BELLRINGER

1. BELLRINGER Explain in complete sentences what are economic principles of using natural food

3. Executive Summary Whole Foods Market, Inc. • 25 Years Of Double Digit Revenue Growth • $4.7B Organic Supermarket Industry Leader Whole Foods Current Strategy • Expand Through New Store Openings • Achieve $12 Billion In Sales By 2010

4. Executive Summary Competitive Strategy Analysis • Supplier Power Dominates This Industry • Current Strategy Lacks Aggressiveness Recommended Strategy • Establish Partnerships With Traditional Supermarkets • Achieve National Brand Equity

5. Overview • Porter’s Five Forces Analysis • SWOT Analysis of Whole Foods • Recommended Strategy • Questions/Discussion

6. Market Definition Market History • Natural And Organic Food Industry Began About 30 Years Ago • Whole Foods Market Is A “Founding Firm” • USDA Established The “Organic Rule” In 2002

7. Market Definition • All Products Sold As “Organic” Must Now Meet The Requirements Of The USDA Organic Rule • Approximately $13 Billion In Sales In 2005

8. Internal Rivalry Threat To Profits: High Sources Of Internal Rivalry: • Many Sellers In The Market • Differing Cost Structures • Strong Exit Barriers

9. Internal Rivalry Differing Cost Structures • Consider A Wal-Mart Supercenter: • > 100,000 Square Feet • Average Supermarket Only 35,000 Square Feet • Significant Economies Of Scale Difference And Wal-Mart Continually Drives Down Prices Strong Exit Barriers • High Investment In Property, Distribution And Inventories

10. Entry Threat to Profits: Medium Originally, Health Food Stores Were Small, Expensive, And Unpredictable. Some Health Stores Grew Into Supermarkets: • Sun Harvest • Whole Foods Market Some Existing Supermarkets Re-Branded • Wegmanns • HEB: Central Market

11. Segment Entry Types Re-branded Supermarkets • H.E.B. (Texas) Created “Central Market” • Wegmans (New York) Upgraded Locations New Supermarket Entrants • Growing Health Food Stores (GNC) • New Firms

12. EntrantComparison

13. Most Likely Segment Entrants Based On The Barriers To Entry Analysis, The Most Likely Entrants Into The Organic Segment Of The Supermarket Industry Are Established Firms Who’s Next?

14. Substitutes Threat To Profits: Medium Health Food Stores Traditional Supermarkets Supercenters Complements Health Industry Health Insurance Companies Health Care Specialists Fitness Centers Wellness Programs Substitutes And Complements

15. Supplier Power Threat to Profits: High • Local Growers, Independent And Family Farmers, Large Corporate Farms, Co-ops And Food Brokers • Organic Supply Chain Underdeveloped • Growing Number Of Organic Food Grocers

16. Buyer Power Threat To Profits: Medium To High Buyers Have Options! • Price • Convenience • Varying Levels Of Health Sensitivity • Mixed Consumer Messages

17. Porter’s FiveForces Summary

18. Strengths Whole Foods, Whole People, Whole Planet • Corporate Culture • Customer Experience • Perishables • Hip Image • Double Digit Growth • Largest Selection

19. Strengths

20. Strengths Whole Financing! Strong Cash Flow And Stock Position Provide Capital For Growth In The Most Highly Desired Locations • 4.7 Billion Dollar Revenues • Revenue Growth: • 21.6 Percent From 2004 To 2005 • 15.8 Percent From 2005 To 2006 • Returning Invested Capital (ROIC): 37% • Capitalization Increased To 6.8 Billion: 6th On The List Of All Grocery Chains t

21. Weaknesses • “Whole Paycheck” • Whole Planet? Weak International Operations • Low Employee Efficiency • Revenue per Employee = $138K versus Industry Average of $309K

22. Opportunities Market Leadership in High Demand Segment • 2002 USDA Organic Rule – True Differentiation • Organic and Natural Food Industry Focus on Consumer Education • Media Coverage • Health benefits of organic foods • Suspicious of “contaminants” (e.g. hormones, antibiotics, etc.)

23. Opportunities Private Label Brands • “Whole-X”, Where X = Kids, Ranch, Fields, Catch, Creamery, Diary, Treat • Growth Of These Brands Is High Due To Lower Price Versus Contemporary Organic Brands • Potential To Sell These Products In Traditional Supermarkets

24. Threats Increased Competition • Re-branding Existing Supermarkets • Wal-Mart Changes in Government Regulations Changes in Economic Conditions • Impact of Consumer Spending

25. CorporateStrategy Whole Foods’ Current Strategy • Expand Through New Store Openings • ‘Build’ Versus ‘Buy’ New Stores • Customized Stores To Local Preferences • Open To Acquisition Opportunities • Grow Store Space At A “Controllable” Rate Of 14% • Preserve Corporate Culture • Achieve $12B In Sales By 2010

26. Medium TermStrategy Coordinated Campaigns To Enter New Markets • Prior To Store Opening, Establish Relationships With: • Traditional Supermarkets Willing To Sell “Whole-X” Products • Local Organic Suppliers And Growers • Aggressive Advertising Upon Store Launch: • Emphasize “Whole Foods, Whole People, Whole Planet”

27. Long TermStrategy Build National Brand Equity • Extend Partner Relationships Into Current Markets • Increase Advertising Budget From 0.4% To The Industry Average Of 1.5% • Focus On Building Brand Identity With Organics • When Consumers Think “Organic”, They Think “Whole Foods” • Shed The “Whole Paycheck” Image