Financial analysis, planning, and forecasting are important to the successful growth and survival of organizations. The need for effective financial analysis and forecasting is mainly motivated by the value it brings to business decision-makers. Forecasts impact internal business operations through its effect on sales decisions, as well as internal business strategies. In addition, forecasting also affects the external business environment through its impact on share prices and market valuation. In the case study, “Whole Food Market: The Deutsche Bank Report”, the performance of Whole Food Market, Inc is affected by the significant changes in the natural and organics industry. Despite the significant growth in the industry, Whole Food Market is experiencing a stiff competition and downward pressure on its prices due to the massive encroachment of the industry by other conventional grocers, natural grocers, wholesalers, and supercentres. The essay attempts to tie the Scripture, particularly the teaching of James on business forecasting, to the modern financial and business practices.
Whole Food Market
Since its inception in 1978, Whole Food Market has managed to position itself as a market leader in the natural and organic foods industry. The organizations employed multiple growth strategies, including acquisitions, increasing same-store sales, and expanding store counts, to maintain high growth levels throughout its existence. Although the organic food industry is a low-growth industry, Whole Food Market managed to maintain a growth of 7% or higher since 2010. In 2013, the organization accrued a profit of $551 million out of its $12.9 billion worth of sales, which made it a clear leader in the organic food industry.
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In recent years, competition levels in the organic industry have grown, and thus affecting the performance of Whole Food Market. The low-price natural and organic foods offered by other outlets, such as Walmart and Kroger, have affected Whole Food Market’s sales. Whole Foods’ biggest challenge is its reputation for high prices. When compared to other market players, Whole Foods’ prices were relatively higher and thus discouraging price-conscious consumers from visiting their premises. While the organization has adopted multiple strategies, including the introduction of competitive price matching and promotional sales, its sales and earnings per shares for the first quarter of 2014 were poor.
According to the Deutsche Bank Report, the collapse of the organization’s stock price was due to multiple factors. First, the natural and organic food industry was becoming congested as more outlets offered organic foods at a relatively lower price. The increase in competition has caused a reduction in Whole Foods’ market share. As a result, same-store growth level slowed down significantly. In addition, Whole Foods adopted new competition strategies, particularly the competitive price matching, which compresses Whole Foods’ profit margin. In addition, Whole Foods’ is running out of high-income neighbourhoods, which are its primary market niche. Therefore, the organization’s rapid expansion strategy is no longer ineffective. The increased level of competition has negatively affected the performance of Whole Foods by making its growth strategy inefficient and reducing its sales and profit margin. As a result, Whole Foods’ stock value reduced, with its earning per share not meeting the Wall Street’s consensus of $0.41.
Despite the poor performance of Whole Foods in the first quarter, the organization’s shares still trade at a premium value. The bulls believe that Whole Foods has the potential to remain competitive and profitable despite the changes in the natural and organic foods industry. Whole Foods has a reputation for being a leader in natural and organic offerings. As a result, the organization still enjoys a high level of consideration among consumers who wish to try a natural and organic diet. Therefore, following consumers’ increasingly health-conscious decision-making, Whole Foods is expected to be the primary beneficiary of this trend. While its competitors might have imitated its product lines and brand, Whole Foods stands out as a leader that offers high-quality, healthy food, and thus appealing more to the health-conscious consumers. Also, while competitive pricing might negatively affect its pricing, the organization has a potential of maintaining its higher-margin sales despite the competitive price cuts through diversifying and driving sales towards higher-margin products like prepared foods, where Whole Foods can differentiate its food through its high quality. Moreover, since Whole Foods prices are higher, the organization has a wider room to adjust prices when competing with lower-cost retailers, while maintaining a good profit margin. The ample room, as a result of its higher prices, ensures that Whole Foods can adjust prices selectively depending on the location of the store while maintaining its gross margin. Furthermore, the opportunity to reduce operating expenses and thus increase the profit margin contributes to the organization’s shares being traded at a premium value. According to the bulls, Whole Foods’ higher growth rates, attractive gross margins, and its position as a market leader in the natural and organics industry provided justification for the high premium valuation.
The connection between Biblical Teaching and Financial Analysis and Forecasts
Biblical principles and concepts can be woven to teach various modern financial practices. Biblical principles have been applied in personal finance practices, including lending and borrowing, saving, insurance and budgeting, among other practices (Liang, 2012; Chan, 2009). Also, although not many, scriptures can be seen in modern corporate finance. The case study “Whole Food Market: The Deutsche Bank Report” presents various biblical perspectives on corporate finance, including the time preference of money and business forecasting. The primary objective of integrating the Christian faith, financial analysis, and forecasting, is to make the scriptures relevant in conceptualizing, elucidating, and applying modern theories of human behaviour.
