INTEGRATED SEMESTER ASSIGNMENT
(FINC 300, INFO 300, MGMT 300, MKTG 300)
DUE: NOVEMBER 23, 2016
INSTRUCTIONS:
The objective of the integrated semester is to help you extend your knowledge of how the
finance, operations, management, and marketing disciplines work and how they integrate
their functioning in the real world of business. This assignment is an assessment of how well
you understand this integration.
Below you will find a mini “base” case that broadly describes the current challenges faced by
Whole Foods. Following the case are questions from each of your four “300” courses that
reflect the impact of those challenges on the particular functional area and the implications
for the other disciplines.
YOUR ASSIGNMENT IS TO ANSWER ALL OF THE QUESTIONS, IN A SINGLE
DOCUMENT:
• The assignment should be prepared as a Word document, 12 -14 pages in length
(approx. 3 pages for each discipline’s questions).
• The document should be double spaced, using Ariel font #12.
• Label each section (e.g., FINANCE) to indicate which discipline’s questions you are
answering.
• Add any Appendices at the end of the Word document.
• Upload the entire Word file through the link on Canvas to each of your Integrated
Semester courses by the due date (November 23).
Note: Your reference sources, in addition to the base case and question sets, should be
online sites and articles, Bloomberg terminals, your Integrated Semester textbooks and
PowerPoint slides.
WHOLE FOODS MINI BASE CASE
Whole Foods Market Inc. is a publicly-held American supermarket chain specializing
in natural and organic food that opened on September 20, 1980, in Austin, Texas. As of
September 2015, the company had 91,000 employees and over 400 supermarkets in
the United States, Canada, and the United Kingdom
Whole Foods founders John Mackey and Walter Robb are co-CEOs, with John Elstrott
as chairman. Whole Foods Market became a Fortune 500 company in March 2005 and
was the 30th largest retailer in the U.S. based on 2014 revenue
The company’s stores are supported by its Austin Texas headquarters and its main produce
procurement office in Watsonville, California as well as regional offices, distribution centers,
bake-house facilities, commissary kitchens, seafood-processing facilities, regional meat and
produce procurement centers, and a specialty coffee and tea procurement and roasting
operation. The company’s product selection includes grocery, meat, seafood, bakery,
prepared foods and catering, coffee, tea, beer, wine, cheese, nutritional supplements,
vitamins, body care, and lifestyle products including books, pet products, and household
products. The company’s in-store brands, 365 and 365 Organic Everyday Day Value,
account for approximately half of its inventory.
In the face of steep competition from major chains such as Walmart, Target and Kroger as
well as specialty grocers like Trader Joes and Sprouts, WF suffered three successive
quarters of disappointing earnings in 2015, and came under fire for overcharging customers
in some areas. The company’s stock price dropped 46% year over year, and in September
WF announced that it would cut 1.6% of its workforce. Two months later, the CEOs detailed
a nine-point plan to reduce expenses, promote lower prices, boost the prepared food
business, expand digital reach and slow store growth.
Earlier in 2015, Whole Foods had presented a strategy for launching a new chain, to be
called 365 by Whole Foods Market (“365” stores) in 2016 that would appeal particularly to
millennials and budget-conscious shoppers. The first “365” stores are set to be located in
various metropolitan settings, including the Pacific Northwest, Southern California and
southeast Texas. While the chosen locales will contain residents of varying education and
income levels, they will have in common substantial concentrations of consumers who are, in
the words of John Mackey, Whole Foods’ co-founder and co-chief executive, “hip, cool and
tech-oriented”. These so-called “hipsters” are typically younger consumers who want highquality,
organic foods but can’t necessarily afford Whole Foods’ prices. In announcing the
creation of the “365” concept in 2015, Mackey stated that, along with lower prices, the new
chain would feature a modern vibe and edgier aesthetic.
The company’s plans and strategies have raised questions about how Whole Foods will
prevent one brand of stores from cannibalizing the business of the other. According to a
recent (2/12/16) report in The Washington Post:
WF’s latest quarterly financial results underscored what a big challenge Whole Foods
faces as it tries to hang onto the organics crown. Whole Foods reported that total
sales in the most recent quarter rose 3 percent. However, sales fell 1.8 percent at
stores open more than a year, and the company said that was due to both a decline in
the number of transactions and a decrease in “basket size,” or in how much money
was spent per transaction.
Executives said on a conference call with investors that some of the decline was
because the grocer has gotten more aggressive with promotions, offering deals such
as a three-day sale on supplements. Those promotions are not going away anytime
soon. Whole Foods announced it was launching digital coupons within its mobile app,
and executives said they were continuing to find places to slash prices outside of
temporary promotions.
“There are certain very important categories that we know that we need to be
competitive on an everyday basis on and so we are working to systemically identify
those and move pricing on those to make sure we’re competitive,” said A.C. Gallo, the
company’s president, on the investor call.
