Essay on strategy of Whole Foods Market
Among various organizational diagnosis (OD) models, one of the most powerful models is the Nadler-Tushman congruence model. This model takes into accounts both internal and external factors, and helps to assess the alignment between the strategy of the company, its internal and external resources and actions (Falletta, 2005). The purpose of this paper is to analyze the existing strategy of Whole Foods Market and to determine Porter’s strategy which the company is pursuing now, to identify critical inputs of Whole Foods Market and to evaluate the alignment between these inputs and corporate strategy using the Nadler-Tushman congruence model.
- Nadler-Tushman Congruence Model
OD model developed by Nadler and Tushman is an invaluable instrument for analyzing organizational changes and assessing the organization in its environment. The key assumption of this model is the functioning of the organization in an open environment; in this context, an organization is influenced by its inputs which include organizational history, resources, environment and strategy, and changes the environment by producing outputs at the individual, group and organizational level (Cameron & Green, 2012). The core idea of Nadler-Tushman model is the focus on achieving congruence between organizational inputs, internal processes and factors, and outputs.
In congruence model, organizational inputs include environmental factors (which encompass all factors external to the organization), resources (internal factors of the organization and the factors to which the organization has access), history (past behaviors, activities and performance which influence current functioning of the organization) and strategy (current stream of decisions aimed at achieving organizational goals in the organizational context) (Nadler & Tushman, 1980).
- Strategy of Whole Foods Market
Current strategic goals announced by Whole Foods include market expansion, and in particular targeting low- and middle-income customer groups along with more affluent customers, increase of store footage, sales growth and reduction of expenses (Whole Foods Market, 2014). Among the strategic steps which have recently been undertaken by Whole Foods Market there are: launch of more affordable brands and marketing of organic products as affordable, focus on local sourcing and tailoring the offers to local community needs (Jargon, 2013), opening new stores in less affluent areas and opening smaller-sized stores. Furthermore, Whole Foods aims to reduce expenses by reducing the size of its existing superstores, reducing the amount of spoiled goods and optimizing its supply chain (AdWeek, 2013).
In addition to this, Whole Foods reshaped its marketing approach. The company undertakes many marketing efforts such as flash sales of various items available for several hours, advice for customers how to reduce their expenses and advertising healthy food as the important component of health which ought not to be expensive (Watrous, 2014). Whole Foods also undertakes price matching against other competitors.
One can identify three Porter’s generic strategies: cost leadership, differentiation and focus. Cost leadership and differentiation strategies refer to industry wide strategies: the former is based on offering lowest prices, while the latter is focused on offering a wide choice of products with unique qualities (Burke, Lake & Paine, 2008). Focus strategies can be also targeting either cost or product qualities, but these strategies relate to particular market segments. Historically, Whole Foods was pursuing differentiation strategy, but the increase of competition in organic foods industry forced the company to switch to cost leadership strategy.
- Inputs of Whole Foods Market
Whole Foods Market emerged in 1980. The company has a rich history as it became the pioneer in organic foods industry. In the 1980s, the company focused on opening new stores, and in the end of 1990s and in the 2000s Whole Foods primarily expanded through acquisitions. Whole Foods Market managed to establish own standards of quality and own ethical practices pertaining to growing and sourcing foods. These standards were often stricter than those of food industry in general. Whole Foods used to charge a high price premium for ensuring high quality of organic foods. In the context of “history” input for Nadler-Tushman congruence model, it is important to include such two inputs as high standards of quality (which are highly important for those customers who care about their health and choose organic food) and focus on affluent customers due to high price premiums (which shaped the perception of Whole Foods as the “whole paycheck” company in the past).
Currently market position of Whole Foods is still strong: the company has a large network of stores, its superstores offer a wide range of organic foods, the company works with numerous suppliers of organic foods. Whole Foods expanded internationally and is now also operating in Canada and in the UK. Key resources which are critical for the organization are its brand reputation associated with ethical practices and high-quality foods and its wide network of large stores.
As for the external environment, the major factor which is affecting market position of Whole Foods are the increasing supply of organic foods (offered by private labels, small local stores, large retailers, etc.) and intensive competition in this market segment. These two phenomena can be viewed as one environmental factor – increasing competition; this factor is the one that urges Whole Foods to reconsider its strategy and advertising approach.
- Congruence between inputs and strategy
The conclusions about the congruence of Whole Foods organizational inputs and strategy are ambiguous. On one hand, there is a clear controversy between historical inputs and current strategy: earlier the company positioned itself as a premium-segment brand and focused on attracting affluent customers. In this way, Whole Foods managed to achieve high profit margins and high stock prices. Furthermore, most customers started associating high-quality organic products with high prices, so lowering prices might affect brand image of Whole Foods and create an impression among customers that the company is sacrificing quality to reduce price. Therefore, both historical inputs (high prices and high quality standards) and one resource input (brand reputation) are not congruent with the company’s current strategy of cost/price leadership.
Furthermore, the second resource input – wide network of large stores – is also poorly aligned with the strategy of cost leadership. Large stores and wide range of various organic products naturally incur high costs and lead to price increase. Therefore, Whole Foods Market has to change its overall internal structure and approaches in order to implement the current strategy.
At the same time, the new strategy is perfectly congruent with the critical environmental factor – intensive competition in the sphere of organic foods. In this context, Whole Foods is attempting to reposition itself at the organic foods market in order to be able to compete with other large market players. In fact, it is the controversy between the key environmental factor with historical and resource inputs which leads to the conflict between the strategy and other inputs.
Therefore, it is possible to state that Whole Foods is trying to change its business strategy completely, and therefore its historical developments are not congruent with its current strategic moves. At the same time, it is possible to recommend to Whole Foods to avoid such radical strategy reconstruction since the company might dilute its existing brand and lose its existing strengths without gaining any specific competitive advantages. In other words, it would be better for Whole Foods to pursue differentiation strategy instead of rapid expansion and cost leadership approach.
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