Wild Oats: The Organic Foods Industry

Wild Oats: The Organic Foods Industry

What are the challenges of the external environment for Wild Oats?

• Wild Oats faces several challenges in its external environment.  One of the major threats Wild Oats faces is their number one competitor Whole Foods.  They are positioning branches to directly compete with Wild Oats.
• Wild Oats’ products line is highly affected by conservation issues.  By being a specialist in organic foods, Wild Oats also want to have environmentally healthy means to acquire their products.
• Wild Oats is being pressured by Ronald Burkle acquiring over fifteen percent of the company stock.

What are the key internal pluses and minuses at Wild Oats?

Pluses:

• Competitive advantage by acquiring Alfalfa
• Specialization in organic foods
• Power over distributer
• Flexible store format
• Flexible merchandise
• Large expanding line of private label products

Minuses:

• Weak IT infrastructure until year 2002 keeping Wild Oats behind
• Ronald Burkle acquired twenty percent of Wild Oats stock

Discuss the business model and strategy at Wild Oats.  Do you think this strategy is sustainable?  Why or why not?

        From year 2006 and forward, Wild Oats is expanding in many ways.  They are planning on expanding by opening new stores and refurbishing existing stores.  Wild Oats is also trying to push their private label Items by selling them through other retail channels and internet sales.  They intend to increase profitability by increasing their prices of private label products when they are more widely recognized.

        I think the company has a good strategy to expand.  I think the best part is the pushing of the private label products outside of the Wild Oats stores.  I believe if Wild Oats can get their private label products to be more recognized and more easily accessible to customer, that they will be profitable and grow.

Discuss which of the financial and numerical analyses are more important and why and how these directly lead to the conclusions derived in questions 1, 2 and 3.

• Return on investment is a measure of total return on the investments of Wild Oats.  By showing a consistent increase, the expanding and added investments are shown to be paying off.
• Return on Equity shows how much stockholders are getting out of their investments.  This needs to be improved upon by Wild Oats.
• Inventory Turnover needs to be high.  Wild Oats especially needs high turnover because of the large number of perishable products they carry.  This is related to the amount of sales the company is doing.  That is why I have included the sales figures on the financial analysis.
• Long-term debt is obviously better to be lower.  Nobody needs unnecessary debt.  Currently Wild Oats is doing very well in cleaning up its long term debt.

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SWOT Analysis:

Strengths:

• The acquisition of Alfalfa to Wild Oats gave them a significant advantage in the organic food industry.  Such as:

• Wild Oats specializes in natural living products
• Alfalfa specializes in perishable products
• A significant competitive advantage is achieved when Wild Oats tries to capitalize on each of these strong points.

• Wild Oats has power over their distributer by being one of their largest customers.
• Wild Oats is flexible with its store format for different locations.  This gives the company more room to adapt, grow, and flourish in specific locations, reaching a broader customer base.
• Wild Oats is also flexible with its merchandise to meet location specific needs of their customers.
• Wild Oats has its own line of private label products that stretch across numerous categories.

Weaknesses:

• Suffered from a weak IT infrastructure until year 2002, keeping them behind.
• Some organic produced products costs double the price of conventional products.
• Ronald Burkel controls a large amount of Wild Oats stock.

Opportunities:

• To expand Wild Oats’ private label products to other retail channels.
• To expand private label product line.
• To expand private label online sales.
• To expand store locations.

Threats:

• Wild Oats has been specifically targeted by Whole Foods.  Whole Foods has opened new branches to compete directly with Wild Oats branches.
• Wild Oats product line is affected by conservation issues.
• Threatened by Ronald Burkle acquiring over fifteen percent of Wild Oat stock.

5 Force Analysis: Organic Foods

This is a good industry to go into, but it has downfalls.  This is a fairly neutral industry.

Threat of Substitutes

• Very low

Conventionally grown foods should defiantly be considered a substitute, but for the purpose of Wild Oats (specializing in organic foods) I do not think this is a big factor.  Customers shopping in an organic specific store do not want conventional foods.  The differentiation of the product will go either way, but generally it cannot be differentiated.

The power of buyers:  Low to Neutral

• Are there many buyers        Yes→Low        Many people buy organic foods                                
• Are there lots of Rivals                                  Yes→High                There is many rivals selling organic foods. Ex.  Whole Foods
• Need for the item                                  Yes→Low                Customers wanting organic foods need them
• Does customer have all needed information          Yes→High                There is no big decisions buying foods
• Is there lots of substitutes                          No→Low                There is really no substitute for customers wanting organic food
• Is differentiation of the product possible          No→High                Its hard to differentiate a all naturally grown product

The threat of entrants:  Neutral to High

• Is there capital requirements        Yes→Low        There are high startup cost when dealing with perishables        
• Is differentiation of the product possible          No→Low                Its difficult to enter the industry with standard products
• Is there access to distribution channels                  Yes→High                Distributers should be found fairly easily
• Government regulations in place                              Yes→Low                Foods regulations for safety
• Is there buyer switching costs                          No→High                It cost nothing to shop at a different business
• Is this highly profitable                                                  Yes→High                There is a growing want for organic foods

The power of suppliers:  Low

• Is there many rivals        Yes→High        There are many sellers of organic foods        
• Is there many suppliers                                                      No→Low                Distributers should be found fairly easily
• Is differentiation of the product possible          No→Low                There is really no substitute for customers wanting organic food
• Is there an important component                              No→Low                Nothing involved that is not easily acquired
• Is vertical integration possible                                          
• Backward                                                                               Yes→High                Wild Oats can buy farms
• Forward                                          No→High                Highly unlikely that farmers will buy the markets

The intensity of rivalry:  High

• Is there industry growth                                              Yes→Low        Increasing demand for organic foods        
• Is differentiation of the product possible          No→High                Products are standard, competitors must fight for customers
• Is there access to distribution channels                  Yes→High                Distributers should be found fairly easily
• Is there buyer switching costs                          No→High                It cost nothing to shop at a different business
• Is there high exit barriers                                                  Yes→High                High cost would be associated with leaving this industry

Financial/Numerical Analysis:

Strategic Group Map:[pic 1][pic 2]

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Conclusion of Strategic Group Map:

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