BLL

October 16, 2008

Wild Oats Market

Wild Oats Market is a profitable natural foods retailer which saw significant

growth during the late 1980s and 1990s. By 1999, the company had amassed net

profits of $18 million. After the company’s massive acquisition spree in 1999, net

profits began to decline, and Wild Oats struggled to remain competitive with Whole

Foods, its main rival. To this day, the company has lost focused and now struggles

to remain a competitive store in the natural foods industry.

Wild Oats Business Strategy

Wild Oats has a distinct strategy that provides natural foods and organic

products to its consumers. The company focuses on providing goods which are

“produced in an earth-friendly, responsible manner.” 80% of Wild Oats’

merchandise is organic, allowing it to be flexible among different consumers. Much

of the merchandise sold is locally grown, and has met specific standards set by Wild

Oats, including, but not limited to: preservative-free, cruelty-free and free of any

chemical additives. This approach counters much of the merchandise sold by

competing supermarkets, allowing Wild Oats to cater to a niche market.

The company spends most of its capital in acquiring other natural foods

markets, and then renovating them to meet company desires. Stores tend to be

stand alone businesses or in areas of high traffic, with the size of each store varying

greatly around the country. In its infancy, Wild Oats slowly acquired stores in

markets where they could be successful, then began to ramp up their acquisitions

during the mid-1990s. The company employs many regional directors, who must

oversee the work of many store managers and department managers. Wild Oats

maintained the names of most of its acquisitions, while widely varying the product
selections in each store and using more than 400 different private-label items. The

company maintained over 3000 suppliers, while 25% of its goods came from one

supplier.

Wild Oat’s main customers are younger, educated women with a modest

income. The stores focus on the in-store experience of its customers, while offering

cooking classes, recipes, nutrition information and café services. The stores

advertised its products within its stores, often offering discounts and coupons. To

relate its services to its customers, Wild Oats remains active in donating profits to

charities. Many of these profits are also spent on employees, who receive

customized benefits, stock options and profit sharing opportunities.

Some positive aspects have arisen from Wild Oat’s strategy. The company

has successfully catered to both organic and non-organic shoppers, allowing it to

compete with regional supermarkets. Its dense line of products and in-store

programs provide consumers with a unique shopping experience which cannot be

found in other grocery stores. Wild Oats offered a great atmosphere for its

employees, who were eager to help improve the stores and help customers with

their needs.

Though Wild Oats has had some success, its business strategy contains many

flaws. The company relies on almost 30% of its goods from one supplier, while

stocking close to 500 private label items. Private labels within stores make up only

20% of sales; however, Wild Oats continues to double the amount of labels, making

distribution methods more difficult. This has caused many out of stock items, partly

due to a poor technological infrastructure. Many of the store’s items do not sell

well, which has greatly increased inventories. The company lacks any

standardization in its stores, with stores ranging in size from 2,700 square feet to
45,000 square feet. Stores were customized to meet local tastes, with product

orders being decided by store managers. This further stressed distribution centers,

many of which were inefficiently located near small numbers of stores. Wild Oats

ignored the placement of many of its stores, expanding into areas where its

distribution centers could not effectively deliver to. One problem that Wild Oats has

is too much management. With too many managers having influence over how the

stores are run, there is little direct leadership to turn around the company. The

stores have also ignored the tastes of men, while only focusing on women. This has

inhibited the company from diversifying its brand and image to increase sales with

men instead of solely women. A final problem with Wild Oat’s strategy is that it

operated under too many banners. Customers

Wild Oats Financials

Wild Oats has suffered financially for more than five years. Since 2000, the

company has maintained a positive net income only three times. Currently, net

income is about $5 million, more than $100 million less than its rival Whole Foods.

The company’s return on sales has not been over 1% since 1999, and has taken

steep declines since then. While gross profits have declined, Wild Oats has failed to

increase sales. Wild Oats has seen widely erratic operating profit margins, with

significant declines as much as almost 5%. This shows a poor ability by Wild Oats

to control costs within the company, losing many of its potential profits to inefficient

distribution methods and excessive renovations to its stores. Even though Wild

Oats made many acquisitions, the company maintains a very flat market

capitalization, while failing to improve its equity of the company.

