The Supermarkets and Grocery Store Industry in the United States is extremely competitive. With industry revenues of $491.2 billion, it is important to determine the revenue contributions from the major players in the industry. Not only is revenue contribution an important aspect when comparing financials, but so is net income. A company may have high revenues, but if their costs are also high, they will have little profit or net income. It is important when looking at the major players, that you compare their financial information.
This post reflects important financial information involving Whole Foods and its two competitors, Kroger and Safeway. The financial information I chose to display in two separate graphs are Revenue and Net Income.
This chart represents revenues for Whole Foods, Kroger, and Safeway over a three year period. As you can see in the graph, Kroger has significantly higher revenues than both Whole Foods and Safeway. This is when it becomes important to look at the net income of the three companies. While Kroger and Safeway both have much higher revenues than Whole Foods, it is important to determine if their profit is also much higher than Whole Foods.
In the most recent year that information is available, Net Income for the three companies is fairly similar. All three companies hover around the $500,000 mark. This is why it is important to look at multiple aspects of financials when comparing companies because from the revenue graph it looks like Kroger is much better off financially than Safeway and especially Whole Foods. However, if you look at this graph, Whole Food’s net income rises over the three years while both Kroger and Safeway rise from 2009 to 2010 and then fall from 2010 to 2011. Whole Foods has the opportunity here to generate higher net income than these two competitors if they can keep their costs low.
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.
Information from DATAMONITOR
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
- 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
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 (Photo credit: Wikipedia)
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.