which is not pretty stable and healthy as compared to the industry practice.

Quick Ratio Whole Foods Market Inc’s quick ratio is lower than the industry average. The reason behind this is the improper working capital management which makes the quick ratio more tentative in the last three years. The overall signal of Whole Foods Market Inc. liquidity is not good and it sends a negative signal towards the debt holders and also on the debt market. Moreover, the liquidity crunch problem makes the performance of Whole Foods Market Inc. slightly vulnerable. Working Capital Ratio

The condition of Whole Foods Market Inc’s working capital is pathetic throughout last three years. The reason behind this the more dependency on the debt which makes the company’s financial condition more vulnerable. The pivotal reason behind the negative impact of the working capital is the improper cash, inventory and receivable management. In the last few years, the company can’t generate more current assets in comparison with its business operations. SOLVENCY RATIO Debt to Equity Dependency on debt financing is not a bad habit but it has consequences if you rely on more.

Whole Foods Market Inc. debt to equity ratio is lower in comparison with the industry practices due to the factors of business volume, increase in sales, fulfillment to pay the suppliers and acquisitions of fixed asset. Due to the expansion in business, Whole Foods Market Inc. has plenty of financial obligations, most of which has been acquired through debt. In 2008 and 2006, Whole Foods Market Inc. reliance more on debt financing as compare to the previous years. Debt to Asset Whole Foods Market Inc’s D/A ratio is around 55% in the year 2008 and 2007.

In the year 2006 the debt to total assets is 31 % which is good as far as the performance of 2007-08 is concerned. The year 2008-07 is worst for Whole Foods Market Inc. , the main reason behind is the improper utilization of debt in order to capitalize assets. Moreover, it also reveals the fact that the management of the company can’t generate more assets in response with the debt. A higher D/A ratio would place the company under increased amount of risk, especially if the interest rates are rising. Hence, a lower D/A ratio would be more desirable.

Interest Coverage Ratio (TIE) This ratio suggests the fact that TIE ratio is higher in comparison with the industry because of company entertain its business with high proportion of debt financing. Although the company’s management runs business successfully and this is shown in the EBIT which suggest that the Company is keep improving in the EBIT year by year. In comparison with the ability of paying interest expense is fine in comparison with he industry practices. In the year 2007 which is the good year for the company’s TIOE ratio is concerned.

On overall basis the densely populated debt financing and creates a doubt in the debt holder’s mind that the company is in tentative mode to pay its obligations. ACTIVITY RATIO Total Asset Turnover Whole Foods Market Inc. have utilized their assets to full capacity and managing assets in a fashion that every component of total asset utilizes its full capacity. Whole Foods Market Inc. has a slight edge over the industry practices and it is the prime evident that the component of asset has a made significant impact on the sales due to this the Whole Foods Market Inc.

is doing a fine job and this practice also make an impression in the future. Inventory Turnover Whole Foods Market Inc’s inventory management strategies make a strong reflection on this ratio and it is evident that company’s operating cycle is slightly high in comparison with the industry practices, which is very good going for the company’s perspective . This ratio shows that Whole Foods Market Inc. is better at managing its inventory than the industry. Receivable Turnover Whole Foods Market Inc.

management is working on managing working capital effectively and employed an effective credit policy for its customers . Whole Foods Market Inc. management has working on aggressive credit policies to collect their receivables and rotating its operating cycle effectively and smoothly. Industry trend on the other hand is very sluggish primarily due to recession in the economy. Fixed Asset Turnover The Whole Foods Market Inc. fixed asset turn over is around 2. 5% through three years. The fixed asset turnover shows the consistency is reviewed from (2008-2006).

This turn over shows that the company is working on sound practice with respect to managing the fixed assets. It gives a positive signal to investors, as it indicates that Whole Foods Market Inc. does utilize its assets efficiently, they either remain idle or aren’t utilized to their maximum capacity, in order to generate more sales. Although Whole Foods Market Inc. has made a large amount of capital expenditure and due to efficient management maintains the fixed asset turn over through out the from 2008-2006. PROFITABILITY RATIO Return on Asset

The modest decrease in the ROA suggest that the firm uses its asset not at its command and management is not uses its assets and resources in an appropriate manner in order to generate more profits in comparison with their asset acquisition. This is also gives the signal that proper asset management strategy is not adopted in order to generate the maximum out put. Return on Equity The ROE of 8% in the year 2008 indicates that the Whole Foods Market Inc. is not dependent on equity financing, although it is far low as compared to the industry.

