CASE 03 Whole Foods Market in 2014: Vision, Core Values, and Strategy Arthur A. Thompson The University of Alabama ounded in 1980, Whole Foods Market had evolved from a local supermarket for natural and health foods in Austin, Texas, into the most visible and best-known leader of the natural and organic food movement across the United States, helping the industry gain acceptance among growing numbers of consumers concerned about the food they ate. The company had 2013 sales revenues of $12.9 billion and in spring 2014 had 379 stores in the United States, Canada, and Great Britain. Over the past 22 years, sales had grown at a compound annual rate of 25.2 percent, and profits had grown at a compound average rate of 30.4 percent. In 2013, Whole Foods was the 8th-largest food and drug retailer in the United States (up from 21st in 2009) and ranked 232nd on Fortune magazine's 2013 list of the 500 largest companies in the United States. Over 7 million customers visited Whole Foods stores in 41 U.S. states, Canada, and the United Kingdom each week, and Whole Foods was the number-two retail brand on Twitter, with 4 million followers. Whole Foods' mission was \"to promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome foods available.\" The core of the mission involved promoting organically grown foods, healthy eating, and the sustainability of the world's entire ecosystem. For many years, the company used the slogan \"Whole Foods, Whole People, Whole Planet\" to capture the essence of its mission. John Mackey, the company's cofounder and co-CEO, was convinced that Whole Foods' rapid growth and market success had much to do with its having \"remained a uniquely mission-driven companyhighly selective about what we sell, dedicated to our core values and F stringent quality standards, and committed to sustainable agriculture.\" Mackey's vision was for Whole Foods to become an international brand synonymous with carrying the highest-quality natural and organic foods available and being the best food retailer in every community in which a Whole Foods store was located. The company sought to offer the highest-quality, least processed, most flavorful and naturally preserved foods available, and it marketed them in appealing store environments that made shopping at Whole Foods interesting and enjoyable. Mackey believed that marketing high-quality natural and organic foods to more and more customers in more and more communities would, over time, gradually transform the diets of individuals in a manner that would help them live longer, healthier, more pleasurable lives. THE NATURAL AND ORGANIC FOODS INDUSTRY The retail grocery industry in the United Stateswhich included conventional supermarkets, supercenters, and limited-assortment and natural/gourmet-positioned supermarketshad sales of approximately $603 billion in 2012, up 3 percent over 2011.1 Within this broader category, retail sales of food products labeled \"natural\" were approximately $81 billion, a 10 percent increase over the prior year.2 Foods labeled \"organic\" generated estimated retail sales across North America approaching $35 billion in 2013, up from $9 billion in 2002. Natural Copyright 2014 by Arthur A. Thompson. All rights reserved. C-12 PART 2 Cases in Crafting and Executing Strategy foods were (1) minimally processed, (2) largely or completely free of artificial ingredients, preservatives, and other non-naturally occurring chemicals, and (3) as near to their whole, natural state as possible. The U.S. Department of Agriculture's Food and Safety Inspection Service defined natural food as \"a product containing no artificial ingredient or added color and that is minimally processed.\" Organic foods were a special subset of the natural food category and had to be grown and processed without the use of pesticides, antibiotics, hormones, synthetic chemicals, artificial fertilizers, preservatives, dyes or additives, or genetic engineering. Organic foods included fresh fruits and vegetables, meats, and processed foods that had been produced using: 1. Agricultural management practices that promoted a healthy and renewable ecosystem and that used no genetically engineered seeds or crops, petroleumbased fertilizers, fertilizers made from sewage sludge, or long-lasting pesticides, herbicides, and fungicides. 2. Livestock management practices that involved organically grown feed, fresh air and outdoor access for the animals, and no use of antibiotics or growth hormones. 3. Food processing practices that protected the integrity of the organic product and disallowed the use of radiation, genetically modified ingredients, or synthetic preservatives. Organic food sales accounted for 5 to 6 percent of total U.S. retail sales of food and beverages in 2013. In 1990, passage of the Organic Food Production Act started the process of establishing national standards for organically grown products in the United States, a movement that included farmers, food activists, conventional food producers, and consumer groups. In October 2002, the U.S. Department of Agriculture (USDA) officially established labeling standards for organic products, overriding both the patchwork of inconsistent state regulations for what could be labeled as organic and the different rules of some 43 agencies for certifying organic products. The new USDA regulations established four categories of food with organic ingredients, with varying levels of organic purity: 1. 100 percent organic products. Such products were usually whole foods, such as fresh fruits and vegetables, grown by organic methodswhich meant that the product had been grown without the use of synthetic pesticides or sewage-based fertilizers, had not been subjected to irradiation, and had not been genetically modified or injected with bioengineered organisms, growth hormones, or antibiotics. Products that were 100 percent organic could carry the green USDA organic certification seal provided the merchant could document that the food product had been organically grown (usually by a certified-organic producer). 2. Organic products. Such products, often processed, had to have at least 95 percent organically certified ingredients. These could also carry the green USDA organic certification seal. 3. Made with organic ingredients. Such products had to have at least 70 percent organic ingredients; they could be labeled \"made with organic ingredients\" but could not display the USDA seal. 4. All other products with organic ingredients. Products with less than 70 percent organic ingredients could not use the word organic on the front of a package, but organic ingredients could be listed among other ingredients in a less prominent part of the package. The USDA's labeling standards were intended to enable shoppers who were ingredient-conscious or wanted to buy pesticide-free or support sustainable agricultural practices to evaluate product labels on which the word organic appeared. The standards were not meant to imply anything about the health or safety of organic products (because there was no credible scientific evidence that organic products were more nutritious or safer to eat than conventionally grown products). The USDA also issued regulations requiring documentation on the part of growers, processors, exporters, importers, shippers, and merchants to verify that they were certified to grow, process, or handle organic products carrying the USDA's organic seal. In 2003, Whole Foods was designated as the first national \"Certified Organic\" grocer by Quality Assurance International, a federally recognized independent third-party certification organization. Major food processing companies like Kraft, General Mills, Danone (the parent of Dannon Yogurt), Dean Foods, and Kellogg had all purchased organic food producers in an effort to capitalize on growing consumer interest in purchasing organic products. Heinz had introduced an organic ketchup and bought a 19 percent stake in Hain Celestial CASE 03 Whole Foods Market in 2014: Vision, Core Values, and Strategy Group, one of the largest organic and natural food producers. Campbell Soup had introduced organic