Trader Joe’s vs. Whole Foods Market

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Trader Joe’s vs. Whole Foods Market: A Comparison of Operational Management

15.768 Management of Services: Concepts, Design, and Delivery

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Grocery shopping is more diversified and evolved than ever before. Individuals across the nation have access to everything from exotic products to unique delivery services. Often, specialty stores have limited locations whereas specialty services have a limited reach. However, two retailers have expanded to hundreds of locations while adhering to unexpected market positioning for previously untargeted market segments. Whole Foods Market and Trader Joe’s have become household names while also innovating beyond regional and national traditional chains. Despite comparable size in terms of locations, each store’s growth has operated using a very different model. This document will address the various facets for both Whole Foods Market and Trader Joe’s in order to understand how each business model has won a piece of the market pie and share of wallet. Whole Foods Market Background and History In 1978, John Mackey had a vision to build a store that would meet his desire for whole, natural foods as part of the movement away from artificial, processed foods. Mackey was a college dropout, but against all odds he was able to borrow $45,000 in capital financing and open his first store for what would become Whole Foods in Austin, Texas.1 By all accounts it has been an incredible success and the most recent annual report (2009) reveals that there are 284 stores across most of the United States with a handful in Canada and Great Britain.2

2009 Sales (000s)
1 2

2008

2007

2006

$8,031,620 $7,953,912 $6,591,773 $5,607,376

http://www.wholefoodsmarket.com/company/history.php Whole Foods Market Annual Report (2009), pg. 3

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# of Stores Store Size (sq.ft.)

284 37,000

275 36,000 $570,000

276 34,000 $617,000

186 34,000 $593,000

Weekly Sales (/store) $549,000

To best understand Whole Foods’ evolution over the last 32 years, it is important to explore a variety of facets of the organization, ranging from its distribution networks to retail location positioning.

Distribution Networks As Whole Foods has increased the number of retail centers that it operates, it has suffered concomitant growing pains in efficiently managing distribution of products to its stores. The chain is growing at such a fast rate that it struggles to keep up with demand for products and keep shelves stocked. The single biggest reason for inefficiency is Whole Foods’ almost completely decentralized back-end. It has 12 geographic divisions, a national headquarters in Austin, regional distribution centers, bakery facilities, kitchens, seafood processing facilities, meat and produce procurement centers and a specialty coffee/tea procurement operation.3 Each geographic division has its own office, regional president, and oversees its own store network. Many outsiders scoff at its supply chain, considering it amateurish and lacking in professionalism. But with ample margins that Whole Foods commands for its products, it does not face immediate pressure to enhance efficiencies. Dennis Szeszko, an author of this case, had the opportunity to have a private meeting with Whole Foods CEO, John Mackey, when he visited MIT at the end of October. Mackey explained that store managers are empowered to make purchasing decisions independently of the regional offices. As a result, it is possible for Whole Foods to buy potatoes from a local farmer 3

Whole Foods Market Annual Report (2009), pg. 10

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who would never dream of selling his produce to a large grocery chain. Essentially, Whole Foods is differentiated because all products are sourced locally. The stores operate under minimal governance and are given maximum freedom to source a product mix that is appropriate for their location. Whole Foods stores operate under the premise that they need these freedoms to meet the...
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