The boost in overall sales could be attributed largely to the fact that the grocer
operates more stores than it once did. But that expansion appears to be slowing.
Whole Foods added 38 stores in 2016, but has plans to add about 30 in 2016,
including the new 365 outposts. In other words, that means the pressure is really
going to be on for the chain to figure out how to deliver more sales from its existing
stores, and from digital avenues such as its partnership with Instacart.
The renewed emphasis on price-cutting comes as Walmart, Target, Kroger and others
have undercut Whole Foods with their own organics offerings. But the discount
strategy is somewhat perplexing when you consider what the new 365 chain is
supposed to be: Executives have billed it as a smaller store that allows the company
to offer a more convenient experience and reach less affluent shoppers. If both
concepts are going to be pushing hard to communicate value, are they really going to
appeal to different types of customers or different shopping occasions?
That’s not an idle concern. For the third straight quarter, Whole Foods said
cannibalization among existing stores contributed to a decline in sales at stores open
more than a year. If 365 isn’t differentiated enough, the risk for that could only grow.
Co-chief executive John Mackey sought to draw distinctions between the two chains
Wednesday, pledging that traditional Whole Foods stores would be more experiential,
offer more prepared foods and be a destination for innovation. On the other hand, 365
would be more convenience-oriented and offer a tightly-edited assortment of goods.
And yet, go to the website for 365 by Whole Foods, and the lines seem less clear. The
website says executives are looking for partner businesses whose services or
products can be incorporated in the new chain, saying: “Record shops? Tattoo
parlors? Maybe!”
If 365 were to include something as decidedly experiential as getting inked, it’s hard to
see how that is much different than the vibe executives want to cultivate in Whole
Foods.
MARKETING ASSIGNMENT
The first of the “365” stores is set to open in 2016 in the Silver Lake neighborhood of Los
Angeles, named America’s No. 1 hippest hipster neighborhood by Forbes. The area is
known for its large arts community, having risen to fame as the location of Walt Disney’s first
large studio in the 1930s. Silver Lake, is sometimes referred to as “the Los Angeles
counterpart to Brooklyn’s Williamsburg.” Silver Lake is an ethnically diverse neighborhood
with a high percentage of never-married men (52.6%) and women (38.6%) — often an
indication of a high hipster factor. The median annual income is $54,339, according to U.S.
Census Bureau data, which isn’t too far off the national median household income of
$53,046. In other words, the area may well be brimming with 365’s target customers. The
other announced locations have similar profiles. The Houston 365 store will open near the
Houston Heights neighborhood, which has been compared to Silver Lake in terms of its
hipster quotient. The cost of a two-bedroom rental there averages $2,000, and the median
household income is $63,500. In Bellevue, Washington, where one of the other new 365
stores will be opening, the median household income is $90,333, and 62.1% of people over
age 25 have a bachelor’s degree. It is home to many employees in Seattle’s tech scene,
including Microsoft. A store will also open in Portland, Ore which has a demographic profile
similar to Bellevue’s. A 365 location in the Whole Foods headquarters city, Austin — the
reigning city for hipsters in Texas – is currently planned but has not yet been announced.
Each of the new 365 stores is opening in an existing market for the company. Whole Foods
typically has a set of guidelines when opening new locations, such as 200,000 people or
more within a 20-minute drive and a large number of college-educated residents There are
currently five Whole Foods Market stores in the Seattle area, and four stores in Portland,
where two stores stand within 1.5 miles of each other.
Whole Foods management has stated “To best leverage our existing team member base and
infrastructure, we expect most of our first 365 by Whole Foods Market stores will be in
existing markets, complementing our Whole Foods Market stores. The streamlined store
concept and efficient shopping experience will allow us to grow in both urban and suburban
markets.”
Questions:
1. In several markets, the proposed 365 store location is a mile or two from a traditional
Whole Foods store so, in the role of VP of Marketing, explain in some detail what
strategy and actions you would recommend, with supporting rationale, to
eliminate or minimize the probability of the 365 operation taking sales from the
traditional Whole Foods store. Pick any one of the locations profiled above and make
use of the demographic information supplied (and available online) in answering the
question.
2. Explain the impact those marketing recommendations would or could have on the
management, financing and operations of the stores
3. From class discussions about positioning, develop 2 positioning statements, one
statement for the 365 line and one for traditional Whole Foods stores.
FINANCE ASSIGNMENT
Despite increasing revenues over the past three years Whole Foods Market (WFM) has
experienced disappointing profits during the same interval. While WFM’s overall revenues
increased by approximately 8% in 2015, and by 10% in 2014, its net income (profit) declined
by about 7% in 2015 and increased by only 5% in 2014, indicating higher costs of operating
their businesses. The size of the WFM balance sheet stayed relatively stable; however, the
WFM common stock experienced very high volatility and posted a devastating loss to its
value from a high of $65/share in October 2013 to about $30/share in December 2015. This
performance was more distressing to investors as the S&P 500 index experienced gains
during the same interval. The decision to open the lower-cost 365 supermarkets has been
made against this financial background, in addition to other concerns relating to the long-term
healthiness and growth of its core upscale supermarket business.