tomato juice. Starbucks, Green Mountain Coffee, and several other premium coffee marketers were marketing organically grown coffees; Coca-Cola's Odwalla juices were organic; Del Monte and Hunt's were marketing organic canned tomatoes; and Tyson Foods and several other chicken producers had introduced organic chicken products. Producers of organically grown beef were selling all they could produce in 2011-2013, with demand growing an estimated 20 to 25 percent annually; headed into 2014, the market share of natural, organic, and grass-fed beef was estimated to be 5 percent based on dollars and 3 percent based on volume. According to the most recent data from the U.S. Department of Agriculture, U.S. producers dedicated approximately 5.4 million acres of farmland 3.1 million acres of cropland and 2.3 million acres of rangeland and pastureto certified-organic production systems in 2011, up from a total of 2.1 million acres in 2001.3 Only About 0.8 percent of all U.S. cropland and 0.5 percent of all U.S. pasture were certified-organic in 2011. There were approximately 13,000 certified-organic producers in the United States in 2011, and perhaps another 9,000 small farmers growing organic products. All 50 states had some certified-organic farmland, with California, Oregon, New York, North Dakota, Montana, Minnesota, Wisconsin, and Texas having the most acres of certified-organic cropland. Farmers were becoming increasingly interested in and attracted to organic farming, chiefly because of the substantially higher prices they could get for organically grown fruits, vegetables, and meats. Since 2005, health-conscious chefs at many finedining restaurants had begun sourcing ingredients for their dishes from local organic farmers and touting the use of organically grown products on their menus. Growing restaurant use of organically grown herbs, lettuces, vegetables, and fruits, as well as organic cheeses and organic meats, was spurring the growth of organic farming (since supplying local restaurants gave organic producers a ready market for their crops). Likewise, there was growing demand for locally grown organic fruits and vegetables on the part of many supermarketsgrowing numbers had begun promoting fresh, locally grown organic produce in their stores. Organic farmers were also experiencing strong demand for their C-13 products among consumers who shopped at local farmers' markets. Retailing of Organic Foods Organic foods and beverages were available in nearly every food category in 2014 and were available in over 90 percent of U.S. retail food stores. Increasingly, the vast majority of retail sales of organic products in 2013-2014 were made through mainstream supermarkets and grocery stores and through leading organic and natural food supermarket chains such as Whole Foods, Trader Joe's, and Fresh Market. Only a small portion of organic sales occurred through independent, small-chain natural grocery stores. Over the past decade, mainstream supermarkets had gradually expanded their offerings of natural and organic products for two reasons. One was because mounting consumer enthusiasm for organic products allowed retailers to earn attractively high profit margins on organics (compared to other grocery items, for which intense price competition among rival supermarket chains on general food products limited profit margins). The other was because consumer demand for organics was growing two to three times faster than the demand for traditional grocery products. Several factors had combined to transform organic food retailing, once a niche market, into the fastest-growing segment of U.S. food sales: A \"wellness,\" or health-consciousness, trend among people of many ages and ethnic groups. Heightened awareness of the role that food, nutrition, and good eating patterns played in long-term health. Among those most interested in organic products were aging, affluent people concerned about maintaining their health and eating betterfor-you foods. Increasing consumer concerns over the purity and safety of food due to the presence of pesticide residues, growth hormones, artificial ingredients and other chemicals, and genetically engineered ingredients. The growing belief that organic farming had positive environmental effects, particularly in contributing to healthier soil and water conditions and to sustainable agricultural practices. Organic food products were between 10 and 40 percent more expensive than nonorganic foods, C-14 PART 2 Cases in Crafting and Executing Strategy chiefly because of the higher production, distribution, and marketing costs for organic products. Such higher prices were the primary barrier for most consumers in trying or using organic products. As of 2014, most supermarket chains stocked a selection of natural and organic food itemsincluding fresh produce, canned and frozen fruits and vegetables, milk, cheeses, yogurt, vinegars, salad dressings, cereals, pastas, and meatsand the number and variety of organic items on supermarket shelves were growing. Fresh fruits and vegetables accounted for close to 40 percent of total organic food sales, with organic lettuces, spinach, broccoli, cauliflower, celery, carrots, and apples among the biggest sellers. Meat, dairy, grains, and snack foods were among the fastest-growing organic product categories. Leading supermarket chains like Walmart, Kroger, Safeway, Supervalu/Save-a-Lot, and Publix had created special \"organic and health food\" sections for nonperishable natural foods and organics in most of their stores. Kroger, Publix, and several other chains also had special sections for fresh organic fruits and vegetables in their produce cases in almost all of their stores. Walmart, Target, Safeway, Publix, and Kroger were stocking organic chicken and organic, pasture-raised beef at most of their stores. WHOLE FOODS MARKET Whole Foods Market was founded in Austin, Texas, when John Mackey, the current co-CEO, and three other local natural food grocers in Austin decided the natural food industry was ready for a supermarket format. The original Whole Foods Market opened in 1980 with a staff of only 19. It was an immediate success. At the time, there were less than half a dozen natural food supermarkets in the United States. By 1991, the company had 10 stores, revenues of $92.5 million, and net income of $1.6 million. Whole Foods became a public company in 1992, with its stock trading on the NASDAQ. In February 2014, Whole Foods operated 358 stores in 41 U.S. states and the District of Columbia, 8 stores in Canada, and 7 in Great Britain. Its stores averaged 38,000 square feet in size and $37.4 million in sales annually. More than 50 Whole Foods stores had average sales volumes of more than $1 million per week in fiscal 2013, up from just 6 stores in 2005; several Whole Foods stores averaged sales of over $2 million per week. Exhibit 1 presents highlights of the company's financial performance for fiscal years 2009-2013 (Whole Foods' fiscal year ended the last Sunday in September). Core Values In 1997, when Whole Foods developed the \"Whole Foods, Whole People, Whole Planet\" slogan to characterize its mission, John Mackey, known as a gogetter with a \"cowboy way of doing things,\" said: This slogan taps into perhaps the deepest purpose of Whole Foods Market. It's a purpose we seldom talk about because it seems pretentious, but a purpose nevertheless felt by many of our Team Members and by many of our customers (and hopefully many of our shareholders too). Our deepest purpose as an organization is helping support the health, well-being, and healing of both people (customers and Team Members) and of the planet (sustainable agriculture, organic production and environmental sensitivity). When I peel away the onion of my personal consciousness down to its core in trying to understand what has driven me to create and grow this company, I come to my desire to promote the general well-being of everyone on earth as well as the earth itself. This is my personal greater purpose with the company and the slogan perfectly reflects it. Complementing the \"Whole Foods, Whole People, Whole