Whole Foods Market: A human-centered retailing approach

Eating healthier has positioned itself in the minds of consumers in recent years. More and more people are interested in the foods they eat, their origin, health benefits, nutrients, etc. The market is changing and so are consumers. New behaviors and interests are emerging more quickly, and the U.S. market seems to be ready for it. This paper analyses how Whole Foods Market generates revenue while offering products and services that benefit its consumers, employees, suppliers, and the community. This is a part of a marketing strategy focused on stakeholders and not just on shareholders. Finally, the most relevant changes that occurred since the acquisition of the company by Amazon will be discussed.

The U.S. supermarket industry includes warehouse grocery stores, supercenters, traditional supermarkets, limited-Assortment Stores, military commissaries, and e-commerce (food and consumables). In 2018, the U.S. supermarket industry generated approximately $701.188 billion in sales and a net profit after taxes of 1,2%. There are 38.307 supermarkets in US and a total of 4.8 million employees (The food industry association (FMI), 2019)

The organic market generates sales of 47.9 billion dollars in The United States (Figure 1: Organic food sales U.S.) with an annual growth of 6%. In recent years, it has become increasingly common to see retailers offering this product category. Despite this, organic products still make only up for a small percentage of the regular US consumer basket, representing only 5.7% of it, which shows the great potential of this market (Statista, 2019).

Whole Foods Market Value proposition

Whole Foods Market is an organic and natural foods supermarket in the United State. It was founded in Austin, Texas by John Mackey, Renee Lawson Hardy, Craig Weller, and Mark Skiles. Four businessmen who saw a great potential for the natural foods industry in a supermarket format. Whole Foods was the first national "Certified Organic" grocer in the U.S. Today it has over 400 stores in U.S, Canada, and United Kingdom with over 91.000 employees. Its aim is to provide its customers with high quality, fresh and organic products by setting a new standard in the market for food retailers (Whole Foods Market, 2019). Whole Foods business value is focused on going beyond company profits by creating a culture and experience for all its stakeholders. Its motto, "Whole Foods, Whole People, Whole Planet" clearly expresses the company purpose. This unique proposition has led the company to be successful in the food industry.

As global marketing director for Whole Foods Market Scott Simons puts it, "Values and value are inseparable" (Dupre, 2014, P.1), company values are essential. The following core values show the company's commitment to its stakeholders and how to achieve the goal of becoming "America's Healthiest Grocery Store (Whole Foods Market, 2019).

• We Sell the Highest Quality Natural and Organic Foods
• We Satisfy and Delight Our Customers
• We Promote Team Member Growth and Happiness
• We Practice Win-Win Partnerships with Our Suppliers
• We Create Profits and Prosperity
• We Care About our Community and the Environment

According to the book "Firms of Endearment: How World-Class Companies Profit from Passion and Purpose", the main rule for transforming the market is to focus on stakeholders and not only on shareholders. "The organizations who recognize that doing good is good business are becoming the ultimate value" (Sisodia, Sheth, & Wolfe, 2014, P. 6). These companies see suppliers as partners, consider corporate culture to be the greatest asset, actively align with their stakeholders' interests and have a purpose that goes beyond making money (Sisodia, Sheth, & Wolfe, 2014, P. 8-10).

Competition

Food retailing is a highly competitive industry. The competition includes local and international supermarkets, restaurants, home deliveries, food trucks etc. The key factors are price, food quality, customer service and convenience.

The main two competitors of Whole Foods Market are Walmart and Kroger companies, with a market share of 17,3% and 8.9% respectively (Figure 2: Market share U.S retailers). Walmart and Kroger rank first and second in U.S. food and beverage purchases in 2016, while Whole Foods with a market share of 1.7% is in position number 9.

Kroger

Kroger has a wide portfolio with 2,759 grocery retail stores in 35 states including supermarkets, digital shopping, warehouse stores, and multi-department stores. They also produce private- label products in 35 food production facilities. With Annual sales of more than 121.1 billion dollars, Kroger is one of the world's largest retailers (The Kroger co, 2019).

Kroger offers competitive pricing along with an attractive display of products and it has expended its business to high quality organic food for an affordable price by launching its own brand of premium-quality natural and organic products (The Kroger co, 2019).

Walmart

Walmart is the largest grocery retailer with 4,769 stores in the U.S. and 11,766 stores worldwide generating annual sales of $500.34 billion (O'Connell, 2019). In 2017, Walmart announced an expansion to organic foods in its supermarkets. It partnered with Wild Oats (a former subsidiary of Whole Foods) to offer low-cost organic foods in 2,000 stores across the United States. Today, they offer 1,600 organic food item at least 25% lower, on average, than national organic brands (Huddleston, 2015).

The Whole Food Brand

Although Whole Foods Market was considered one of the 20 most valuable brands in the world in 2019, in 2014 it faced a great challenge. The brand is synonymous with quality and organic but also with high prices. With new competitors entering this category, Whole Foods Market had to rethink a way to emphasize what makes them different.

