Memo on Wfm
Problem
Whole Foods Market (WFM) needs to find a way to increase its profits and remain competitive in specialty grocery sector despite its current lower-than expected first quarter fiscal results.
Background and History
Fiscal results: Recently, Whole Foods Market, known for its organic and natural food offerings, announced its first quarter results for the year 2014 .The results show that its earnings and profits were lower than expected. The company posted revenues of $4.24 billion, lower than the estimate of $4.3 billion and an EPS of $0.42, which was less than the estimate of $0.44.
Weak Outlook: In addition to these disappointing quarterly results, Whole Foods had to adjust its outlook as well. The results caused the company to forecast a weaker outlook and WFM’s share price plummeted sharply right after the announcement. This future forecast also weakened the investor confidence.
Price Cuts: What made the problem worse was that the company could not exactly figure out the reason behind the quarterly results even though it blamed it on the necessary price cuts that were made in order to remain competitive, as more and more companies have started to enter the same market. The fiscal results and the ambiguity worried some customers and investors, who started to believe that the grocery chain might be losing its competitiveness and profitability in the growing natural and organic food market.
Opportunities and Threats Presented by the Situation
Opportunities
Wide Consumer Data: Whole Foods has been in the organic food market for many years and therefore it has more experience than its competitors. Whole Foods can use this advantage to sort through its wide consumer data. It may help them to recognize the consumer spending trends and what went wrong with the results so that they can adjust their strategy accordingly.
Power to Acquire: Whole Foods can start considering acquiring its competitors as new companies have started to enter the organic food market. It has the right experience to gather the data needed to select the best ones and has enough power to buy the potential competitors. This will give Whole Foods a chance to eliminate competition and will consolidate the industry.
Threats
Continuing Price Cuts: The competition in the market forced WFM to cut prices and it can harm company’s place in the grocery sector if it keeps reducing the costs and does not succeed. It may not just damage the company’s place in the market, but it can also hurt its gross margin which will put more downward pressure on the