 After spending significant amounts of capital on acquisitions, Wild Oats took

on significant debt from 1998 to 2000. Though many acquisitions were made, the

return on assets declined significantly,

at times below zero. The debt to equity ratio for the company peaked at 3 in 1995,

but dropped significantly until 2005, when the ratio increased to 2. Since 1995,

Wild Oats continued to take on more debt, increasing its liabilities. The company

has struggled to keep its debt low, which has significantly hurt its ability to increase

its profits and raise more capital. Wild Oats financials show the struggles the the

company has faced with its inventory, as its turnover ratio has remained flat, yet

5% lower than Whole Foods. The main issue with Wild Oats’ financials is that the

company suffered sharp declines in most financial ratios, while Whole Foods only

suffered small losses during the same time period. Whole Foods has been able to

adjust to downturns in the market, while Wild Oats took significant losses.

SWOT Analysis
Strengths

• Wide selection of products, including private label brands

• Unique store experience, offering many in store services
• Cater to both to shoppers who look for organic and non-organic products
• Flexible store formats to cater to different markets
• Provide unique benefits for employees to use at their discretion

Weaknesses
• Too many suppliers, with one supplier providing 30% of goods
• Inefficient information system that did not effectively connect with suppliers
• Too many store brands, preventing customers from gaining full loyalty to one
brand name store
• Excessive number of private brands, which accounted for only 20% of sales
• Inefficient store locations, preventing effective distribution to stores to keep
products in stock
• Too many size varieties in stores, which limits ability to standardize
procedures
• Excessive number of managers, preventing solid decisions from being made
and carried out
• Competing solely with Whole Foods overshadows Wild Oats’ strategy of
differentiation
o Overlapped in 75% of markets, instead of focusing on profitable
locations

Opportunities
• Sell organic products in special sections in supermarkets and expand online
shopping channels
• Open stores in markets where Wild Oats does not directly compete with
Whole Foods
• Offer broader selection of products to diversify self from Whole Foods
• Provide more appealing merchandise and advertisements for men
• Offer more prepared meals for consumers
• Open more distribution centers to make distribution more efficient

Threats
• Potential takeover by Ronald Burkel or Whole Foods
• Could default on debt and go out of business
• Could lose distribution agreement with UNFI due to fallout from switching to
TOL
• Potential and current customers may start buying organic foods from more
convenient supermarkets

Wild Oats has put itself in a difficult position, where it has little current strength

that allows it to remain competitive and profitable. The company has severe

weaknesses that must be addressed in order to turn around its operations. Wild
Oats must change its current strategy in order to become a formidable competitor

for Whole Foods. The company has strayed far from its original business layouts,

and needs to implement past strategies that will allow it to grow again.

Competitive Strength Analysis

Strength Weight Wild Oats Whole Foods

Measure
Product .20 8 6
Selection
Product .10 4 8
Availability
Employee .05 7 5
Service
Financial .15 3 8
Resources
Technology .10 3 7
Resources
Distribution .15 3 7
Services
Cost Positioning .15 6 6
Store .10 8 5
Environment

Total Strength 1.0 4.45 6.6

Rating

The selection of products for Wild Oats’ and Whole Foods’ customers is the

most important aspect of success for either company. Both companies target a

niche market, where Wild Oats provides a wider selection of private label brands

then Whole Foods. Other important measures are the abilities to raise cash, have

efficient distribution services and provide low costs to consumers (due to the influx

of organic products in supermarkets). Whole Foods dominates its rival when

comparing the ability to keep items in stock and having efficient distribution

methods. Though little information is given about Whole Foods, based on the

company’s performance, its distribution services must be solid in order to remain

successful. Whole Foods is in an excellent position to raise capital, recently

decreasing its total long term debt, while Wild Oats has taken on more debt. Whole

Foods is in a position to use retained earnings to fund any expenditures, giving the

company more available capital than Wild Oats. Wild Oats has struggled to create a

solid infrastructure, delaying upgrades to its computer systems until its distribution

centers were under great amounts of stress. Wild Oats provides its customers with

a very unique shopping experience, offering services which are not easily found in

other stores. This attribute is one of the company’s strongest, creating a stronger

loyalty to its stores.