Planet\" mission was a statement of eight core values that governed how the company endeavored to conduct its business (see Exhibit 2). Whole Foods' managers and employees (referred to as team members) took pride in \"walking the talk\" when it came to the company's core values. The prevailing philosophy at Whole Foods was that the company's success and long-term profitability depended on its ability to simultaneously satisfy the needs and desires of its customers, team members, investors, and suppliers while also demonstrating a genuine concern for the communities in which it operated and for the environment. Growth Strategy Since going public in 1991, Whole Foods' growth strategy had been to expand via a combination of opening its own new stores and acquiring small, owner-managed chains that had capable personnel and were located in desirable markets. During 1992-2001, Whole Foods' most significant acquisitions CASE 03 EXHIBIT 1 Whole Foods Market in 2014: Vision, Core Values, and Strategy C-15 Select Financial Information, Whole Foods Market, Fiscal Years 20092013 (in millions, except per share amounts) Fiscal Year Ending: Income statement data Sales Cost of goods sold and occupancy costs Gross profit Direct store expenses Store contribution1 General and administrative expenses Preopening and relocation costs Relocation, store closure, and lease termination costs Operating income Interest expense, net Investment and other income Income before income taxes Provision for income taxes Net income Preferred stock dividends Net income available to common shareholders Basic earnings per share Weighted average shares outstanding Diluted earnings per share Weighted-average shares outstanding, diluted basis Dividends declared per share Balance sheet data Net working capital2 Total assets Long-term debt (including current maturities) Shareholders' equity Cash flow data Net cash provided by operating activities Development costs of new locations Other property and equipment expenditures Free cash flow Sept. 29, 2013 Sept. 30, 2012 Sept. 25, 2011 Sept. 26, 2010 Sept. 27, 2009 $12,917 8,288 4,629 3,285 1,344 397 52 12 883 11 894 343 551 $ 551 $1.48 371.2 $1.47 374.5 $1.40 $11,699 7,543 4,156 2,983 1,173 372 47 10 743 8 752 286 466 $ 466 $1.28 364.8 $1.26 368.9 $0.28 $10,108 6,571 3,537 2,629 908 311 41 8 548 (4) 8 552 209 343 $ 343 $0.98 350.5 $0.97 354.6 $0.20 $ 9,006 5,870 3,136 2,377 759 272 38 11 438 (33) 7 412 166 246 6 $ 240 $0.72 332.5 $0.72 343.4 $8,032 5,277 2,754 2,146 608 244 49 31 284 (37) 4 251 104 147 28 $ 119 $0.42 280.8 $0.42 280.8 $ 1,126 5,294 24 3,802 $ $ $ $ $ $ 892 5,538 27 3,878 $ 1,009 (339) (67) $ 273 920 (262) (85) $ 328 574 4,292 18 2,991 759 (203) (162) $ 390 414 3,987 509 2,373 $ 585 (171) (194) $ 464 371 3,783 739 1,628 $ 588 (288) (198) $ 472 Note: Whole Foods' fiscal year ends the last Sunday in September. 1 Store contribution is defined as gross profit less direct store expenses. 2 Net working capital is defined as total current assets minus total current liabilities. Sources: 2013 10-K report, pp. 20 and 40; and 2011 10-K report, p. 36. consisted of seven small chains with a total of 45 stores ranging in size from 5,000 to 20,000 square feet. The company entered the Atlanta market in 2001 by acquiring Harry's Market, which operated three 55,000-square-foot supermarkets. Starting in 2002, Whole Foods' management decided to drive growth by opening 10 to 15 decidedly bigger stores in metropolitan areas each yearstores that ranged C-16 EXHIBIT 2 PART 2 Cases in Crafting and Executing Strategy Whole Foods Market's Eight Core Values Our Core Values The following list of core values reflects what is truly important to us as an organization. These are not values that change from time to time, situation to situation or person to person, but rather they are the underpinning of our company culture. 1. We Sell the Highest Quality Natural and Organic Products Available Passion for FoodWe appreciate and celebrate the difference natural and organic products can make in the quality of one's life. Quality StandardsWe have high standards and our goal is to sell the highest quality products we possibly can. We define quality by evaluating the ingredients, freshness, safety, taste, nutritive value and appearance of all of the products we carry. We are buying agents for our customers and not the selling agents for the manufacturers. 2. We Satisfy, Delight and Nourish Our Customers Our CustomersThey are our most important stakeholders in our business and the lifeblood of our business. Only by satisfying our customers first do we have the opportunity to satisfy the needs of our other stakeholders. Extraordinary Customer ServiceWe go to extraordinary lengths to satisfy and delight our customers. We want to meet or exceed their expectations on every shopping trip. We know that by doing so we turn customers into advocates for our business. Advocates do more than shop with us, they talk about Whole Foods to their friends and others. We want to serve our customers competently, efficiently, knowledgeably and with flair. EducationWe can generate greater appreciation and loyalty from all of our stakeholders by educating them about natural and organic foods, health, nutrition and the environment. Meaningful ValueWe offer value to our customers by providing them with high quality products, extraordinary service and a competitive price. We are constantly challenged to improve the value proposition to our customers. Retail InnovationWe value retail experiments. Friendly competition within the company helps us to continually improve our stores. We constantly innovate and raise our retail standards and are not afraid to try new ideas and concepts. Inviting Store EnvironmentsWe create store environments that are inviting and fun, and reflect the communities they serve. We want our stores to become community meeting places where our customers meet their friends and make new ones. 3. We Support Team Member Happiness and Excellence Empowering Work EnvironmentsOur success is dependent upon the collective energy and intelligence of all of our Team Members. We strive to create a work environment where motivated Team Members can flourish and succeed to their highest potential. We appreciate effort and reward results. Self-ResponsibilityWe take responsibility for our own success and failures. We celebrate success and see failures as opportunities for growth. We recognize that we are responsible for our own happiness and success. Self-Directed TeamsThe fundamental work unit of the company is the self-directed team. Teams meet regularly to discuss issues, solve problems and appreciate each others' contributions. Every Team Member belongs to a team. Open & Timely InformationWe believe knowledge is power and we support our Team Members' right to access information that impacts their jobs. Our books are open to our Team Members, including our annual individual compensation report. We also recognize everyone's right to be listened to and heard regardless of their point of view. Incremental ProgressOur company continually improves through unleashing the collective creativity and intelligence of all of our Team Members. We recognize that everyone has a contribution to make. We keep getting better at what we do. Shared FateWe recognize there is a community of interest among all of our stakeholders. There are no entitlements; we share together in our collective fate. To that end we have a salary cap that limits the compensation (wages plus profit incentive bonuses) of any Team Member to nineteen times the average total compensation of all full-time Team Members in the company. 