Bus 400 Whole Foods Case Study

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1. Because Whole Foods focused on highest quality natural and organic foods, products are expensive. Compared to other supermarkets, Whole Foods has much higher gross margin and profit margin. Among the four supermarkets, Supervalu's revenue has declined each of the past several years. Thus, they have a negative profit margin because of a net loss. Kroger has the lowest gross margin because their strategy is "Customer 1st" and "low price." This strategy drives sales revenue and helps achieve economies of scale, which lower down fixed costs. Therefore, Kroger has low gross margin and small profit margin but have high SG&A ratio, which implies Kroger has efficient corporate structure. Safeway positions itself between discount and premium. It focuses on product differentiation, including a positive shopping experience, quality products, excellent customer service and selling private label products. Therefore, Safeway has all ratios in the middle of the four firms.
2. Whole Foods is one of the successful supermarkets, which focuses on product differentiation. Their products are expensive, so they have the highest gross margin and profit margin. However, because of their strategy, the company has more fixed cost, such as advertising expense which is not included in the cost of goods sold. Therefore, it has the lowest SG&A as % of sales. On the contrary, other top supermarkets are Kroger, whose strategy is cost leadership. Thus, although the company has the lowest gross margin and profit margin, it has the highest revenue among the four firms because it has the lowest SG&A expenses.

1. Trader Joe's offer lower price differentiated products. The store is smaller than an average supermarket which carries fewer items. However, things are all unique and private labeled, which are rarely seen in other supermarkets. Moreover, because it sells few products, the quantity of each product can be enormous. Trader Joe's has economies of scale and high bargain power with their suppliers because they buy in bulk. I think their advantage is sustainable. Most retailers sell similar things. Customers are tired of purchasing similar groceries each week. Customers will love to try something new without paying high prices. Trader Joe's is the place for those customers.
2. Fewer choices in the store are one of the biggest threats to Trader Joe's. Most items in the store are from private label instead of major brands. Not every single customer may find what he likes in the store. Trader Joe's will eliminate 10-15 products each week and put new products on the shelf. The new products have the risk of not being famous. Unlike major brand items, private labeled items are hard to predict their popularity among customers. Trader Joe's is not the one-stop shop for customers.
3. Trader Joe's carries high quality but not popular items, which is not considered as "One Stop Shop." It can sell more private label items and expand to other areas to make it the one-stop shop for customers. Most customers do not want to go to two or three supermarkets on the weekend.
4. Whole Foods pursues product differentiation by charging a premium on organic foods. In the past, not many supermarkets offer organic foods, so middle to upper-class customers is willing to pay the extra for organic foods. However, nowadays, Walmart, Krogers and other supermarkets who focus on cost leadership strategy also provide organic foods on their shelves with prices lower than Whole Foods. Whole Foods now readjusts the prices and wants to expand market share. They are a competitor to Trader Joe's. Whole Foods offer many private labels and have high brand reputation with high-quality foods as well. If Whole Foods lower their prices of organic foods, the competition will be more severe.
5. I think people do not have much free time during the week, so they choose to get all groceries during the weekend. Because people cannot plan well, they overbuy the food so that it ends up wasting a portion of it. Even though supermarkets can sell food past its "best by" date to help to reduce the wasting problem, the reputation of the supermarkets may be affected. Moreover, people do not consume food past the best by date is a psychological issue. Food that past the best by date seems to be unhealthy and unsafe which makes people uncomfortable.