The Supermarket and Grocery Store Industry’s External Environment

There are many external factors that affect a company and even an industry.  Whole Foods competes in the Supermarket and Grocery Stores Industry in the U.S. (44511).
In the Mind Map below, created using XMind, you can see the four external factors that influence this industry.  These environments are Technological, Political, Economic, and Socio-Cultural.

Political Environment

Monopoly

Monopoly (Photo credit: thatmushroom)

The factors I chose to discuss in this external environment include regulations to maintain a competitive playing field for all companies within the industry.  There have been many regulations set out by the government to ensure that monopolies do not exist within industries.  One of the regulations is the Sherman Antitrust Act which prohibits monopolies and monopolistic activities which would drive competitors out of the industry.

You do the scanning yourself and then pay by S...

You do the scanning yourself and then pay by Switch. Quite a novelty the first or second time you use it. I am easily pleased! (Photo credit: Wikipedia)

Technological Environment

There have been many technological advances within this industry.  One of the more recent advances is the introduction of self-checkout registers in grocery stores.  This gives people the opportunity to check themselves out at the grocery store instead of waiting in line for an employee to do it for them.  This eliminates the amount of people needed to run the register because by having four self-checkouts, you only need one person to run them all, eliminating about three employees.  This may be saving some money for the companies who have installed these checkouts.  Also, a customer may have a good experience in this location because they were able to purchase their items more quickly through the use of a self-checkout, so they may return to that store because of this experience.

Dollar

Dollar (Photo credit: Images_of_Money)

Economic Environment

The recession seems to have hurt many industries due to less shopping, but the Supermarket and Grocery Store industry did rather well.  People were making their meals at home rather than spending money each day on meals.  They were doing more grocery shopping and home preparation.  The only problem is, as the recession ends and the economy is stronger, people may shop in grocery stores less and eat out in restaurants more.

Sex or gender?

Sex or gender? (Photo credit: AJC1)

Socio-Cultural Environment

Gender and income play an important role in this industry.  Since women are a majority of the grocery shoppers, then the stores have to gear their marketing, promotions, and store set-up to what women would prefer.  Also, they need to determine where these middle income ($40,000+) reside and build their stores there, since this income level does a majority of the shopping in this industry.

 

 

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Whole Foods Introduction and SWOT Analysis

 

Whole Foods

Whole Foods (Photo credit: bookgrl)

Company Introduction

Whole Foods Market is a natural and organic supermarket chain that was established in Austin, Texas in 1980.  Four businesspeople in Texas decided that that natural foods industry was ready for a supermarket strategy.  Whole Foods grew through acquisitions of other natural and organic supermarkets like Food For Thought and Wild Oats Markets.  Whole Foods Market now has locations outside of the United States, in Canada and the United Kingdom.

The Supermarket and Grocery Stores industry is extremely competitive.  However, Whole Foods is able to compete in this market because many consumers are interested in the natural and organic foods that Whole Foods offers.

In 2011, Whole Foods recorded sales of $10,107. 79 million, up 10.9% from 2010, and net income of $342.6 million, up 28.2% from 2010.

SWOT Analysis

Information from DATAMONITOR

Strengths Broad Product Offerings 

- Perishable foods to appeal to natural and organic foods and gourmet shoppers

- Produce, seafood, grocery, meat and poultry, bakery, prepared foods and catering, specialty (beer, wine, and cheese), coffee and tea, and much more

- Catering services with made-to-order foods available for purchase

- Fresh foods provide competitive edge

- Address multiple customer segments

Focused Growth Strategy

- Opened 16 new stores in FY2010 and 18 new stores in FY2011

- FY2012: 6 stores in first quarter, 3 stores expected in second quarter

- Opened a store in Glasgow and London

- Plans to open 28-32 stores by FY2013

- Compounded annual growth rate (CAGR) of 26% during 1991-2011

Strong Focus on Right Sizing of Stores

- Right size store for locations: Downsized 20 leases by average of 13,000 sq. feet each

- Larger-format stores in dense urban areas, and smaller stores have potential to earn high returns

Weaknesses Product Recalls Affect Brand Image 

- Recalls due to contamination

- 2012 – Whole Foods Market Dairy Free bakery products recalled because they contain milk which is not on labels

- 2010 – Whole Foods Market of Austin, Texas recalled seven types of cheddar cheese due to possible risk of E. coli or listeria contamination

- 2009 – Whole Foods Carob Energee Nuggets recalled due to potential Salmonella contamination

Weak International Operations

- Only seven stores in Canada and five stores in the UK

- Intends to open new stores, but its operations in these markets are not large enough to derive economies of scale

- Competitors receive benefits because of global operations

Increasing Rental Expenses

- Rental leases increasing significantly

- 2011 = $321,6 million, 2010 = $303.5 million, and 2009 = $281.9 million

Opportunities Increasing Demand for Organic Products 

- Rising awareness about importance of natural foods in diets

- Sales of organic foods increased three fold since 2000 exceeding $28.6 billion

- Rose 7.7% in 2010

Increasing Popularity of Private Labels will Improve Margins

- Private label popularity increases as price becomes a concern

- Private label brands accounted for 17.4% of US food products sales in 2010 (was 15.2% in 2006)

- Private-label branded products industry is worth $90 billion in the U.S.

Trends Support Increased Demand for Food Products

- Eating healthy and at home is an increasing trend

- 92% of grocery shoppers view home-prepared foods as a much healthier meal

Threats Intense Competition May Have an Adverse Effect of Profitability 

- Food retailing is an extremely competitive industry

- Competitors: local, regional, national, and international conventional and specialty supermarkets, natural foods stores, warehouse membership clubs, smaller specialty stores, farmers’ markets, restaurants

Stringent Regulations Impose Additional Liability

- Laws and regulations related to health, sanitation and food labeling

- Failure to comply with standards results in penalties

Whole Foods Market

Whole Foods Market (Photo credit: Wikipedia)

Conclusion
The rising popularity of natural and organic foods has led to the success of Whole Foods Market.  After looking at their SWOT analysis, some suggestions for Whole Foods would be to expand more globally.  There are many grocery retailers that have a high presence in the global market, and if consumers outside of the U.S. are considering the importance of natural and organic foods, then Whole Foods would do well in the global market.  Whole Foods also needs to be careful with some of their products.  Product recalls can have a negative affect on their brand image.  In conclusion, Whole Foods does have many strengths in the grocery industry, as well as many opportunities.
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