Whole Foods Market Five Forces Analysis (Porter’s Model)

Whole Foods Market Five Forces Analysis, Porter’s model, external factors, industry environment, and case study
Signage of Whole Foods Market in Unionville, Ontario, Canada. Whole Foods Market’s Five Forces analysis (based on Porter’s model) shows that the firm must deal with strong influences of external factors in its industry environment. (Photo: Public Domain)

Whole Foods Market responds to the five forces of external factors in the grocery and health food store industries. Michael Porter’s Five Forces model identifies the most significant external factors or forces that influence business development. In Whole Foods Market’s case, this Five Forces analysis pinpoints the issues and concerns that shape the company’s strategic direction. These external factors either support or limit the growth of the firm. Whole Foods Market managers and investors can use the results of this five forces analysis to determine appropriate responses to the conditions of the industry environment.

This Five Forces analysis of Whole Foods Market (based on Porter’s model) shows the strengths or intensities of external forces significant in the company’s industry environment. The factors that contribute to these forces are also identified based on Whole Foods Market’s business context.

Synopsis: Whole Foods Market Five Forces Analysis

Whole Foods Market must address a wide variety of external factors in its industry environment. The continued expansion of the business could add even more external factors. At present, the intensities of the Five Forces impacting Whole Foods Market’s business are as follows:

  1. Competitive rivalry or competition (strong force)
  2. Bargaining power of buyers or customers (strong force)
  3. Bargaining power of suppliers (moderate force)
  4. Threat of substitutes or substitution (strong force)
  5. Threat of new entrants or new entry (strong force)

As shown in this Five Forces analysis, Whole Foods Market faces major challenges based on four of the five forces. Even the bargaining power of suppliers presents a significant concern to the business. Thus, Whole Foods Market must implement a comprehensive set of strategies to address all of these strong forces simultaneously. The firm’s existing policies and programs already address most of these concerns. Still, to ensure appropriate response to the issues identified in this Five Forces analysis, Whole Foods Market must keep innovating its strategies.

Competitive Rivalry or Competition with Whole Foods Market (Strong Force)

Whole Foods Market experiences the strong force of competitive rivalry. This element of the Five Forces analysis model deals with the effects of firms on each other. In Whole Foods Market’s case, the external factors that contribute to this strong force of competition are as follows:

  1. High number of firms (strong force)
  2. High aggressiveness of firms (strong force)
  3. Low switching costs (strong force)

Whole Foods Market is in the grocery and health food store business, which is part of the retail industry. The retail industry is saturated with many firms. Also, retail companies aggressively compete based on price, service, quality and other variables. In addition, Whole Foods Market faces the strong force of competition because of low switching costs. Consumers can easily shift from Whole Foods Market to other retailers. To address this part of the Five Forces analysis model, Whole Foods Market differentiates its products based on high quality.

Bargaining Power of Whole Foods Market’s Customers/Buyers (Strong Force)

The bargaining power of consumers is strong in impacting Whole Foods Market. This element of the Five Forces analysis model refers to the effect of buyers on businesses. In Whole Foods Market’s case, the external factors that contribute to the strong bargaining power of customers are as follows:

  1. Low switching costs (strong force)
  2. High quality of information (strong force)
  3. Small volume of individual purchases (weak force)

Most of Whole Foods Market’s customers are individuals whose purchases are small compared to the total revenues of the firm. However, it is easy for customers to move to other retailers, corresponding to the low switching costs. In addition, Whole Foods Market’s customers have access to information they can use to properly evaluate the company’s products. As a result, Whole Foods Market must address consumer concerns. Otherwise, they could move to other retailers. Whole Foods Market addresses this part of the Five Forces analysis model by implementing new policies for product quality. For example, to address consumer demands about genetically modified organisms (GMOs), Whole Foods Market plans to complete the implementation of a new labeling rule for GMO-containing products in its stores by 2018.

Bargaining Power of Whole Foods Market’s Suppliers (Moderate Force)

Whole Foods Market faces the moderate impact of the bargaining power of suppliers. This element of the Five Forces analysis model identifies the degree at which suppliers impose their demands on business and the industry. In Whole Foods Market’s case, the external factors that contribute to the moderate force of supplier power are as follows:

  1. Moderate level of supply (moderate force)
  2. Large size of individual suppliers (moderate force)
  3. High number of suppliers (weak force)

Whole Foods Market has many suppliers, including local, regional and national wholesalers and producers in the U.S. and overseas. This external factor weakens the power of suppliers on the firm. However, Whole Foods Market’s suppliers are mostly large wholesalers, such as United Natural Foods Inc. (UNFI). Because of their size, these suppliers exert moderate pressure on Whole Foods Market. Also, the limited supply of truly organic and natural non-GMO foods means that suppliers could impose demands on the company and expect moderate results. Whole Foods Market addresses this part of the Five Forces analysis model by expanding its supply chain, which now has a global scope and emphasizes producers in developing countries. The resulting diversification of suppliers in Whole Foods Market’s supply chain helps dilute the bargaining power of suppliers.

Threat of Substitutes or Substitution (Strong Force)

Substitutes present a strong force on Whole Foods Market. This element of the Five Forces analysis model pertains to the impact of substitute products on business and the industry. In Whole Foods Market’s case, the external factors that contribute to the strong force of the threat of substitution are as follows:

  1. High availability of substitute products (strong force)
  2. Low switching costs (strong force)
  3. Low cost of substitutes (strong force)

Whole Foods Market competes with many substitutes, which are products that are not classified as organic, natural or GMO-free. Most of these substitutes are cheaper. Also, it is easy for customers to shift away from Whole Foods Market toward these substitute products. As a result, substitutes exert a strong force on the firm. To address this part of the Five Forces analysis model, Whole Foods Market focuses on high quality. Also, the company occasionally offers discounts to attract customers.

Threat of New Entrants or New Entry (Strong Force)

Whole Foods Market experiences the strong force of the threat of new entrants or new entry. This element of the Five Forces analysis model deals with the effect of new firms in the industry. In Whole Foods Market’s case, the external factors that contribute to the strong force of the threat of new entrants are as follows:

  1. High ease of doing business (strong force)
  2. Low switching costs (strong force)
  3. Moderate cost of doing business (moderate force)

Whole Foods Market is in an industry where establishing a new business requires moderate spending. Even small retailers can compete with the company. It is also relatively easy to operate in the grocery and health food store industry. Moreover, new entrants have high chances of success because they can easily attract customers away from firms like Whole Foods Market. Thus, the threat of new entry presents a strong force on the business. To address this part of the Five Forces analysis model, Whole Foods Market focuses on quality to entice and keep customers.

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