It also gives the impression that efficiency under which management has utilized the assets under its control, regardless of whether their assets were financed with debt or equity capital. Because of less dependency on equity financing ROE make a reflection on the stock holder equity and this will highlighted the image of the company and also uplift their stock prices. Gross Profit Margin High proportion of COGS made an impression on the Whole Foods Market Inc. gross margin. High ratio of COGS in the shape of FOH, Purchases etc is the prime reasons behind 0.

34 from (2008-2006). Profit Margin Due high debt financing company is liable to pay the interest expense to its debt holders and would make a significant impression on Whole Foods Market Inc. net profit margin which is lower than the industry trend. Reference Whole Foods Market Inc. (2008). Annual Report. Whole Foods Market Inc. (2007). Annual Report. Whole Foods Market Inc. (2006). Annual Report Whole Foods Market Inc (Nasdaq). Retrieved April 16, 2009, from Reuters Web site:http://www. reuters. com/finance/stocks/incomeStatement? stmtType=INC&perType=ANN&symbol=WFMI. O .

Whole Foods Market has received recognition as recent as January 27th 2011 when CNBC aired Supermarkets Inc: Inside a 500 Billion Money Machine. “Whole Foods is arguably the most influential, and by some measures, the most successful supermarket chain in the world. The specialty gourmet store has grown into a Fortune-300 company offering specialty foods and locally grown organic produce. ” CNBC goes on to state that even “Established brands like Safeway, Giant Eagle and Kroger are cultural icons as familiar as our own street names, but they are under constant attack from brilliant upstarts like Whole Foods…1” From the general supermarket industry Whole Foods Market breaks down into even a smaller specific industry which is the natural and organic foods industry.

This industry focused on proving customers with natural foods which is defined as “foods that are minimally processed, largely or complexly free of artificial ingredients, preservatives and other non natural occurring ingredients; and near to their whole, natural state as possible. 7. ” Also “organic foods were a special subset of the natural foods category; to be labeled as organic, foods had to be grown and processed without the use of pesticides, antibiotics, hormones, synthetic chemicals, artificial fertilizers, preservatives, dyes or additives or generic engenerring. ”

Also from the text book CEO John Mackey believes Whole Foods Market has been highly selective for finding the highest quality, least processed, most favorable and naturally preserved foods available. Whole Foods Market is an industry leader in natural and organic food retailing. The five forces model of competition, in written form, is provided as a key analytical tool to better understand the overall attractiveness of the industry.

Rivalry among competing sellers is certainly strong and is expected to become stronger as more grocery retailers compete for loyal customers who desire the healthiest foods. The threat of substitute’s products is very high from other grocery retailers. For example, Publix has branded its own natural/organics products line named Green Wise and even a few stores that have a majority of its products natural/ organic. The restaurant industry should be considered but it is a very low threat because there are very few restaurants that are only dedicated to natural/organic products.

The threat of new entrants entering the industry is fairly low. This is simply because grocery retailers have already got into the market to insure they would get their share. The bargaining power of suppliers is a medium level threat to the industry because industry members are competing for products to put on their shelves from the same suppliers. The bargaining power of buyers is definitely low because conventional retailers set the price consumers must pay to obtain the goods they want.

Because of these threat levels the overall attractiveness of the industry high. Consumers are becoming more conscious of the foods they are eating and will continue buying natural and organic foods. There have been many main events and performance indicators that have occurred with Whole Foods Market recently, as stated in the Epilogue to January 2009 “ Whole Foods Market planned on opening 15 stores , have annual sales of about 8. 3 billion, have capital expenditures of $400 to $450 million, and incur annual interest costs of $35 to $40 million. ”

The main elements of Whole Foods Market strategy are providing customers with the highest quality natural/organic products. Whole Foods Market has a strong growth strategy because they have 66 store in the stages of development and have future plan of acquiring more stores to expand their company further down the road. This growth strategy has helped them achieve their financial goals. Whole Foods Market can be assessed by using a simple SWOT analysis. This assessment will begin by examining the internal strengths and weaknesses.