In 2014, a "Values Matter" brand campaign was launched, with two 31-second television spots. Much emphasis was placed on the fact that Whole Foods production is locally grown and a call was made for sustainability-conscious shopping (Griswold, 2014). Whole Foods is not going to enter the supermarket price battle and it is clear that with competitors in the market like Walmart, this battle would be lost. Instead, they want to make their values known and have their customers to identify with them. Focusing on informing customers about the sustainability standards of the seafood market, animal welfare ratings and the new "Responsible Farming" is the brand strategy the company has been managing in recent years (Whole Foods Market Media).

Customers Analysis

As shown in Figure 3: Grocery Shopping Baskets Whole Foods Market, the 50-64 year-old segment is the one that has accepted and adopted the brand's value proposition, making most of its purchases in its stores. In contrast, the segment of people between 30 and 49 years old (millennials) is more diverse, although 43% make their purchases of organic dairy products in Whole Foods' stores (Figure 3: Grocery Shopping Baskets Whole Foods Market), which only accounts for 26% of their basket (Figure 4: Share of U.S consumer purchasing organic dairy). This can be explained by high prices of organic products which leads the customer to decide for the cheaper nonorganic alternatives.

New characteristics, such as the quality of the products or chemicals used in the harvest, are gaining value and consumers are still sensitive to price. Although it is true that they are willing to pay a higher amount compared to non-organic products, price remains one of the great differentiators in this industry, mainly for this consumer segment.

A YouGov-related study reveals that 60 percent of American adults aged 22 to 37 say that they are more concerned about what they eat. In addition, 51% indicate that they buy more organic food than 5 years ago and 80% agree that quality is the most relevant aspect of their buying decision (YouGov, 2019).

Design thinking was there from the beginning by having innovations made by human to humans. Through design thinking, they understood the needs of their consumers and developed innovative strategies that led them to offer products and services designed specifically for them. In the same way, similar work is done with their suppliers, employees, and communities as crucial stakeholders in this process. These are constant innovations in four main areas:

Products

To ensure the quality of their products, their organic shops must be certified. For this reason, they work with third parties who certify that all products comply with USDA guidelines. In addition, the company has its own standards, for instance a list of ingredients that, although the USDA accepts them, are not accepted by the company as being harmful to health (HBS Digital Initiative, 2015).

Their value proposition is to offer the highest quality and because of this they are not limited in any way. They are clear that their customers are looking for healthy, sustainable, and organic products and that is exactly what customers can find in their stores. For example, in a partnership with Ocean Hugger Foods, they launched Ahimi in 2017, a vegetable-based alternative to raw tuna. This was a new fashionable offering for sushi lovers across the United States and represented innovative products on their shelves that offer more environmentally friendly alternatives to all consumers. "Ahimi offers consumers the natural, meaty texture of raw tuna without harming our oceans," said David Benzaquen, co-founder, and CEO of Ocean Hugger Foods (Whole Foods Marke Media, 2018).

6.2.2 Suppliers

Local, regional, and national suppliers are Whole Foods Market's main allies in ensuring an exceptional shopping experience for its customers. Therefore, they always think about creating win-win relationships that allow them to achieve joint objectives. Helping to improve the quality of farms has a direct impact on the quality of the products the company sells and consequently on the experience of the end consumer (Whole Foods Market, 2019).

One of its most important programs is the Whole Trade Guarantee, which focuses on the responsible supply of products in an environmentally friendly way without reducing quality (HBS Digital Initiative, 2016).

Employees

With a culture of innovation taking place in their workplace, their employees are highly motivated to be creative and to work freely in the company. Centralized decisions assume that all consumers act and think alike, so a decentralized structure allows each store to make its own decisions based on the characteristics of its market and gives each store greater autonomy. The hereby implicated higher responsibility of its employees creates the additional benefit, that they feel much more valued as an individual.

Community

They engage the local community by offering local and regional activities to educate them on environmental, social and sustainability issues. They are also committed to make the world a better place to live by supporting "the Whole Planet Foundation' micro-lending operation" and food bank events.

Digitization

Modern Customers have quick and vast access to information, just by logging on to the internet. They are connected like never and expect companies to be too. Whole Foods Market has not only taken advantage of their ability to transform customer data into individualized value proposition for their customers but has also improved their internal processes.

Cost Reduction

Organic food is so expensive or at least that is what most consumers think. With the objective of maintaining competitive prices and reaching more people with high quality products, Whole Foods Market set itself the challenge of reducing costs using technology (Whole Foods Market, 2015). In partnership with Infor, a leading provider of software applications, Whole Foods Market co creates a new retail platform that enables efficient supply chain processes. By 2016, they had reduced their inventory drastically, which led to a cost reduction of $300M by 2017 (Brat, 2016).

The new platform allows identifying critical process improvements to make better and faster decisions. In addition, taking advantage of modern technologies like cloud and open source, they can deliver a better end-to-end shopping experience to their customers (Whole Foods Market, 2015).

Shopping Online

With a market that is moving more and more to online shopping, Whole Foods responds with a new technology that adapts to the preferences and needs of its customers. With a digital platform and delivery system, it becomes an ally of grocery shoppers, who are looking for speed, comfort and convenience. The company offers online purchasing and delivery within one hour (HBS Digital Initiative, 2016).