Please answer the questions below. Use either the Bloomberg terminals located at the
School of Business or other reputable sources such as finance.yahoo.com, morningstar.com
or Wall Street Journal etc. for the financial data you use in your answers. The screen prints of
the financial data you use to support your answers should be submitted as an appendix
attached to your term paper.
Questions:
1. Opening a series of new supermarkets, such as 365, is a major capital budgeting
project for the company. A project of this scale requires coordinated planning across
all functions of a business (that you are studying in your Integrated Core classes).
Describe and discuss the main items on the income statement and balance sheet that
you think will be impacted by this new undertaking. Explain why you chose those
particular balance sheet and income statement items.
2. Please also explain how the financial decisions regarding opening the 365
supermarkets are related to management, marketing or operations decisions that the
company must make (or has made) in light of the plans to open this new line of
stores?
3. Choose and calculate five ratios for this company for the last two years. Make sure to
select ratios that you think would be impacted by the opening of the new 365 stores,
and explain your reasoning. Identify two competitors of WFM and contrast the ratios.
Explain why you selected those competitors. Describe how the decisions made by
management, marketing and operations functions of the company can impact, and
hopefully improve, these financial ratios.
4. Calculate the annualized stock price return of WFM over the last 3, 5, and 10 years.
How does it compare to the return of the competitors you selected in question 3 and
the S&P 500 index over the same time periods? What kind of steps can be taken
regarding management strategy, operational efficiency and marketing policy to
improve the disappointing performance of this company going forward?
MANAGEMENT ASSIGNMENT
Whole Foods Market is, in many aspects, an unusual corporation. As the base case
illustrates, John Markey and his partners are not typical corporate leaders. Other noteworthy
aspects include the Whole Foods’ highly decentralized organizational structure, their teamoriented
decision making and leadership style, and their unique human resources processes.
Whole Foods Market is known for its attractive workplace environment; it is one of only three
food retailers that have frequently appeared on Fortune’s 100 Best Companies to Work For.
The other two foods retailers on the list are Wegman’s Food Market and Publix Super
Markets. Although Whole Foods Market has recently had to lay off 1,500 employees, Walter
Robb, a co-CEO, lamented “…this is a very difficult position, and we are committed to
treating affected team members in a caring and respectful manner.”
Whole Foods Market is also known for its programs in sustainability and corporate social
responsibility. It is ranked 3rd on the Environmental Protection Agency’s Top 25 Green
Power Partners list. The company’s core values include “the advancement of environmental
stewardship.” Co-CEO Walter Robb defended the company’s high prices for salmon by
stating that “Sure we could sell cheaper farmed salmon, but it is terrible for the environment.”
Whole Foods Market is also a major player in philanthropy with 3 active foundations: Whole
Planet Foundation, Whole Kids Foundation, and Whole Cities Foundation. In addition, the
company donates 5% of its earnings to charities.
.
Questions:
1. In light of Whole Foods Market’s internal and external environmental conditions, explain
why it makes strategic sense for the company to introduce the 365 store chain, using a
SWOT- style analysis (matrix) as the starting point for your discussion.
2. Discuss:
a) the advisability and potential impact of the employee layoffs on Whole Foods’
financial and physical operations and
b) the challenges and/or benefits the reduction in force presents for the company as it
prepares to staff and market the new line of stores.
3. Which of the motivation approaches or theories covered in class do you think will be
needed for the successful launch of the 365 store chain, and why? (You may argue for
more than one.) Does current top leadership at Whole Foods use that approach or
approaches?
Explain.
OPERATIONS ASSIGNMENT
Whole Foods has decided on the locations of the first five 365 stores. These are Silver Lake,
Los Angeles, CA; Houston Heights, Houston, TX; Portland, OR; Bellevue, WA; Austin, TX.
Each of the new 365 stores is opening in an existing market for the company. There are
currently five Whole Foods Market stores in the Seattle area, and four stores in Portland.
Ore. In Portland, two stores stand within 1.5 miles of each other.
Wholefoods management has stated “To best leverage our existing team member base and
infrastructure, we expect most of our first 365 by Whole Foods Market stores will be in
existing markets, complementing our Whole Foods Market stores, the streamlined store
concept and efficient shopping experience will allow us to grow in both urban and suburban
markets.”
Questions:
The following link will take you to a statement of Whole Foods Market’s core values.
http://www.wholefoodsmarket.com/mission-values/core-values
Discuss in detail how WFM makes the following key operations decisions in order to promote
their core values:
1. Process Design
2. Managing quality
3. Location strategy
4. Layout strategy
5. Supply chain management
In discussing these decisions make sure you highlight and discuss those areas where the
other functions: finance, marketing, and management are involved.
……