4. We Create Wealth through Profits & Growth StewardshipWe are stewards of our shareholders' investments and we take that responsibility very seriously. We are committed to increasing long term shareholder value. ProfitsWe earn our profits everyday through voluntary exchange with our customers. We recognize that profits Satisfaction and job security are essential to creating capital for growth, prosperity, opportunity, job. CASE 03 Whole Foods Market in 2014: Vision, Core Values, and Strategy C-17 5. We Serve and Support Our Local and Global Communities Our business is intimately tied to the neighborhood and larger community that we serve and in which we live. Caring for the communities in which we reside is hugely important to our organization. LocalFirst off, it's a given that each store donates food to area food banks and shelters. We have food; they know how to get it to people who need it. Done. Then, several times a year, our stores hold community-giving days (otherwise known as \"5% Days\") where five percent of that day's net sales are donated to a local nonprofit or educational organization. The groups that benefit from these \"5% Days\" are as varied as the communities themselves. Last but not least, Team Members are constantly volunteering their time and expertise to an assortment of local non-profits. GlobalWhile our store donations provide the backbone of our community giving, we also give back to the larger national and global community. Whole Planet Foundation works toward poverty alleviation in developing-world communities where Whole Foods Market sources product. Through microcredit, Whole Planet Foundation seeks to unleash the energy and creativity of every human being they work with in order to create wealth and prosperity in emerging economies. Whole Kids Foundation supports schools and inspires families to improve children's nutrition and wellness. Through partnerships with innovative organizations, schools and educators they work to provide children access to fresh, nutritious meals. Our Local Producer Loan Program provides up to $10 million in low-interest loans to small, local producers. Why? Because we believe in supporting local farmers and producers. 6. We Practice and Advance Environmental Stewardship Sustainable AgricultureWe support organic farmers, growers and the environment through our commitment to sustainable agriculture and by expanding the market for organic products. Wise Environmental PracticesWe respect our environment and recycle, reuse, and reduce our waste wherever and whenever we can. 7. We Create Ongoing Win-Win Partnerships with Our Suppliers Integrity in All Business DealingsOur supplier partners are our allies in serving the interests of our other stakeholders in bringing to market the safest highest quality products available. We treat them with respect, fairness and integrity at all times and expect the same in return. We seek supplier partnerships that share our concern for social responsibility and the environment. Honesty and CommunicationWe are committed to honesty, timeliness and clarity in communicating with our suppliers and we expect the same in return. TransparencyWe seek to create transparency from \"farm to fork\" with respect to production, planning, sourcing, ingredients, product safety and efficacy in order to bring to market the safest highest quality products available. We work with our supplier partners in eliminating all unnecessary production and distribution costs to help ensure the best possible price. EducationWe partner with our suppliers to educate, inspire and communicate the outstanding quality and benefits of our products to promote a lifestyle of health, balance and well-being. Innovation/DifferentiationWe foster supplier partnerships that enable us to remain at the forefront of the retail food industry, by creating new, unique and innovative products. 8. We Promote the Health of Our Stakeholders through Healthy Eating Education EducationHealthy eating is a basic foundation for optimum health and well-being. By providing healthy eating education we inspire and empower our stakeholders to make the best health-supportive, delicious food choices to maximize personal health and vitality. Source: www.wholefoodsmarket.com (accessed February 14, 2014). from 40,000 square feet to as much as 80,000 square feet and were on the same scale as or larger than the conventional supermarkets operated by Kroger, Safeway, Publix, and other chains. However, the company did opt to enter Great Britain in 2004 by purchasing Fresh and Wild, an operator of seven small stores in the London area. Then, in 2007, Whole Foods began what proved to be a largely successful, but contentious, 2-year battle to purchase struggling Wild Oats Markets Whole Foods' biggest competitor in natural and organic foodsfor an acquisition price of $700 million. Wild Oats operated 109 older and smaller stores (averaging 24,000 square feet in size) in 23 states under the Wild Oats Market, Henry's Farmer's Market, and Sun Harvest brands and had total annual sales of about $1.2 billion. The Federal Trade Commission opposed the acquisition on grounds that competition C-18 PART 2 Cases in Crafting and Executing Strategy in the organic food retailing segment would be weakened; however, a U.S. district court ruled that the FTC's position lacked merit. Whole Foods went forward and completed its acquisition of Wild Oats in late August 2007. Acquiring Wild Oats gave Whole Foods entry into five new states and 14 new metropolitan markets. Whole Foods then quickly sold 35 Henry's and Sun Harvest stores in California and Texas that had been previously acquired by Wild Oats, along with a California distribution center, to Los Angeles food retailer Smart & Final, realizing approximately $165 million from the sale and reducing its net purchase price for Wild Oats Market to about $535 million (which included the assumption of $148 million in Wild Oats' debt).4 In addition, Whole Foods immediately closed nine Wild Oats stores that did not fit with its brand strategy or real estate strategy and began planning to relocate seven smaller Wild Oats stores to existing or soon-to-be-opened Whole Foods locations. In fiscal 2008, Whole Foods launched a program to spend nearly $45 million renovating Wild Oats stores and rebranding them as Whole Foods stores. In a surprising move in July 2008, the U.S. Court of Appeals for the District of Columbia reversed the lower-court order allowing Whole Foods to acquire Wild Oats and directed the U.S. district court to reopen proceedings for further evidentiary hearings. Separately, the FTC reopened its administrative actions challenging the acquisition on antitrust grounds. To resolve the dispute, the FTC and Whole Foods entered into a consent agreement in March 2009 whereby Whole Foods would sell: Stakeholders in the company's 2009 annual report, John Mackey expressed confidence that sales and profits at these stores would continue to improve in coming years, enabling the company to realize a solid return for shareholders on the Wild Oats acquisition. However, senior management indicated that, going forward, acquisitions would be a minor element of the company's growth strategy, used only as a means of entering desirable geographic areas and gaining experienced team members.5 The company acquired only eight stores during fiscal years 2010-2013, opting to drive growth by opening additional stores and striving to increase sales at existing stores. However, in February 2014, Whole Foods seized the opportunity to acquire leases from Safeway for seven Dominick's supermarket stores in Chicago; plans were under way to remodel these stores and reopen them as Whole Foods stores in 2015. The addition of these seven stores, along with three other new Chicagoarea stores that Whole Foods already had under development, represented a major strategic initiative to significantly expand the company's presence in the greater Chicago area. Then, in March 2014, Whole Foods purchased four stores from New Frontiers Natural Marketplace; the stores averaged 22,000 square feet and were in Flagstaff, Prescott, and Sedona, Arizona, and San Luis Obispo, California. Exhibit 3 shows the growth in the number of Whole Foods stores and the extent to which sales at existing stores have grown. Twelve of the former Wild Oats stores it was cur- Store Location Strategy rently operating and one Whole Foods store. The leases and related fixed assets for 19 former Wild Oats stores (10 of which were closed by Wild Oats prior to the acquisition and 9 of which were closed by Whole Foods Market). Wild