Internal strengths Whole Foods Market has two narrow markets that it serves, organic differentiation is the key-stone of whole foods mission, this means Whole Foods Market uses a focus differentiation strategy, highest quality brand reputation, dedication to the social ethics of organics, industry best customer service strong supply chain, and developing a private label of organics. Whole Foods Market has had experience in the natural/organic retailing industry since 1980. For the past 30+ years they have built over 300 large customized stores in North America and also in the United Kingdom.

Whole Foods Market is known to provide the highest quality of products. Weaknesses of Whole Foods Market include the high prices for their products; this is a direct result of the company’s focus on their availability of the finest products. The majority of Whole Foods Market inventory consists of perishable items. This can sometimes pose problems because, produce, milk, eggs have a short shelf life, Produce especially needs constant maintenance to be graded as well as pulling the damaged or bruised produce off the sales floor.

Working as a roduce clerk for several years I know the importance decreasing the cost of throw away products. It hurts the company’s sales especially when you are dealing with pricy high quality natural and organic foods. Another weakness the Whole Foods Market faces is the high costs associated with expanding into different locations. The third part of SWOT is external opportunities that WFM faces in the industry. Over the past couple of decades more consumers have been becoming more health conscious and eating right. WFM can take advantage of this new outlook on the health food industry by acquiring new customers.

Also, Whole Foods Market should spend more money on advertising to attract these health conscious customers. The final part of the SWOT analysis is the external threats that Whole Foods Market has to face. One of these threats is the increasing competition of already established grocery retailers. It’s very easy for these competitors to add natural and organic foods into their inventory. Another threat to Whole Foods Market is that their growth relies on building new stores and acquisitions of existing favorable buildings.

If Whole Foods Market does not succeed in acquiring these store then the dominating grocery retailers will take more market share and slow the company’s growth. Evaluating Whole Foods Market using (S. W. O. T. ) analysis internally and externally helps you to develop an overall assessment of the company’s current competitive situation. Whole Foods Market is in good standings with the competition they seem to have a business model that is working for them and may need to emphasis a bit more on advertising and attracting more health conscious people with pamphlets at gyms.

The Internally the company looks great with not to much to worry about but externally they must act now before the Wal-Mart starts taking their profits as well as other grocery retailers. One of the Key Success Factors (KSFs) of Whole Foods Markets is that it has a strong brand name because the company is well known reputation and far superior up against its main competitors. When a consumer shops at Whole Foods Market they know they will be getting the best quality possible. Another thing that gives them a competitive advantage, is the strong network of suppliers.

This KSF has been a focus of Whole Foods Market to purchase their products grown locally to their stores. Information from wholefoodsmarket. com shows that each store has their own definition of “local” but the consumer just need to check with their particular store to find out where their quality goods are coming from. Another KSF is the access to locations rich in the target market. Whole Food Market has strived to establish stores in most metropolitan areas attracting more people. The Final KSF has been the company’s effective marketing communication.

There are many Key Success factors (KSF) when stacking Whole Foods Market up to the competition. It seeks out the finest natural and organic foods available, maintains the strictest quality standards in the industry, has an unshakeable commitment to sustainable agriculture, and the excitement and fun they bring to shopping for groceries, Whole Foods Market is permanently committed to buying from local farmers whose produce meet quality standards, particularly those who farm organically and are themselves dedicated to environmentally friendly, sustainable agriculture.

Whole Foods Market is greatly increasing their efforts in this regard by further empowering their individual store and regional buyers to seek out locally grown produce. From Investor relations Whole Foods Market states “Our success reaches far beyond the company by contributing to a higher quality of life. By offering the highest quality food available, we are helping to transform the diet of America, helping people live longer, healthier, more pleasurable lives while responding positively to the challenge of environmental sustainability. ”

In Conclusion, Whole Foods Market is the leader in this niche market of natural/organic foods industry and is facing strong competition from the big superstores such as Wal-Mart, Costco and many other grocery retail chains. The company is in a position to change people lives forever and future generations as well. As many companies are doing now is finding their consumers and keeping those customers for life. Not just what they just spend at the register each time but what they may spend over each person’s life p and if you are eating healthier you will definitely live longer in return spending more money with Whole Foods Market.

Works Cited

http://www.wholefoodsmarket.com/products/locally-grown/

http://www.wholefoodsmarket.com/values/green-mission.php