Issues to Address

Wild Oats has significant problems that it must address in order to become a

strong competitor to Whole Foods. Management at Wild Oats needs to focus on the

amount of long term debt the company has taken on. The company’s assets are

backed 65% by liabilities. With a poor rating on its debt, if Wild Oats defaults, it will

have to sell off its assets to repay Bank of America. Wild Oats needs to stabilize its

debt, while investing in operations and projects that will be successful.

The company needs to address its distribution methods for its products to its

stores. Wild Oats has spent the past several years setting up stores where it will

directly compete with Whole Foods, ignoring the shipping routes for many of its

products. This problem has been a significant factor in stock outs in many products.

Wild Oats relies on almost 40% of its distribution from UNFI, so if a problem arises

with UNFI, Wild Oats could lose its businesses. Management has placed the survival

of its company in the hands of one distributor, and it needs to analyze other

alternatives to this current strategy.

Wild Oats needs to reconsider the products it offers to its customers. The

company provides more than 1000 private label brands, making it very difficult to
keep these brands stocked in its shelves. Many of these products do not

consistently sell well, so inventories increase significantly. With so many brands,

and a poor distribution system in place, Wild Oats needs to address which products

they should stock. The company has other opportunities to sell its goods through

other retail channels, and should analyze the benefits of alternative solutions. Wild

Oats has started mixing its products with prepared foods offer in supermarkets to

look more like a typical supermarket, straying away from its original business

model.

Management’s final issue is the number of store names Wild Oats currently

carries. The company currently carries more than a dozen different monikers, with

stores ranging greatly in size. Wild Oats has little standards within its stores,

making it difficult for customers to know which stores are subsidiaries of the parent

company. Management at Wild Oats needs to address the naming of its stores in

order to bring some standardization within the company.

Recommendation

Wild Oats has to restructure its stores in order to become a profitable

company. The company needs to consolidate the number of stores that it has,

while changing the name of its stores to “Wild Oats”. Its stores have too many

different names, and some control needs to be introduced to the company. By

using one name for all of its stores, Wild Oats’ will create more brand awareness for

its stores.

Wild Oats currently has too many stores that are unprofitable, and by scaling

down the number of stores it owns, it can save on operating expenses. Too much

money is spent renovating stores, while the size of each store varies widely. By

reducing the number of stores, Wild Oats can begin to pay off some of its
outstanding debt, allowing the company to increase its net profits in the future. The

current distribution methods would be improved through this strategy, as stores

that remain open could be located closer to distribution centers. The company can

also target markets where it does not compete as heavily with Whole Foods,

allowing it to be the dominant natural foods retailer. Wild Oats cannot close a

significant number of stores, but reducing stores that vary greatly from the mean

size of each store will bring some standardization to the business model.

Wild Oats needs to introduce another large distributor to its business,

allowing the company to have another resource for its products. With another

distributor, more distribution locations will be available, preventing mass stock outs

of many products. Along with adding another distributor, Wild Oats should cut back

on its private label brands and its smaller distributors. These brands only account

for about 25% of sales, and accountable for why there are so many stock outs. With

more than 3000 distributors, it is too difficult for Wild Oats to keep its products in

stock at all times.

A final strategy Wild Oats needs to implement is to introduce more of its

goods into supermarkets. The company can introduce its products into groceries

that are within the same markets that Whole Foods serves, allowing it to still remain

competitive with the company. Wild Oats needs to use alternate channels to sell its

products, and by leasing some space in supermarkets it can introduce its goods to

new customers. This would allow the company to attract new customers to its

stores, while saving money by not acquiring another grocer. If Wild Oats follows

these strategies, it can become a profitable company, while being a serious

competitor to Whole Foods.