Oats' trademarks and other intellectual property associated with the Wild Oats stores. The divestiture period was later extended until 2010 to allow for the finalization of good-faith offers for 6 of the 13 operating stores and 2 of the closed stores, as well as Wild Oats' trademark and intellectual property; Whole Foods was allowed to keep the seven remaining operating stores without further obligation to attempt to divest them. This resulted in 51 former Wild Oats stores operating under the Whole Foods name. In his Letter to Whole Foods had its own internally developed model to analyze potential markets according to education levels, population density, and income within certain drive times. After picking a target metropolitan area, the company's store development group considered several possible sites, developing sales and profit projections for each location and working with regional teams to estimate the costs of opening a store at each site under consideration. Before Whole Foods entered into a lease for the best apparent site, the project had to meet an internal economic value added (EVA) hurdle return, based on Whole Foods' internal weighted-average cost of capital (which was 8 percent in fiscal year 2013). EVA is equivalent to net operating profits after taxes minus a charge for the cost of invested capital necessary to generate CASE 03 EXHIBIT 3 Whole Foods Market in 2014: Vision, Core Values, and Strategy C-19 Number of Stores in the Whole Foods Markets Chain, 1991-2014, and Select Store Operating Statistics, Fiscal Years 20002014 A. Growth in the Number of Whole Foods Stores Year Number of Stores, End of Fiscal Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 10 25 42 49 61 68 75 87 100 117 126 135 Number of Stores, End of Fiscal Year Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 May 2014 145 163 175 186 276 275 284 299 311 335 362 379 B. Store-Related Performance and Operating Statistics Fiscal Year 2000 Sales, all stores (000s) Average weekly sales Comparable-store sales growth* Identical-store sales increase* Sales increases contributed by stores opened or acquired during the fiscal year Total square footage of all stores, end of year Average store size Sales increases contributed by stores opened or acquired during the fiscal year Total square footage of all stores, end of year Average store size 2006 2007 2008 $1,839,000 $325,000 8.6% 7.0% $4,701,000 $537,000 12.8% 11.3% $5,607,000 $593,000 11.0% 10.3% $6,592,000 $617,000 7.1% 5.8% $7,954,000 $570,000 4.9% 3.6% Not available Not available Not available $421 million $236 million 3,180,000 27,000 5,819,000 33,000 6,377,000 34,000 9,312,000 34,000 9,895,000 36,000 2009 Sales, all stores (000s) Average weekly sales Comparable-store sales growth* Identical-store sales increase* 2005 2010 2011 2012 2013 $8,032,000 $549,000 23.1% $9,006,000 $588,000 7.1% $10,108,000 $636,000 8.5% $11,699,000 $682,000 8.7% $12,917,000 $711,000 6.9% 24.3% 6.5% 8.4% 8.4% 6.6% $235 million $252 million $222 million $294 million $345 million 10,566,000 37,000 11,231,000 38,000 11,832,000 38,000 12,735,000 38,000 13,779,000 38,000 *Sales of a store start to be included in the comparable-store sales calculation in the 53rd full week after the store was opened. Stores acquired in purchase acquisitions enter the comparable-store sales growth calculation store base in the 53rd full week following the date of acquisition. Identical-store sales exclude sales from relocated and remodeled stores with square-footage changes greater than 20% from the comparable calculation to reduce the impact of square-footage changes on the comparison. Stores closed for eight or more days are excluded from the comparable- and identical-store bases from the first fiscal week of closure until reopened for a full fiscal week. Comparable and identical sales growth is calculated on a same-calendar-week to same-calendar-week basis. Source: Whole Foods Market's 10-K reports, 2005, 2009, and 2013. C-20 PART 2 Cases in Crafting and Executing Strategy those profits. For a new store project to go forward, the projections had to show a cumulative positive EVA in five years or less. New stores opened 12 to 24 months after a lease was signed. The cash investment needed to get a new Whole Foods Market site ready for opening varied with the metropolitan area, store size, amount of work performed by the landlord, and the complexity of site development issuesthe average capital cost for new stores was about $8 million in 2010-2012 (versus capital costs averaging $15.1 million per new store in 2007).6 In addition to the capital cost of a new store, it took about $850,000 to stock a store with inventory, a portion of which was financed by vendors. Preopening expenses (including rent) for most stores were in the $2 million to $3 million range. Most Whole Foods stores were in high-traffic shopping locations on premier real estate sites; some were freestanding, some were in strip centers, and some were in high-density mixed-use projects. For a number of years, Whole Foods favored store locations on high-traffic thoroughfares in the upscale areas of large metropolitan areas. The company's \"sweet spot\" for the mostly metropolitan markets it entered during 2001-2009 was a store footprint between 45,000 and 60,000 square feet (the new stores of supermarket chains like Safeway and Kroger averaged around 55,000 square feet). As of year-end 2010, Whole Foods had over 90 stores that were 40,000 square feet or larger. But it had also opened a number of showcase or \"flagship\" stores, including a 99,800-square-foot store in London; a 71,000-square-foot store in the Bowery area of New York City; a 74,500-square-foot store in Columbus, Ohio; a 78,000-square-foot store in Austin, Texas; a 77,000-square-foot store in Pasadena, California; a 75,000-square-foot store in Chicago; and two 75,000-square-foot stores in the suburbs of Atlanta, Georgia. All told, Whole Foods had 17 stores in excess of 65,000 square feet as of 2014. But the economic slowdown that began in 2007 and then quickly accelerated into a deep recession in 2008-2009 forced a major overhaul of Whole Foods' store expansion strategy. In November 2007, when Whole Foods had 87 new stores in varying stages of development, the company announced it was scaling back its store expansion program. The leases for 14 of the new stores were downsized by an average of 12,000 square feet each, and planned openings of some stores were delayed. Then, in 2008-2009, when the recession in the United States hit full force, management terminated 18 leases for stores in development and downsized others, determining that planned store openings during 2010-2012 would be reduced and that the majority of new Whole Foods stores would be in the 35,000- to 50,000-square-foot range. In addition to the company's cutbacks in developing new stores, Whole Foods' construction and store development teams adopted a leaner and more disciplined approach to design and building, including plans for smaller stores with simpler decor and smaller, less laborintensive perishable departments. These moves were expected to result in lower costs on both a per-store and per-square-foot basis. Average preopening costs dropped to $2 million per store in 2012-2013. However, as the effects of the recession gradually wore off and modest economic growth resumed in 2011-2013, Whole Foods became more confident about its growth prospects and began to accelerate its new store openings. By May 2014, the company had a record 114 new stores averaging 40,000 square feet in varying stages of development. Management expected to have a base of more than 400 Whole Foods stores open and operating by year-end 2014 and to cross the 500-store mark in fiscal year 2017. Longer term, management expressed confidence that there was opportunity for Whole Foods to grow its geographic coverage and market penetration to 1,200 stores in the United States alone. While management acknowledged that, going forward, some new Whole Foods stores would likely range in size from as small as 15,000 square feet to as large as 75,000 square feet, the majority were