Amazon and Whole Foods Market

In 2017, Amazon acquired the food market for $13.7 billion (Banker, 2019). Two years later, consumers, employees and suppliers are experiencing changes not only at the corporate level but also at the store level. Whole Foods was behind its competitors in technology. The competitors, with better infrastructure could offer the same products at a better price. That is how Whole Foods started to give up space in the market. In 2016, its sales fell by 2.5 percent and by 2017 the trend remained negative with 1.5 percent (Forbes, 2017). The acquisition by Amazon was a strategic move in a market where its conditions were changing.

Centralized purchasing from suppliers

One of the biggest challenges in for the organization was to maintain an efficient cost structure at the national level with local brands. Despite being the launch pad for small entrepreneurs, who saw their sales grow dramatically. This created a complex purchasing system. The national strategies did not reach all stores, which provided some of the problems of its very de- centralized structure (Hirsch, 2018).

With the acquisition of Amazon, one of the first changes was to centralize the purchasing process. This means that all suppliers must go through the WFM headquarters in Austin, Texas, and not through the store representative as it was previously the case. This allowed the organization to simplify its operations and centralize purchasing decisions. Whole Foods also centralized its merchandising and now takes care of the displays and setup in all stores (Hirsch, 2018).

Data Focus

Retailers have the advantage of having access to a large amount of data from their customers. Tons of data are added to their databases every day. What a customer buys, when, how, where and even why, is the kind of information they can acquire for a single purchase.

It is still common to search online and purchase offline. Having all the data, Amazon can recreate the consumer's journey and identify more accurate patterns, habits, motivations etc. This translates into even more personalized promotion and communication strategies (Hirsch, 2018).

Fresh food delivery

Food is the nightmare of online platforms like Amazon, which is not only difficult to deliver but also expensive to store. Consumers who buy food online want it fast and fresh at their doorstep and Amazon has struggled to deliver on that promise. Whole Foods stores provide a more cost-effective way to store and deliver fresh food. In addition, consumers will be more confident if their food comes from a well-known retailer as Whole Foods Market than from an e-commerce company. Thus, customers can buy Whole Foods products on Amazon and use Alexa's Smart Spear Assistant to create that order (Hirsch, 2018).

Reducing prices

Prices have been a major concern for many consumers when deciding where to buy organic food. They are willing to pay more for fresh, quality produce, but that does not mean they are not price sensitive. A huge percentage of the US population cannot afford to buy all or a significant part of their groceries on Whole Food 'stores. The perception of an overpriced brand affordable only to the rich has become the mind of many consumers, "Whole Foods, Whole Paycheck" they say. To counteract this problem, Amazon began reducing prices on select items and offered special discounts for Prime members (Levy, 2019).

The strategy seemed to have worked and according to YouGov, a British international Internet- based market research and data analytics firm, the perception of value has improved considerably over the past 2 years (YouGov, 2019). This has allowed the company to be more competitive in a market where competitors such as Kroger Co. and Walmart. Inc. have established a low-price level, even for the organic food segment. Lower prices could help to attract new customers, especially those who already buy from Amazon.

Amazon Prime members

Amazon has amplified its benefits for its Prime members in order to rise traffic from Whole Foods' stores. Its main goal is to convert 100 million Prime members into Whole Foods customers through special discounts and 5% cash back on Amazon branded credit card. Besides, Whole Foods' stores have lockers where Prime customers can drop off and pick up Amazon orders (Levy, 2019).

Although everything seems to look perfect, employees have complained about recent changes to the extent that they are beginning to ask themselves what Amazon has done with the old Whole Foods Market. The employees are mainly used to sell Amazon Prime memberships. New employee training must now include sections on the benefits of Prime for customers and offers. They feel constantly pushed to put Amazon Prime tasks above anything else. Cashiers, for example, are trained to ask each customer about Prime membership. The goal is to have 35% of purchases on Amazon Prime (Sainato, 2019).

Further questions for discussion

Whole Food Markets was analyzed by the main theoretical influences for H2H Marketing along the H2H Marketing model and a comparison with major competitors. Its marketing strategy could be further investigated, which is not in the scope of this case paper. Yet, to encourage further food for thought about Whole Food Markets and its human-centered approach to business and marketing, please consider the following questions:

1. How can Patagonia achieve its goal of curbing consumerism to decrease the negative environmental footprint to which it contributes?
2. In what way does Whole Foods create value for the society? How did they create value for the company?
3. How has Whole Foods grown while also trying to be H2H oriented? How did they balance the different requirements in their organizational strategies and operational processes?
4. What is the problem of integrating online and offline shopper strategies? And how did they manage to solve the issue?
5. Employees say working conditions have declined due to pressure to sell prime products. Sometimes their tasks have increased significantly, while their pay has not. This causes dissatisfaction within, which, in addition to less time to spend on other tasks, could drastically affect customer service in the future. How would you solve the challenge?
6. Is the goal of integrating the Amazon Prime strategy into the offline market really aligned with the idea of a customer-centric business?
7. What changes would you propose for Whole Foods' strategy going forward?