Nov 20, 2020 in Case Studies

Operations supported by the WFM
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Quality, Balancing Loop

Whole Food Markets mission statement focuses on being a market leader in terms of quality standards. The mission is captured in the companys motto "Whole Foods, Whole People, Whole Planet" which demonstrates commitment to the number of varieties offered, quality of employees and focus on community and environmental obligations. Over time, the company has increased the range and quality of products it offers to the food market. The products offered include perishable foods such as seafood, grocery, meat and poultry, bakery and ready-made foods, coffee and tea, nutritional supplements and vitamins. Quality of the products is affected by nutritive contents, safety, ingredients, tastes, appearance, and freshness. Operations are supported by the WFM headquarters at Austin, distribution centers, regional offices, seafood-processing and bake-house facilities, procurement centers and commissary kitchens among other facilities.

 

The choice of the quality loop has been necessitated by the increased number of quality concerns received from consumers and, especially, the health aspect of products. Company focus on organic products may have given it an edge, but increased competition also demands deliberations on the quality of products. The desired quality is determined exogenously by assessing customers needs. The market need may be dynamic and, hence, the quality requirement, though fixed, may re-adjust from time to time. To determine what has to be done, WFM needs to first determine the current status of their products, e.g. in terms of nutrient components, flavors and ingredients. By comparing the current quality and the desired quality, the management is able to measure the quality gap that needs to be bridged. This can only be done through applying internal adjustments to observe quality standards.

Therefore, if the quality gap is high, there is more commitment to improve the quality of products. In the loop, these commitments are captured in a form of quality standards. Greater commitments in quality standards improve the quality of the current products and, hence, reduce the quality gap.

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Sales, Reinforcing Loop

WFM has maintained a growing trend over time. The value of net revenue has been rising from $6.6 billion in 2007 to $10.1 billion in 2011, representing an annual growth rate of 11.22%. This revenue has enabled WFM to maintain quarterly dividends of $0.2 per share, which are mainly owned by institutional investors. It has also recovered from a recessionary slump which made its share trade at $4.27 in 2008 to a recent all-time-high $56.83.

As any other company, shareholders wealth remains the objective of WFM. The choice of sale reinforcing loop has been a result of the role played by sales on companys profitability. But sales relate positively to the market served. This can be captured by a number of stores being operated by WFM. By 2011, WFM had 311 stores, 299 being operated in US, 7 in Canada and 5 in UK. As observed, focus has not only been on the number but also the size of the stores. For instance, by 2006, WFM had 180 stores with an average size of 30,000 sq. ft. However, by 2011 the 311 stores occupied an average size of 38,000 sq. ft.

The higher performance in the recent years has enabled the company to increase capital expenditure. For instance, as indicated in the table below, the companys level of sales increased by 7.10% in 2010. In the same year, the amount of expenditure per sale was 2.90%, and 16 new stores were introduced. The high sales in 2010 led to higher profits that enabled the company to establish 18 more stores in 2011.

Table 1: Companies Margins, Capital Expenditure and Operational Metrics

Company (Fiscal Year-FY)

Sales Growth

Square Footage Growth

Revenue/Square Footage ('000 million USD)

New stores Opened

Average Store Size

Capital Expenditure per Sale

WFM (FY2010)

7.10%

6.00%

882

16

38,000

2.90%

SWY (FY2009)

-4.90%

-0.40%

509.99

8

46,000

2.08%

KR (FY2009)

0.90%

0.01%

518.47

14

60,000

2.99%

SVU (FY2009)

-5.10%

-6.20%

624.57

40

29,000

1.70%


As such, high sales enable the company to build a capacity to establish more stores. This, in turn, enables the company to serve a larger market and, therefore, translates to higher sales.

Theory of Organizational Learning

According to the theory of organization learning, actions and goals must be adjusted to maintain competitiveness in a dynamic environment. Learning is characterized with a conscious decision in response to environmental changes, without disregarding actions links with the outcome, and outcome themselves. The first stage of the learning process is data collection. This wokrs with regard to action-outcome links, strength, probability and condition necessary for the link to hold. The second stage of the learning process is an interpretation of acquired information. In this case, the expected outcomes are compared to the actual ones and, where necessary, new adjustments are done to initial information. Although no actions are taken in this stage, causation, actions and possible action-outcome links are accessed. The last stage of the organizational learning process is the action stage. Here, the adaptation of an action-outcome link is based on the environmental condition. Once the adaptation takes place, organizations knowledge base is updated in terms of new links, uncertainty, probabilities and applicability. Feedback continues across all stages as indicated in the figure below.

 
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Figure: Organization Learning Process

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Balancing Loop, Leaning Activities

WFM has handled organic foods for a longer period than any other company. As such, it takes less time for a learning curve to match changes in consumer tastes and other environmental changes that require quality adjustments and the use of a well established high quality system. Teamwork is the basis of value creation within the company. Teams in over 300 stores meet continuously, while every store meet monthly as a team. Quality has been ensured by creating a cross contact with the suppliers of organic products. This was done by establishing a company in California, closer to the farmers. This has led to mutual exchange of information between the company and farmers. WFM has also developed a close link with its customers that have helped it develop the unacceptable ingredient list. This is maintained by the quality standard team which ensures that the quality requirements are met in terms of product nutrition, appearance, taste, and freshness. Feedback across different stages of learning is facilitated by close contact with customers within the stores and teamwork among the employees.

Reinforcing Loop, Learning Activities

According to the company history, market expansion appears to have been a clear goal. This falls in reinforcement loop where market expansion strategy lies in terms of the number of stores to increase sales. Information in this case mainly emanates from the external environment, hence, necessitating need for certain activities. In particular, WFM has engaged in a series of acquisitions and mergers. Further, the company has also acquired data from the competitive market and activities to outrun its competitors. This step relates to the creation of new stores, hence, increased competitive advantage. This has been done through leasing and developing of new stores. Store footage also has been increased within cities to increase sales.

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Balancing Loop, Learning Opportunities

Despite its close contact with farmers in California, WFM has a weakness of single sourcing. For instance, 31% of all purchases by WFM were made from United Natural Foods, Inc. (UNFI) in 2011. Learning to have many suppliers may prove advantageous in managing quality. In addition, getting a memorandum of understanding with the farmers may also be beneficial. This may help get a constant supply of quality product, as well as managing how the farming is done to have a standardized product. The company may also seek to establish its own farms; this will help manage supply and quality of the products. In all these activities, information may be obtained from consumers, farmers and competitors, and may help the market forces, emanating from the US government, to give subsidies to corn growers, as well as competition from new players in the organic food market.

Reinforcing Loop, Learning Opportunities

Sales are a major goal in the organic market. However, the focus in the major cities is a weakness on the part of WFM in the wake of the current level of competition. As such, the link between stores and sales as a measure of market size can be extended to smaller cities. For efficiency purposes, smaller stores should be established. Experience from the long term leasing should be used to adopt a short term leasing policy to avoid dormant stores. The company may also have a different experience by operating in more countries. Some of its competitors in the organic food market operate worldwide. As such, developing new stores in many countries may help increase sales as well as develop new competitive edges. Further, the company may develop a memorandum of understanding with players in a different line of food products to have more outlets of their products.

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