expected to fall in the range of 35,000 to 45,000 square feet. Exhibit 4 provides store development statistics for 2005-2014. Product Line Strategy Because Whole Foods stores were different sizes and had different shopper clienteles, the product and brand selections varied from about 10,000 items in small stores to as many as 50,000 items in the largest storesthe all-store average was about 21,000 items. Whole Foods' product line included natural, organic, and gourmet food and nonfood items in the following principal categories: Fresh producefruits; vegetables; displays of fresh-cut fruits; and a selection of seasonal, exotic, and specialty products like cactus pears, cipollini onions, and Japanese eggplant. CASE 03 EXHIBIT 4 Whole Foods Market in 2014: Vision, Core Values, and Strategy C-21 New Store Development Statistics, Whole Foods Market, 20052014 Nov. 9, 2005 New stores in development Average size (gross square feet) Total gross square footage in development Development footage as a percentage of existing square footage Development costs of new locations New stores in development Average size (gross square feet) Total gross square footage in development Development footage as a percentage of existing square footage Development costs of new locations Nov. 2, 2006 Nov. 20, 2007 Nov. 5, 2008 Nov. 4, 2009 65 55,000 88 56,000 87 51,000 66 49,000 52 45,000 3,626,000 5,003,000 4,485,000 3,294,000 2,410,000 60% $208 million 77% $209 million 48% $389 million 33% $358 million 23% $248 million Nov. 3, 2010 Nov. 2, 2011 Nov. 7, 2012 Nov. 6, 2013 May 6, 2014 53 39,000 62 35,000 79 37,000 94 38,000 114 40,000 2,052,000 2,192,000 2,896,000 3,605,000 4,607,000 18% $171 million 18% $203 million 22% $262 million 26% $339 million 32% Not available Sources: Company 10-K reports, 2006, 2007, 2009, 2011, and 2013; and company press release, May 6, 2014. Meat and poultrynatural and organic meats, Dried foodsa selection of dried fruits, nuts, house-made sausages, turkey, and chicken products from animals raised on wholesome grains, pastureland, and well water (and not raised with the use of by-products, hormones, or steroids). Fresh seafoodsome wild-caught and some farmed using safe and environmentally responsible practices. A portion of the fresh-fish selections came from the company's four seafood processing and distribution facilities (Pigeon Cove, Select Fish, South Seafood, and MidAtlantic Seafood). Seafood items coming from distant supply sources were flown in to stores to ensure maximum freshness. Bakery goodsa selection of daily baked breads, cakes, pies, cookies, bagels, muffins, and scones. Prepared foodssoups, packaged salads and sandwiches, oven-ready meals, rotisserie meats, hearth-fired pizza, pastas, a salad bar, a sandwich station, and a selection of entrees and side foods prepared daily. Specialty foodsfine-quality cheeses, olives (up to 40 varieties in the largest stores), chocolates and confections. Frozen goodsfoods, juices, yogurt and dairy products, smoothies, and bottled waters. grains, and spices (some prepackaged and some dispensed from bins). Beer and wines. Coffees and teasspecialty and organic coffees that spanned the roasting spectrum from light to extra-dark roast, supplied to all stores by the company's Allegro coffee subsidiary; tea selections that included fine and exotic teas from all the major tea-growing regions of the world. Grocery and household productscanned and packaged goods, pastas, soaps, cleaning products, and other conventional household items that helped make the larger Whole Foods stores a onestop grocery shopping destination where people could get everything on their shopping list. Body care and nutrition productsnatural and organic body care and cosmetics products, vitamin supplements, homeopathic remedies, and aromatherapy products. All items entailed the use of non-animal-testing methods and contained no artificial ingredients. Private-label and exclusive brand offeringsa family of goods that were a key component of the company's differentiations strategy. The privatelabel offerings were led by Whole Foods' \"365\" C-22 PART 2 Cases in Crafting and Executing Strategy and \"365 Organic Everyday Value\" brands that spanned many product categories and were less expensive than comparable name brands. Whole Foods had also created a \"Whole\" family of brands (including Whole Foods Market, Whole Catch, Whole Fields, Whole Pantry, Whole Living, and Whole Paws) with consistent logos and packaging for specific departments and product categories. In addition, Whole Foods had a grouping of \"exclusive\" and \"control brand\" products that outside suppliers produced and packaged exclusively for sale in Whole Foods stores, including Allegro Coffee, Engine 2, Wellshire Farms, and Nature's Rancher. Pet suppliesnatural and organic pet foods, treats, toys, and pest control remedies. Floral itemssophisticated flower bouquets and a selection of plants for inside and outside the home. Educational itemsmaterials and books relating to healthy eating, cooking, healing and alternative health care, and lifestyle. Whole Foods was the world's biggest seller of organic produce. Organic products, excluding bakery goods and prepared foods, accounted for an estimated 30 percent of Whole Foods' total sales in fiscal 2013. In fiscal year 2013, Whole Foods' private-label and exclusive brands accounted for approximately 16 percent of the company's nonperishable sales and approximately 12 percent of total retail sales, up slightly from 15 and 11 percent, respectively, in fiscal year 2012. The 365 and 365 Organic Everyday Value brands accounted for approximately half of the sales of private-label and exclusive brand items. Prepared foods, fresh fruits and vegetables, fresh meats and seafood, bakery goods, and other perishable items accounted for about 66 percent of Whole Foods' sales in 2011-2013, considerably higher than the 40 to 50 percent that such perishables represented at conventional supermarkets. The 2001 acquisition of the Harry's Market superstores in Atlanta, at which 75 percent of sales were perishables, had provided Whole Foods with personnel having valuable intellectual capital in creatively merchandising all major perishables categories. Management believed that the company's emphasis on fresh fruits and vegetables, bakery goods, meats, seafood, and other perishables differentiated Whole Foods stores from other supermarkets and attracted a broader customer base. According to John Mackey:7 First-time visitors to Whole Foods Market are often awed by our perishables. We devote more space to fresh fruits and vegetables, including an extensive selection of organics, than most of our competitors. Our meat and poultry products are naturalno artificial ingredients, minimal processing, and raised without the use of artificial growth hormones, antibiotics or animal by-products in their feed. Our seafood is either wildcaught or sourced from aquaculture farms where environmental concerns are a priority. Also, our seafood is never treated with chlorine or other chemicals, as is common practice in the food retailing industry. . . . We bake daily, using whole grains and unbleached, unbromated flour and feature European-style loaves, pastries, cookies and cakes as well as gluten-free baked goods for those allergic to wheat. We also offer many vegetarian and vegan products for our customers seeking to avoid all animal products. Our cheeses are free of artificial flavors, colors, and synthetic preservatives, and we offer an outstanding variety of both organic cheeses and cheeses made using traditional methods. Quality Standards One of Whole Foods Market's foremost commitments to its customers was to sell products that met strict standards and were of high quality in terms of nutrition, freshness, appearance, and tasteExhibit 5 shows the company's quality standards. Whole Foods guaranteed 100 percent satisfaction on all items purchased and went to great lengths to live up to its core value of satisfying and delighting customers. Buyers personally visited the facilities of many of the company's suppliers and were very picky