Whole Foods Market (2005):Will There Be Enough Organic Food?

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Whole Foods Market (2005):
Will There Be Enough Organic Food to Satisfy a Growing Demand?

I. CASE ABSTRACT

Whole Foods Market was the world's leading retailer of natural and organic foods, with 172 stores in North America and the United Kingdom. The supply of natural and organic foods was not keeping up with steadily increasing demand and could become a serious problem for the company. As the industry attracted more competitors, new prime locations were becoming harder to find. Whole Foods' CEO was uncertain about how to meet the company's aggressive growth targets.

Decision Date: Early 2005 2004 FY Sales: $3,864,950
2004 FY Net Income: $ 132,657

I. CURRENT SITUATION

A. Performance

1. As of September 25, 2005 (end of their 4th quarter) their sales increased 20% (earnings results include Hurricane Katrina and stock option charges).
2. 2010 goal to reach $12 billion
3. In their 4th quarter of 2005 a 12% weighted average square footage growth and comparable store sales growth of 13.4%
4. Closures due to Hurricane Katrina did hurt financials somewhat in 2005.
5. Desire for natural food products is on the rise since 2004 (top $45 billion in 2004)
6. For the fiscal year, the Company's effective tax rate was approximately 43%, net income was $136.4 million, diluted earnings per share were 41.98, and EVA improved $8.2 million to $25.8 million

B. Strategic Position
1. Mission
"We're highly selective about what we sell, dedicated to stringent quality standards, and committed to sustainable agriculture. We believe in a virtuous circle entwining the food chain, human beings and Mother Earth: each is reliant upon the others through a beautiful and delicate symbiosis."

2. Objectives
• To reach $10 billion in revenue with 300+ stores by 2010 without sacrificing quality and their current reputation.
• To conduct business in a manner consistent with their mission and vision.
• To provide minimally processed, high quality food, engaging in ethical business practices and providing a motivational, respectful work environment.
• To strive to take care of their customers by improving customer offerings catering to specific locations
• To gain 100% customer satisfaction by "delighting" its customers in every interaction.

3. Policies
• Maintain high ethical standards in all interactions with customers, team members, venders, and other stakeholders in the company.
• Assume social and environmental responsibility throughout the world
• Support of organic farming, which helps sustain the environment and supports and protects farmers
• To be actively involved in communities by supporting banks, neighborhood events, compensating team members for community service work
• Contributing at least 5% for nonprofit organizations

4. Strategies
• Encourage a team based environment allowing each store to make independent decisions regarding its operations.
• Maintain reputation by quality and services for the customer
• Expansion and acquisition fuel growth

II. CORPORATE GOVERNANCE

A. Board of Directors
1. Currently 8 board members.
• 6 male, 2 female
• Ages ranging from 45 to 72 years old
2. All board members are highly educated and many are involved in external affairs.
a. Many involved on internal committees
b. All possess extensive management and leadership experiences
c. Board includes:
John P. Mackey (52) CEO
David W. Dupree (52)
Dr. John B. Elstrott (57)
Gabrielle E. Greene (45)
Hassan Hass (57)
Linda A. Mason (51)
Morris J. Siegel (56)
Dr. Ralph Z. Sorenson (72)

B. Top Management

1. John P. Mackey
• Co-founder of the company
• Served as Chairman and CEO since 1988, and President from 2001 to 2004
• Currently holds 571,109 shares of stock
2. Four other executives join Mackey within tip management
• Average age 52
C. Top management all have many years of experience in the food industry

III. EXTERNAL ENVIRONMENT (EFAS see Exhibit 1)

A. Societal Environment

1. Economy
• Changing economy-more competitive(O)
• Market for organic foods increased 80.5% from 2001 to 2004 (O/T)
• European expansion provides enormous potential (O)
• Perceived as a more sophisticated organic-foods market in terms of suppliers and acceptance by public
• Natural product sales increased 6.9% for all channels (O)
• Supermarkets, mass marketers, director ...