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Whole Foods SWOT AnalysisStrengthsWeaknessesBroad Product OfferingWhole Foods has a product selection with a strong emphasis on perishable foods designed to appeal to both natural and organic foods and gourmet shoppers.Product selection in all of its stores include seafood, grocery, meat and poultry, bakery, prepared foods and catering, specialty (beer, wine and cheese), coffee and tea, nutritional supplements, vitamins, body care and educational products such as books, floral, pet products and household products. Focused growth strategyWhole Foods Market focuses on expansion, primarily through new store openings in existing trade areas as well as new areas, including international locations.During the fiscal 2010 and 2009, the company opened 16 and 15 new stores respectively across the US and Canada. Besides, the company is also expanding in the UK and Scotland. Further, company signed leases for 20 stores scheduled to open through FY2012.The company's strategy to grow through identical store sales growth, acquisitions, and new store openings has enabled it to grow at a compounded annual growth rate (CAGR) of 27% during 1991-2010.Strong focus on right sizing of storesWhole Foods Market is focused on the right sized store for each location. While Whole Foods Market's larger-format stores have a strong presence in dense urban areas, the company's smaller stores have the potential to generate great returns as well. The company's decision to scale back the average size of its new stores is an important factor behind improving the company's chain-wide productivity and enhancing its return metrics.Product recalls affect brand imageWhole Foods Market has recalled several products owing to contamination. There were many cases in the past few years where Whole Foods had to recall products they were selling (including their own private label brand 356) due to potential contamination with salmonella pr E. coli.Such recurrent product recalls negatively affect the brand image of the company, which in turn leads to low customer loyalty and brand equity. Weak international operationsThe company has weak international operations with just six stores in Canada, and five stores in the UK. Though the company intends to open new stores in the UK and Canada, its operations in these markets are not large enough to derive economies of scale in purchasing and distribution, resulting in relatively high product prices. Their competition has a leaner supply structure, hence lower prices for the same products.Increasing rental expensesWhole Foods Market has obligations under certain capital leases for rental of equipment and certain operating leases for rental of facilities and equipment. Therefore, the change in rental expenses charged under operating leases, affects the company’s business.Rental expense charged to operations under operating leases for financial years 2010, 2009 and 2008 totaled approximately $303.5 million, $281.9 million and $257.5 million, respectively. Increasing rental expenses, affect companies profitability.OpportunitiesThreatsIncreasing demand for organic productsThe demand for natural and organic foods has increased over the years due to rising awareness about the importance of natural foods in the diets.According to industry estimates, the sales of organic food increased three fold since 2000 to reach $25 billion in 2010. Organic sales rose 5% in 2010, at a higher rate than the overall food industry in the US which grew at only 2%. This trend is going to continue in the future.Increasing popularity of private labels will improve marginsPrivate label products in the US are witnessing strong growth in sales. In 2010, private label products accounted for nearly 20% of the dollar share and more than 20% of the unit share in stores in the US.Consumers are moving away from the expensive name brands toward more affordable private label brands.Upper income consumers are more willing to buy private label brands which lead us to believe that brand loyalty is on decline.According to industry estimates, about 60% of the consumers purchased more private label brands in North America in the third quarter of 2010.Whole Foods Market's store brands feature approximately 2,200 SKUs led by its private labels, 365 Everyday Value and 365 Organic brands. The company's total private label sales accounted for approximately 11% of its retail sales in FY2010 and FY2009.Trends support increased demand for food productsEating at home and eating healthy are important trends that are likely to increase the demand for grocery. The economic downturn, the perception that home-prepared foods are much healthier a view held by 92% of grocery shoppers.According to a recent survey, 86% of the budget-conscious women in the US prepared their meals at home in 2010. Approximately 71% purchased convenience produce (prepared salads, chopped fruits and vegetables, etc.) and approximately 81% purchased convenient forms of fresh poultry and meats regularly.Whole Foods has recorded a steady growth mainly due to consumer’s perception of healthy foods, eating population with not a lot of time to cook as well as variety of meals provided at their stores. As the economy improves, the number of consumers with bigger discretionary income to spend is going to help the WF growth in years to come.Intense competition may have an adverse effect on profitabilityFood retailing is a large, intensely competitive industry. Whole Foods Market's competes with local, regional, national and international conventional and specialty supermarkets, natural foods stores, warehouse membership clubs, smaller specialty stores, farmers' markets, and restaurants.Most of these stores carry similar products, which means that loss of sales and profits are highly dependent on price and quality of products and loyalty of consumers.Stringent regulations impose additional liabilityAs the company operates in the natural and organic foods market, its stores and products are subject to several laws and regulations relating to health, sanitation and food labeling.Several federal agencies and departments including the Food and Drug Administration (FDA), the Federal Trade Commission (FTC), the Consumer Product Safety Commission (CPSC), the United States Department of Agriculture (USDA) and the Environmental Protection Agency (EPA) set critical standards for the manufacture, processing, formulation, packaging, labeling and advertising of products.Failure to comply with these standards could result in penalties and seizure of marketing and sales licenses. These regulations also result in additional compliance costs, which could reflect in reduced margins. ................
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