about the items they chose and the ingredients they contained. Pricing Strategy Whole Foods' strategy was to sell the highest-quality products that it could find at the most competitive prices possible. While the majority of the company's private-label products and some of its other offerings were \"value-priced,\" prices at Whole Foods were normally higher than those at conventional supermarkets. This was in part because the costs of growing, distributing, and marketing organic products were 10 to 40 percent higher than the costs for nonorganic items and in part because Whole Foods' strategy was to carry the highest-quality natural and organic foods available. Likewise, the earth-friendly detergents, toilet papers, and other household items that CASE 03 EXHIBIT 5 Whole Foods Market in 2014: Vision, Core Values, and Strategy C-23 Whole Foods' Quality Standards Whole Foods' Statement Our business is to sell the highest quality foods we can find at the most competitive prices possible. We evaluate quality in terms of nutrition, freshness, appearance, and taste. Our search for quality is a never-ending process involving the careful judgment of buyers throughout the company. We carefully evaluate each and every product we sell. We feature foods that are free of artificial preservatives, colors, flavors, sweeteners, and hydrogenated fats. We are passionate about great tasting food and the pleasure of sharing it with others. We are committed to foods that are fresh, wholesome and safe to eat. We seek out and promote organically grown foods. We provide food and nutritional products that support health and well-being. Whole Foods Market's Quality Standards team maintains an extensive list of unacceptable ingredients [see below]. However, creating a product with no unacceptable ingredients does not guarantee that Whole Foods Market will sell it. Our buyers are passionate about seeking out the freshest, most healthful, minimally processed products available. Additional Information on Whole Foods' Standards In addition to the above standards, the company had more explicit and detailed quality standards regarding seafood, meat and animal welfare, supplements and body care products, and food safety. In 2014, there were 78 chemicals on Whole Foods' list of unacceptable ingredients, including artificial colors, artificial flavors, aspartame, bleached flour, cyclamates, hydrogenated fats, irradiated foods, nitrates and nitrites, saccharin, sorbic acid, sucralose, and sulfites (sulfur dioxide). Source: Quality Standards section of www.wholefoodsmarket.com (accessed February 21, 2014). Whole Foods merchandised frequently had higher price tags than did the name brands of comparable products found in traditional supermarkets. The higher prices that Whole Foods charged for many of its products had prompted some media critics to dub Whole Foods as \"Whole Paycheck,\" a term that resonated with price-sensitive grocery shoppers who had visited a Whole Foods store. Nonetheless, Whole Foods' customers were sufficiently enchanted with the company's product offerings and shopping experience that they overlooked the pricing and patronized Whole Foods stores in increasing numbers. Sales revenues at Whole Foods had grown at a robust compound average rate of 25 percent over the past 22 years. Observers attributed this to several factors. One grocery industry analyst said, \"If people believe that the food is healthier and they are doing something good for themselves, they are willing to invest a bit more, particularly as they get older. It's not a fad.\"8 Another analyst noted that while Whole Foods served a growing niche, it had managed to attract a new kind of customer, one who was willing to pay a premium to dabble in health food without being totally committed to vegetarianism or an organic lifestyle.9 Shopping at Whole Foods was also attractive to food lovers and fine-food connoisseurs who saw food as being about pleasurable taste and indulgence and were willing to pay a premium for what they saw as a high-quality gourmet experience. However, despite all the attractions of shopping at a Whole Foods store, the company was hit hard when the U.S. economy collapsed in fall 2008, a deep recession ensued, and concerned consumers cut back on spending. According to John Mackey, \"We knew that 2009 was going to be a tough year but did not predict just how challenging the economic environment would be. For the first time in 30 years, we experienced a decline in our comparable store sales.\"10 As was the case with the company's store expansion strategy, the Great Recession of 2008-2009 caused Mackey and other Whole Foods' executives to act swiftly and decisively to change the company's strategy to better match the economic climate and allay customer concerns about the higher costs of doing their grocery shopping at Whole Foods. An aggressive campaign was launched to increase the number of value-priced items at Whole Foods stores, to better communicate to customers how Whole Foods' prices stacked up against those C-24 PART 2 Cases in Crafting and Executing Strategy of rivals, and to improve the perception of customers about the value of shopping at Whole Foods. The strategy shift had several elements: Drawing on new pricing research capabilities to monitor the prices of its supermarket rivals, Whole Foods trimmed the prices of items it considered as \"key\" to boosting the value perceptions of shoppers. Signs were placed on store shelves calling attention to items with price reductions and to hundreds of value-priced items, many of which were at such popular price points as 99 cents, $1.09, $1.49, $1.99, and $2.99. In a number of areas (like cheeses and packaged nuts), Whole Foods instituted programs to get deals from suppliers that enabled it to provide better values for customers without sacrificing its gross margins. The goal was to strike the right balance between spurring higher sales and maintaining profit margins. To help put good value front and center, the company began using aisle displays with accompanying signage to feature \"this week's hot deals,\" everyday low-priced products, budget-priced cheeses and wines, and out-of-the-ordinary products with budget prices; formerly, the practice was to use most aisle displays to promote gourmet cheeses, upscale wines, exotic fresh produce, and novel but premium-priced items. In addition, grocery bags at checkout counters had such printed messages as \"365 Everyday Value Products. Cut Costs. Not Quality\" and \"365 Everyday Value Products. Comparison Shopping Strongly Encouraged.\" Stores began featuring new family-sized prepared food selections for $17.99, prepared food items in \"sizes for every budget,\" and family-sized value packs of fruits, vegetables, meats, and chicken. An in-store value guide, The Whole Deal, was created that featured supplier-sponsored and Whole Foods Market store-brand coupons, products throughout the store with everyday low prices, budget-conscious recipes, and meal-planning advice to help shoppers stretch their food dollars. Customer use of The Whole Deal proved quite popular, prompting the company to begin a Whole Deal e-newsletter (which enabled shoppers to see the specials and print out the coupons before they left home). The company took advantage of opportunity buys offered by suppliers and lower costs in several product categories, including fresh produce and meat, using them to push strong promotions and pass the savings on to customers in the form of lower prices. In-store signs announced \"Great Buys\" and \"More of the good stuff for less than you think!