Whole Foods Market External Factors & Consequences

Whole Foods Market external factors, remote environment PESTEL, industry Porter Five Forces, operating environment, analysis, consequences
Whole Foods Market in Union Square, New York City. What are the consequences of the external factors on Whole Foods Market using the PESTEL model, the Five Forces model, and its operating environment? (Photo: Public Domain)

Whole Foods Market (WFM) is an American company that operates in the grocery store industry and the health food store industry. As a grocery store, the company offers organic produce and related natural products. As a health food store, Whole Foods Market offers minimally processed foods that do not contain artificial ingredients, such as artificial flavors, colors and preservatives. In 2017, the company became a subsidiary of Amazon.com, Inc. (see Porter’s Five Forces Analysis of Amazon.com Inc. and PESTEL Analysis of Amazon.com Inc.). Whole Foods Market is known for its strict standards on food quality. High standards are also applied for the personal care products available from WFM stores. Founded in Texas in 1980, the company has operations in the United States, Canada, and the United Kingdom. Whole Foods Market now has more than 90,000 employees.

For long-term success, Whole Foods Market must address the external factors in its remote environment, industry environment, and operating environment. For example, the company must account for the competitive forces from Walmart (see PESTLE Analysis of Walmart) and Costco (see PESTLE Analysis of Costco Wholesale). These factors are beyond the direct control of the company, but have significant consequences on its business operations.

Whole Foods Market PESTEL Analysis (Remote Environment)

Political Factors. Whole Foods Market must address the political factors of environmental and consumer safety policies in its remote business environment. Environmental policies favor Whole Foods Market because the company already has environmentally sound standards. These standards also agree with consumer safety policies. However, a possible consequence of changing consumer safety policies is increased pressure for the company to ensure the safety of products coming from its suppliers.

Economic Factors. The economic factors in the remote environment of Whole Foods Market are changes in household incomes and changes in transportation costs. In general, household incomes have improved after the recession. However, Whole Foods Market faces challenges because of higher spending to transport its goods. A consequence of the higher household income is the higher demand for products from firms like Whole Foods Market. A consequence of higher transportation costs is the higher operating costs of the firm.

Social Factors. Whole Foods Market must address the external social factors in its remote environment, such as the healthy lifestyle trend and the rural-to-urban population shift. A consequence of the healthy lifestyle trend is increased demand for organic and natural products available from companies like Whole Foods Market. Similarly, the consequence of the rural-to-urban population shift is increased demand for organic and natural products from firms like Whole Foods Market. People in urban areas are less likely to plant and harvest their own organic and natural produce, compared to people in rural areas.

Technological Factors. In its remote environment, Whole Foods Market is under the influence of technological factors, including technological advancement in food production, and automation of inventory management. The consequences of the technological changes in food production are higher efficiency and yield of organic and natural farming. This condition leads to improved reliability of Whole Foods Market’s supply chain. In relation, a consequence of the automation of inventory management is an increase in operational efficiency of Whole Foods Market.

Ecological Factors. The main ecological factor that impacts Whole Foods Market in its remote environment is climate change. Climate change has potential to reduce the yield of organic and natural farming. A possible consequence of this condition is the reduced supply available for Whole Foods Market.

Legal Factors. Whole Foods Market must address legal factors in its remote environment. For example, the US Department of Agriculture enforces regulations, monitoring and evaluations of food production and sale. These regulations affect Whole Foods Market because the company is a seller of produce and related food products. Labor laws also influence the firm, although these laws change infrequently. The main consequence of these legal factors on the company is the higher cost of operations, as Whole Foods Market must spend money for compliance.

Whole Foods Market Porter’s Five Forces Analysis (Industry Environment)

Supplier Power. Supplier power has a strong effect on Whole Foods Market. For example, the capacity of suppliers of organic produce influences Whole Foods Market. Also, major suppliers like UNFI can impose price changes that affect the prices of goods at Whole Foods Market stores.

Buyer Power. Buyer power is strong in impacting Whole Foods Market because buyers can easily choose to purchase products from other companies. A significant shift to other providers of organic and natural foods can reduce the revenues and organizational performance of Whole Foods Market.

Competitive Rivalry. Competitive rivalry is strong in influencing Whole Foods Market. The grocery store and health food store industries have many players, such as Walmart (see Five Forces Analysis of Walmart) and Costco (see Five Forces Analysis of Costco Wholesale). In general, retail is a saturated market. Also, competition among providers of organic and natural products is increasing.

Threat of Substitutes. Whole Foods Market must address the strong force of the threat of substitutes. There are many substitutes, such as non-organic foods or products that contain artificial ingredients. Using Whole Foods Market’s standards, most food products in the market today are not organic or natural. Still, consumers can easily buy these non-organic or non-natural products instead of the ones available at the Whole Foods Market stores.

Threat of New Entrants. The threat of new entry is also strong in affecting Whole Foods Market. It is relatively easy for new companies to get established in this industry. Even small grocery stores or health food stores have significant opportunity to grow and compete against Whole Foods Market.

Whole Foods Market Operating Environment

Creditor and Supplier Relationship. Suppliers of organic foods provide products to Whole Foods Market with a financial cushion or buffer. These suppliers use partial financing to fill the shelves of new Whole Foods Market stores. The creditor-supplier relationship in this case benefits the company. This condition increases the company’s flexibility and organizational capacity for growth.

Competitive Position. There are many grocery stores and health food stores in the market. However, only a few major players match the capacity of Whole Foods Market in offering an extensive supply of organic and natural products in different categories. This condition makes the company a major player in the industry. Whole Foods Market has one of the top competitive positions in providing organic and natural food products.

Customer Profile. Consumers continually increase their consumption of organic foods. In 2012, organic products accounted for $28.4 billion or 4% of total food sales in the United States. This figure reached an estimated $35 billion in 2014. In general, customers from all market segments are increasing their consumption of organic and natural products. A consequence of this customer profile is the higher opportunity for Whole Foods Market to grow its revenues.

Human Resources. Whole Foods Market does not require highly skilled workers. The labor market is sufficient in supporting the human resource needs of the company. A consequence of this condition is the adequate human resource support for Whole Foods Market’s growth and expansion goals.