In an industry plagued by low margins and commoditization, Whole Foods differentiates by offering premium quality products and service. It is an example of a company that effectively aligns its business and operating model. The company has created value by capitalizing on the growing trend in preferences for organic and healthy foods. Whereas shoppers have typically associated the term “grocery store” with dry and packaged goods, Whole Foods reconnects consumers to the idea of pure, natural and fresh foods. Its product categories include beverages, body care, snacks, frozen, pantry staples, supplements and gift baskets and also eco-scaling cleaning products . In addition to strategically choosing suppliers who offer products with natural ingredients, Whole Foods created their own 365 line of private label organic and natural products . These premium products are a huge asset and translate to performance, since consumers are willing to pay more for higher quality foods. Whole Foods commands a profit margin around 5-6%, compared to the grocery industry average around 3%. For example, Kroger’s sales in its FY2014 reached nearly $97 billion with net income $1.5 billion. In the same period, Whole Foods posted sales of about $11.5 billion with net income $500 million. While Kroger had nearly nine times Whole Foods’ revenue, it only had three times the net income .
In addition to offering high quality products, Whole Foods focuses on providing an in-store experience. Whereas many consumers consider grocery shopping a chore, Whole Foods provides a fun environment that attracts consumers to visit the store as a leisure activity. Whole Foods has several tangible in-store assets that contribute to the success of their value proposition. One asset is the large size of their stores. Whole Foods chose to invest in 50,000 – 80,000 square-foot stores, 166%-266% bigger than the average grocery store . This space allows them to offer a wine bar and food stations with cuisine from around the world in high traffic locations, attracting shoppers not only to purchase groceries but also to stay for a bite or drink. These stores typically also offer cooking lessons, wine tasting, and other events that patrons sign up for ahead of time, creating a club-like feel. Whole Foods hires the right people – chefs, wine connoisseurs, etc. – who can connect with Whole Foods’ target market and cater to these events. While all of these assets add to Whole Foods’ cost, they service high revenue purchases and encourage brand loyalty and cross-selling.
Whole Foods is also employing digital technology to improve the customer experience. First, the company redesigned its mobile app last year, which resulted in 600,000 downloads within the first month. The app has new features such as shopping list creation and information about store sales and specials. Second, Whole Foods chose to partner with Instacart, the same-day grocery delivery smartphone app, which yielded carts that are 2.5 times the size of in-store shopping carts . Finally, as we learned in the Marketing Apple Pay case, Whole Foods was an early adopter of Apple Pay, offering shoppers a seamless, contactless payment method. All of these recent technology moves are assets that expand and enhance the customer’s touch points with Whole Foods, which will in return increase sales.
While Whole Foods pioneered the natural and organic grocery category and quickly rose to success, the company has faced stiffer competition in the past few years as mainstream retailers increase their natural and organic product offerings. As the image above reflects, stock price dropped 9% last quarter with competition and a decline is same-store sales. Whole Foods is revamping its strategy to lower prices and offer promotions while trying to maintain its position as a high-quality retailer . Last quarter, Whole Foods announced that it will open a sister chain of smaller stores aimed at younger shoppers who are looking for more affordable alternatives . These are examples of Whole Foods adapting their business model and developing new assets to support this model in order to create value in a changing marketplace. The future will tell whether these adaptations help Whole Foods sustain its profitability.
 Whole Foods Market on Forbes Lists. http://www.forbes.com/companies/whole-foods-market/
 How Whole Foods Market Created the Ultimate Successful Subcategory. https://www.prophet.com/blog/aakeronbrands/193-how-whole-foods-market-created-the-ultimate-successful-subcategory
 Whole Foods’ Business Model Makes It a Solid Investment. http://www.gurufocus.com/news/264529/whole-foods-business-model-makes-it-a-solid-investment
 USA Today on the Whole Foods Market “Shopping Experience.” https://www.organicconsumers.org/old_articles/organic/usatoday31005.php
 Apple Pay Helps Whole Foods Market Give Shoppers What They Want. http://www.fool.com/investing/general/2015/02/16/apple-pay-helps-whole-foods-market-give-shoppers-w.aspx
 Whole Foods Dives After Results; Announces $1B Buyback. http://www.cnbc.com/2015/11/04/whole-foods-shares-drop-95-on-earnings-miss.html
 Whole Foods Plans Lower-Cost Chain. http://www.wsj.com/articles/whole-foods-market-profit-rises-on-higher-sales-1430944499