\" The strategic initiatives were effective. Sales growth per store for the first quarter of fiscal 2010 was 3.5 percent (versus -4 percent in the first quarter of fiscal 2009), and total revenues were up 7 percent over the first quarter of fiscal 2009. Whole Foods' management was pleased with these results, indicating that the strategy modifications had changed the dialogue about the company's prices and improved customer perceptions about the value of doing their grocery shopping at Whole Foods. Because comparable-store and identical-store sales growth continued to be strong in succeeding quarters and years (see Section B of Exhibit 3), top executives opted to make the new pricing strategy and emphasis on value a permanent part of Whole Foods' strategy. Going into 2014, Whole Foods had competitively matched prices on thousands of items, extended the range of value-priced choices to its perishables departments, regularly featured \"Sure Deals\" in The Whole Deal and used in-store signage to highlight everyday value pricing on various products, and started promoting regional and national one-day sales, all in an ongoing effort to broaden and strengthen customer awareness about the value being offered in Whole Foods stores. New Strategic Moves to Control Expenses in 2008-2009 When the sharp economic downturn began in September 2008, Whole Foods' management moved swiftly to institute a series of cost-containment measures relating to cost of goods sold, direct store expenses, and general and administrative expenses. Purchases from suppliers were scrutinized for possible cost savings. A hiring and salary freeze was imposed, which remained in effect until July 2009. To trim back on labor costs at its stores, the company used a set of tools on a daily basis to monitor and adjust the work hours of some store employees on the basis of hourly shopper traffic and sales volumes. The size of the company's overall workforce was reduced by normal attrition (as team members retired or left the company), but there were no involuntary layoffs. Team members joined forces with managers throughout the CASE 03 Whole Foods Market in 2014: Vision, Core Values, and Strategy company to find ways to operate the business in a more frugal manner. Merchandising Strategy The layout of each Whole Foods store was customized to fit the particular site and building configuration and to best show off the particular product mix chosen for that store's target clientele. The driving concept of Whole Foods' merchandising strategy was to create an inviting and interactive store atmosphere that turned shopping for food from a chore into a fun, pleasurable experience. Stores had a colorful decor, and products were displayed in an attractive manner that both welcomed close inspection and stimulated purchases (see Exhibit 6). The effect projected Whole Foods as an authentic retailer of natural and organic products, a lifestyle brand, and a supermarket playground with both a unique environment and unusually appealing food selections (some wholesome and safe to eat, some \"must try,\" and some definitely calorific with mouthwatering eye appeal). According to one industry analyst, Whole Foods had \"put together the ideal model for the foodie who's a premium gourmet and the natural foods buyer. When you walk into a Whole Foods store, you're overwhelmed by a desire to look at everything you see.\"11 Most stores featured hand-stacked produce, appealing displays of fresh seafood and meats, open kitchens and teams of in-store chefs, scratch bakeries, prepared food stations, salad bars, gourmet food sections with items from around the world, multiple opportunities to sample products, and ever-changing merchandise displays. To further a sense of community and interaction with customers, Whole Foods stores typically included sit-down eating areas, customer comment boards, customer service booths, and multiple displays containing brochures on such topics as sustainable agriculture, organics, the sustainability of seafood supplies and overfishing problems, food safety, product quality, the environment, and healthy eating. Whole Foods' 78,000-square-foot flagship Austin store was a top central Texas tourist destination and downtown Austin landmark; it had an intimate village-style layout, six mini-restaurants within the store, a raw food and juice bar, more than 600 varieties of cheese and 40 varieties of olives, a selection of 1,800 wines, a \"Candy Island\" with handmade lollipops and popcorn balls, a hot-nut bar with an C-25 in-house nut roaster, a world food section, a walk-in beer cooler with hundreds of selections, pastry chefs making a variety of items, a natural home section with organic cotton apparel and household linens, an extensive meat department with an in-house smoker and 50 oven-ready items prepared by in-house chefs, and a theaterlike seafood department with more than 150 fresh seafood items and on-the-spot shucking, cooking, smoking, slicing, and frying to order. When the three-floor, 99,800-square-foot store in London opened, it had 55 in-store chefs, 13 dining venues (including a tapas bar, a champagne and oyster bar, a pub, and a sushi and dim sum eatery) that accommodated 350 diners, a self-service bulk food center with 100 selections, and a 12-meter display of fresh seafood (many of the seafood selections were hookand-line caught off the shores of the United Kingdom). Management believed that the extensive and attractive displays of fresh produce, seafood, meats and house-made sausages, baked goods, and prepared foods in its larger stores appealed to a broader customer base and were responsible for stores bigger than 35,000 square feet performing better than smaller stores. Management's intent was for Whole Foods stores to play a unique role as a third place, besides the home and office, where its customers could gather, interact, and learn while discovering the many joys of eating and sharing food. Whole Foods got very high marks from merchandising experts and customers for its presentationfrom the bright colors of the produce displays, to the quality of the foods and customer service, to the wide aisles and cleanliness. Management was continually experimenting with new merchandising concepts to keep stores fresh and exciting for customers. According to a Whole Foods regional manager, \"We take the best ideas from each of our stores and try to incorporate them in all our other stores. We're constantly making our stores better.\"12 Whole Foods' merchandising skills were said to be a prime factor in its success in luring shoppers back time and againsales at Whole Foods stores in the first quarter of 2014 averaged $983 per square foot, about double the sales per square foot of leading supermarket chains. Marketing and Customer Service Whole Foods spent much less than other supermarkets on advertising and marketing, preferring C-26 EXHIBIT 6 PART 2 Cases in Crafting and Executing Strategy Scenes from Whole Foods Stores instead to rely primarily on word-of-mouth recommendations and testimonials from customers. Expenditures for advertising and marketing, treated as direct store expenses, totaled $56 million in fiscal 2013, $51 million in fiscal 2012, and $43 million in fiscal 2011. The corporate marketing budget was divided among national and regional programs, The Whole Deal in-store value guide and e-newsletter, and activities for individual stores. There were marketers in every store dedicated to giving shoppers the best possible in-store experience and managing store participation in local events and community programs. Stores spent most of their marketing budgets on in-store promotional CASE 03 Whole Foods Market in 2014: Vision, Core Values, and Strategy signage, product samplings, and related merchandising efforts that engaged shoppers and induced them to put more items in their shopping baskets. Since one of Whole Foods' core values was to satisfy and delight customers, store personnel were empowered to exert their best efforts to meet or exceed customer expectations on every shopping trip. They were personable and chatty with shoppers. Customers could get personal attention in every department of the store. When customers asked where an item was located, team members often took them to the spot, making conversation along the way and offering to answer any questions. Team members were quite knowledgeable and enthusiastic about the products in their particular department and tried to take advantage of opportunities to inform and educate customers about natural foods, organics, healthy eating, and foodrelated environmental issues. They took pride in helping customers