MARKETS VS. INDUSTRIES --Natural Competitor
How Whole Foods CEO Mackey Intends to Stop Growth Slippage;
By STEVEN GRAYWSJ, December 4, 2006; Page B1

This article (an interview by the WSJ) takes the concept of “organic” growth to a new level. It is an excerpt of the growth story of Whole Foods, the leading retailer of “organic” foods.

The key point I want to highlight is the importance of understanding the difference between the industry you participate in and the markets you serve. In MDG, we drive businesses to define their “Addressable Market Space” and then challenge them to expand it (for our alumni, this is the “brown vs. green box” discussion). The logic is that you need the space to grow and defining your addressable market space too tightly will unnecessarily restrict you (for our alumni, remember the Wawa example).

The problem we constantly encounter is that people define their markets by the industry they are in. As pointed out in this article, many of us participate in global industries but serve very local markets. Confusing them can be disastrous. Think of how you define your business in terms of industries and markets and then challenge yourself if it is defined properly. Do you have different competitors in the two categories? Are you organized to win in both environments?

It is also a illustration of how difficult it is to maintain growth momentum......

AUSTIN, Texas -- Since its founding here in 1980, Whole Foods Markets Inc. has pushed organic asparagus and cage-free eggs into the mainstream. With sales last year of $5.6 billion at 189 stores, it has redefined the American grocery experience on its way to becoming the world's largest organic and natural grocer. Lately, though, the highflying company has lost altitude, raising questions about who will define the next step in the evolution of organics: Whole Foods, or a mass-market retailer like Wal-Mart Stores Inc.?

Last month, Whole Foods presented an unusually grim portrait to investors, projecting same-store sales growth in fiscal year 2007 of 6% to 8%, down from 11% in 2006 and a peak of 14.9% in 2004. While most other retailers can only dream about that pace of growth, for Whole Foods, it represents the first significant sales bump after years of fast, steady growth. On Nov. 3, the company's stock tumbled 23%...............

WSJ: Is the natural and organic movement a fad and is it fading?

Mr. Mackey: Something that's been going on for 30 years is hardly a fad. For people who are really interested and committed to an organic-food lifestyle, it's not a fad for them any more than Christianity is a fad for Christians, or Judaism is for Jewish people. It's a value system, a belief system. It's penetrating into the mainstream. I don't see that disappearing anytime soon..........

WSJ: Is the market saturated? Is that why your same-store sales are growing more slowly?

Mr. Mackey: Same-store sales are lower for a multiplicity of reasons. Greater competition. There's cannibalization. I read about the slowdown with the consumer, they're spending less. Is there saturation? Certainly, some of our markets have more stores than others. We've had three consecutive years of double-digit same-store sales growth and our sales per square foot are $900. It's harder to raise the bar if you keep raising it. You can't compound at the same rate. No retailer ever does………..

WSJ: How much autonomy do individual stores have and why?

Mr. Mackey: Competition is on a local basis. And this is a reason to be decentralized. The basic philosophy is, we have a culture of empowerment. If it's a globally sourced product, like private-label, then we'll want team members to sell that in the store. We also allow each store to customize its product mix. If you go to the Austin store, there will be all kinds of small, local producers and vendors -- from salsas to tofu to tabbouleh to hummus, to hundreds and maybe thousands of products that are unique to that store. There'll be local tomatoes that we might sell in an Austin market, and certainly not in Chicago. It's the team leaders making those decisions.

We're being more aggressive on price. If [a competitor carries] the exact same product, then we're going to sell it at a matching or lower price. Those are decisions being made locally. We've got 189 stores. They're all faced with their own unique competitive environments. It's not necessary for me to know everything that's going on everywhere. I could find out, if there's a reason.