Wild Oats Case Study
INTRODUCTION: Founded in 1987, Wild Oats Markets, Inc. is a leading natural and organic foods retailer in the United States. Headquartered in Boulder, Colorado, the company operates over 100 natural food stores in 25 states and Canada under several names, including Wild Oats Natural Marketplace, Henry’s Farmer’s Market, Sun Harvest Farms, and Capers Community Market. The owners, Michael Gilliand and Libby Cook, lacked experience in the natural/whole foods market and the first store got off to a slow start.However, with consumer’s peaking interest in wholesome foods produced in an earth-friendly, responsible manner, sales soon increased and the company experienced rapid growth from 1991 through 1999.
Even though they have remained in the number two spot, behind Whole Foods Market, Wild Oats growth from 2000 to the end of the case study (2006) has been less than stellar. They have reported cumulative losses because of several restructuring efforts and showed an average growth rate of only 6 percent annually.During the same period, Whole Foods grew at 21 percent and showed healthy profits. Wild Oats attributed the slow growth to greater competition from conventional supermarkets jumping on the “green” bandwagon. However, some analysts believe that the company’s poor performance was a result of their inability to recover from problems created by a string of acquisitions that did not bring the sales and profits that were expected.
This paper will attempt to identify and evaluate Wild Oats’ strategy as well as discuss the advantages and disadvantages of that strategy.Their strengths, weaknesses, opportunities, and threats will be covered and their financial performance evaluated. Finally, issues that Wild Oats’ management needs to address will be outlined, and recommendations offered for each. STRATEGY: Wild Oats’ original strategy was focused differentiation. They wanted to provide high quality natural foods to health/quality-conscious consumers in an educational and entertaining store environment at competitive prices. The target market niche is big enough to be profitable and offers good growth potential.
The core elements of their operation strategy included heir store formats and locations, high product standards and competitive pricing. However, with the company’s introduction of a new supermarket format, a partnership with Stop & Shop supermarkets, and the introduction of lower-priced traditional products, their strategy appears to have evolved into a “Stuck in the Middle” strategy. They seem to be trying to find a compromise between narrow and broad market appeal. Companies that adopt a middle-ground strategy rarely produce sustainable competitive advantage or a distinctive competitive position. STRENGTHS:Purchasing and Distribution – Wild Oats’ primary supplier is United Natural Foods, Inc.
(UNFI), the largest supplier of natural foods in the U. S. The case states that many of the logistics challenges that once plagued UNFI seem to be solved. This should reduce the number of stock-outs and allow for an increase in sales growth rates. Product Range and Quality – Wild Oats’ offerings include grocery, juices, wines, produce, meats and poultry, seafood, bakery, gourmet and ethnic foods. Other products are floral services, pet food, and an extensive range of private-brand products.
Their private label products are recognized as being of high quality, unique, natural, and organic. Customers know that no matter what they grab off the shelf, it is good for them. Social Responsibility – Not only does Wild Oats offer products produced by socially responsible vendors, they are big on giving back. The company instituted a charity work benefit, paying employees for 1 hour of charity work per every 40 hours of Wild Oats work (up to 52 hours per year). They have also established the Wild at Heart Foundation, which supports humanitarian and environmental groups.
WEAKNESSES: High Levels of Debt – While profits and sales were up, Wild Oats was acquiring too much debt because of numerous acquisitions and restructuring. By 2006, the company was in over its head and could not compete effectively with Whole Foods. Insufficient IT – Even though the company has commenced IT programs for EDI, they still have a weak IT infrastructure with a proliferation of systems. OPPORTUNITIES: High Growth Market – the holistic health area is growing quickly and Wild Oats has already begun tapping that market.The popularity of organic market cafes is increasing and Wild Oats already has these cafes in many of its stores. Vertical Backward Integration – Whole Foods has the opportunity to expand its distribution center in Denver, and enlarge the commissary kitchens to produce even more of the deli food, baked goods, and take-out food for delivery to their stores, thereby replacing some suppliers and assuring their quality standards are met.
E-Commerce – Wild Oats currently offers their private label brands through Peapod. com and Amazon. com.The opportunities on-line are endless as long as the commissary kitchens and distribution centers can keep up with the demand.
THREATS: Competition from conventional grocers and mass retailers – as they add organics to their product offerings, the resulting competition could drive prices down and create gross margin erosion. Competition from Whole Foods – Whole Foods competitive store openings have the capacity to negatively impact Wild Oats sales, and as has been demonstrated, have been a source of pressure. FINANCIAL PERFORMANCE:Between 1995 and 2000, Wild Oats grew from $98. 5 million in sales to $838 million, translating to a compound annual growth rate of 53 percent. With few exceptions, it has been all down hill from there. By 2006, Wild Oats was showing annual growth of 1.
3 percent, while Whole Foods reported comparable sales growth of 10 percent. Management’s acquisition-happy growth strategy significantly hurt the company in the late 1990s and early 2000s. When the company went public in October of 1996, their stock opened at $25. 75.In January of 1997, the priced had dropped to $13 per share. In 2000 and again in 2001, the company took charges of $42 million and $50.
4 million, respectively. These added to their already large debt burden and Wild Oats reported operating losses in both years. The company showed minimal profits in 2002 and 2003, but was in the red again in 2004. With cash tight, the CEO / president is taking a more conservative approach with fewer acquisitions and a more aggressive marketing effort. ACTION ISSUES AND RECOMMENDATIONS: Expand e-commerce through Peapod, Amazon, and others to large cities. This is an opportunity for Wild Oats to open up the currently untapped sales platform for organic foods, particularly in densely populated cities.
The revenues can be high without significantly adding to costs. • Continue to upgrade IT management, allowing for better inventory control, reduced shrink, and better control over labor costs. • Realign a strategy in keeping with Wild Oats’ heritage that at the same time defines the company’s competitive position – that is a focused differentiation. SUMMARY:The population’s increasing concerns about the purity and safety of food due to the presence of pesticide residues, growth hormones, artificial ingredients and other chemicals, not to mention genetically engineered ingredients (Franken-foods, as they are called in Europe), should continue to drive sales of organic food stores in the U. S. in the future.
If Wild Oats’ management will be more disciplined, keeping acquisitions and new store openings more deliberate, as well as implement necessary capital projects with IT and distribution, investors should start seeing the improvements in profits they have been waiting for.
