Introduction
Whole Foods Market is a Texas based supermarket chain which deals in the supply and distribution of organic and natural food products ranging from bakery products, coffee and tea, groceries, meat and poultry products as well as sea food products. Since it was founded in 1980, the company has experienced major growth and has thus been able to expand into other countries such as the United Kingdom and Canada. The expansion largely took place through the acquisition of other natural food stores in different parts of the United States as well in the UK and Canada, among them being Mrs. Gooch, Well spring Grocery, Bread of Life, Merchant of Vino and Harry’s Farmers Market among others (Whole Foods Market para. 1, 5 & 6).
Whole Foods Market faces competition from other companies dealing in products similar to those offered by the company and as such it must continue to engage in strategies that will ensure it retains a competitive advantage over its rivals so as to maintain sustainable growth, good performance and increased profitability (Stahl & Grigsby, p. 145). This paper conducts an analysis of Whole Foods Market with regard to the threat of substitutes as outlined in Porter’s five forces model.
Threat of substitutes in Relation to Whole Foods Market
Porter came up with a five forces analysis model which outlines those factors which determine the nature of competition in different industries and as such affecting companies’ profitability. The main focus in this case is the threat of substitutes. According to Porter, substitutes are those products whose function is similar to the function of the product in question. If such substitutes pose a huge threat to the product in question, then the profitability of the industry in which such products are found is affected (Porter 17). How huge a threat substitutes are is occasioned by the price of the original products and that of the substitutes, as well as the cost customers will incur from switching from the original products to the substitutes. If substitutes are cheaper, consumers will opt for them since consumers are always in search of cheaper products which still offer them value for their money. If the costs involved in switching from one product to its substitute are also low, the consumers will opt for the substitutes (Porter, p. 18).
This same case scenario applies to Whole Foods Market whose main competitors are Kroger, Trader Joe’s, Safeway, WalMart and Supervalu on the national and international levels. Wal Mart has always been known to compete against its competitors based on pricing. If for example it offers its grocery products cheaply compared to Whole Foods Market, consumers will naturally choose to consume its groceries, meaning that Whole Foods Market sales will reduce and this will have a negative impact on its profits. In order to prevent this from happening, Whole Foods Market should also offer competitive prices for its products but in such a way that its profitability is not affected.
One of the strategies applied by Whole Food Products to maintain its competitive position in the market was the acquisition of Wild Oats which was a previous direct competitor. This eliminated the threat of Wild Oats substitutes and strengthened its position in the retail market sector, placing it in a better competitive position (Gourmet Retailer para. 1 & 4). Whole Foods Market should also look out for other activities in other industries which are likely able to come up with substitute products thereby affecting the company’s sales and profitability. This will ensure that it will be ready to react to such occurrences and as such not lose customers to them.
Conclusion
The threat of substitutes is real especially to Whole Foods Market due to the many players operating in the retail market and as such the company should engage in strategies that ensure such substitutes do not pose a threat to the sales of its products and as such does not affect the company’s profitability.
Works Cited
Gourmet Retailer. “Whole Foods Buys Wild Oats Markets for $565 Million”. 2007.
Porter, Michael. On Competition: Updated and Expanded Edition. Massachusetts: Harvard Business School Publishing Corporation, 2008.
Stahl, Michael. & Grigsby, David. Strategic Management: Total Quality and Global Competition. Massachusetts: Blackwell Publishing Limited, 1997.
Whole Foods Market. “Company History: Whole Foods Market”. 2010. Web.