1) Define Whole Foods’ “product”. How does it deliver value to customers? Rather than pursuing mass-market sales volume and razor thin margins, Whole Food targets a selected group of upscale customer and offer them “organic, natural, and gourmet food Synopsis
The best way to compete against a mega-retailer is to not compete against it. This case provides an excellent illustration of how a relatively small retail chain can thrive in the face of a dominant market leader. They key to this is positioning away from the strengths of the competition.
Whole Foods has clearly been successful in doing just this. It has identified a substantial segment of customers that do not want to what the mass discount retailers serve up. It has identified what they do want. And it is providing that value to the customer in spades.
Whole Foods focuses on a niche of educated, liberal, and socially conscious consumers through three pillars: whole foods (organics, gourmet, and natural products), whole people (the company treats its employees exceptionally well), and whole planet (producing food and groceries but treading lightly on the earth). The result is a whole lot of customers.
The teaching objectives for this case are to:
1. Define a retailer in terms of “product.”
2. Analyze competitive threats for a niche marketer.
3. Understand the importance of targeting and positioning for retail organizations. 4. Apply widely recognized retail trends to the future of a retail chain.
Questions for Discussion
1. Define Whole Foods’ “product.” How does it deliver value to customers?
To do this adequately, one has to return to chapter 7. “Product” can be defined a number of different ways. But defining the “three levels of product” as noted in Figure 7.1 is one good way to analyze just what it is that Whole Foods is selling.
• Core benefit –food and grocery items.
• Actual product – 1) brand – Whole Foods has the image of being an earth-friendly purveyor of gourmet and organic foods; 2) quality level – higher than average; 3) design – store environment is inviting, fun, unique, informal, comfortable, attractive, nurturing, and educational; 4) features – not only high-end versions of standard products, but a deli, dessert bar, wine section, and other special touches that add to the image of the brand; 5) packaging – as a retailer, this idea is most likely captured by the concept of design. • Augmented product – two things likely stand out here. 1) Service – as the case points out, the employees of Whole Foods take ownership in the company. They are highly educated as to the products carried by the store. They believe in the values of Whole Foods, those values shared by customers. And they provide an exceptional level of attention to individual customers. 2) Experience – this idea may just capture all the elements of Whole Foods. But beyond the individual parts, the sum of such combine to provide a unique experience for what is widely considered a traditional good.
2. Organics are becoming quite popular. Many chains, including Wal-Mart, have begun offering and expanding their selection of organics. Do you think this poses a competitive threat that should worry Whole Foods?
As the case points out, the big chains likely present no threat to Whole Foods because it has positioned itself as the alternative to such. It has focused on the type of customer that disdains the large corporate chains and the products that they sell. Ironically, chains like Whole Foods and Wild Oats have popularized organics, thus paving the way for the Wal-Marts of the world to capitalize on the trend. But the large competitors can only offer so much. They can never offer the depth of product line that Whole Foods does. And regardless of what the big chains carry, Whole Foods’ core customer will likely not be attracted to shop there. Whole Foods has grown, but it still has plenty of room to grow in before it has to worry about saturating its niche.
3. With respect to the target market and positioning strategy of Whole Foods, what challenges do you think the company will face in the future as it continues to grow and expand?
In contrast to the previous question, at some point, the company needs to consider the factors that might slow its growth. At some point (and that point may be quite a ways off), growth outpaces the potential of the original target market. Then, as the product becomes more mainstream, there is a larger potential outside of the original customer base. Often, those types of customers are interested in the core of what the company offers, but want different stuff too (i.e., lower prices as discussed below). The challenge then is providing the things that are valued by both old and new customer, especially given that such desires may conflict.
4. In California, Whole Foods is commonly known as “Whole Paycheck.” While the firm has clearly positioned itself away from pricing issues, do you think that it can avoid this element of the marketing mix forever? Why or why not?
There are a couple of issues to consider here. First, the possibility of economic downturn may affect even the Whole Foods’ loyalists. When groceries can be purchased for literally half of what they cost at Whole Foods, people may make sacrifices for the sake of making ends meet.
A second issue is competitive pressures. But such pressure are not likely to come from the big discount chains. They are likely to come from other chains that have the same concept as Whole Foods. A few chains that are serving up a similar product offering to the same target market as Whole Foods are Trader Joe’s, Byerly’s, and Wegmans. As Whole Foods and these other companies expand and goes more mainstream, they are likely to class at some point. This is especially the case given that Trader Joe’s provides many of the same benefits as Whole Foods at much lower prices.
5. What other trends in the future of retailing do you think will have an impact on Whole Foods?
From the text (See “The Future of Retailing” section):
• Growth of non-store retailing – selling groceries online is far from dead. In fact, two online retailers, Peapod’s and Freshdirect, are not only growing. But they offer a wide selection of organics and gourmet foods. The type of customer that Whole Foods targets fits the profile of the time-sensitive online shopper. • Retail convergence – Whole Foods has already purchased its biggest direct competitor, Wild Oats. Is another acquisition in Whole Foods’ future? Is it possible that Whole Foods might be gobbled up by one of the large chains looking to diversify and expand its reach (Kroger’s owns various grocery store chains that continue operating under the original names)? • The Rise of Megaretailers – the threat (and lack thereof) from Wal-Mart and friends has already been discussed.
However, there may always be the possibility that one of those chains (or a new player altogether) might pursue a Whole Foods type of strategy under a different brand and on a mass scale. • Technology – Although price is not Whole Foods’ emphasis, any company could benefit from reductions in cost by improving efficiency. Certain retail technologies (IT and inventory management) could benefit Whole Foods. Additionally, various technologies could further add to the experience that Whole Foods’ customers seek. • Global expansion – An area that Whole Foods has explored very little. • Retail stores as “Communities” and “Hangouts.” – Already, this is a major part of the Whole Foods experience. Thus, the issue is not so much what Whole Foods will do to adopt such a strategy, but it will do to capitalize on the trend in a way that attracts new customers seeking this type of benefit.
In addition to the discussion questions, this case can be used to illustrate many of the concepts in the chapter, including retailer types, retailer marketing decisions, and the wheel-of-retailing. To better illustrate the product experience, an instructor might suggest that students visit a Whole Foods store prior to discussing this case if there is one in the area. As a substitute, the Whole Foods website can be demonstrated to students (www.wholefoodsmarket.com).
This case goes well with the segmentation chapter (Chapter 6) and the product chapter (Chapter 7).