In the bible, scriptures in James can be used to give warnings about business forecasting. James comments, “‘Today or tomorrow we will go to such and such a town and spend a year there, doing business.’ Yet you do not even know what tomorrow will bring. What is your life? For you are a mist that appears for a little while and then vanishes” (James 4: 13-14, Authorized King James Version). From the aforementioned Scripture, James supports the idea of planning ahead in business but condemns the imagination that people are in control of what will happen in the future. In the subsequent verse, James continues and argues that instead, people should say “If the Lord wishes, we will live and do this or that.” Most companies are aware of how uncertain outcomes are, irrespective of how efficient the planning and execution process is (Work, 2020). For that reason, organizations incorporate a risk analysis section, which discusses the risks an organization faces. In the case study, Whole Foods enjoyed high growth rates only until new competitors entered into the natural and organic foods industry. While the organization had control over the internal growth strategy that was adopted, it only had minimal control over the occurrences in the market. Whole Foods had adopted internal growth strategies, including acquisition, increasing same-store sales, and expanding store counts, which helped it enjoy its then-current success and prepare for future growth. However, since the organization did not have control over market entry, new market players, in the form of other conventional groceries, and supercentres, its strategies were not effective in addressing these changes in the market. Therefore, as pinpointed by James, Whole Foods stock prices fluctuated due to factors that were beyond their control. However, since business should still plan in anticipation for future changes, Whole Foods, still adopted new strategies, such as competitive pricing, to remain profitable in the market.
The biblical concept of time preference can also be witnessed in the case study. In corporate finance decision, the distance future matters much in current decisions. When faced with the decision to consume or defer a need, it reflects the subjective rate of time preference, which can be compared to the modern concept of interest or discount rates (Liang, 2012). Discount rates measure the rate of substitution between the consumption decision and time. In the modern corporate market, individual’s inter-temporal allocation decisions are facilitated by market discount rates, which combines production and consumption possibilities. Since the biblical times lacked the decision-maker discounts future prospects, the subjective preferences were based on inter-temporal trade-offs.
Today, the time value of money is among the primary concepts governing corporate finance (Liang, 2012). The mathematical concepts of discounting and compounding are often included in the computation of interest rates. Today, impatience, greed, and fear are some of the main factors contributing to the disruption of the stocks and the financial market. Despite the then-current performance of Whole Foods, the bulls’ valuation of the organization’s stock prices was still very high; Whole Foods’ stocks traded at a premium value. The value of a future promise is evident in the bulls’ analysis. In the Old Testament, a tired Esau offered to trade his birthright for a pot of stew and some bread to Jacob (Genesis, 25: 29-33, Authorized King James Version). Esau’s desire for instant gratification overwhelms the promises of wealth and respect from a future inheritance. By giving away the rights of a first-born, Esau loses a double portion of his father’s inheritance (Deut. 21:17, Authorized King James Version) and spiritual blessings (Gen. 27: 1-4, Authorized King James Version). Similarly, although Whole Foods’ earnings per shares were low in the first quarter of 2014, the share prices were still trading at premium prices due to its future prospects. The position of the organization as a leader in the natural and organic foods industry, in addition to its attractive margin and higher growth rate, were used by bulls to determine the future prospects of the organization.
Karen Short and her team were reluctant to overwrite the previous financial analysis on Whole Foods despite the huge disparities between their prediction and the actual quarter performance. According to the Scripture, patience is a manifestation of faith and a fruity of the spirit (Heb. 6:12, Gal. 5:12, Authorized King James Version). In situations such as the one experienced by Short and her team, the uncertain distant future is often overlooked. Biblical illustrations, from the fact that Israelites were willing to trade-off Canaan for the instant satisfaction of their physical need in the wilderness, to Saul’s stubbornness prepared burnt offering despite God’s advise against, can be used to show the importance of patience in corporate financial analysis and forecasting (Liang, 2012). Short and other the bulls valued Whole Foods’ highly due to patience and expectation that the organization will use its previous and current market advantage and maintain better performance.
Conclusion
Despite the exceptional historical performance by Whole Foods Market, Inc, the organization reported a drop in its earnings per share, which resulted in a drop in the price of its shares. The significant drop in the performance was mainly a result of the increase in the number of competitors in the organic foods industry, which was beyond its control. Biblical perspective on business forecasting in the book of James also alludes to this occurrence. Despite the significant downward changes in its first-quarter financial performance, the organization’s share prices still traded at premium values. The time preference and the time value of money, in the form of the future prospects, can be tied to the biblical story of Esau, who gave up his birthrights for instant gratification. The integration of biblical concepts and principles to modern corporate finance practices can help Christians in making financial decisions.
References
Chan, A. (2009). Microeconomic applications to the Bible: An extension to Stamm’s arguments in 2001. Christian Business Academy Review , 4 .
Carroll, R., & Prickett, S. (Eds.). (2008). The Bible: Authorized King James Version . OUP Oxford.
Liang, E. P. (2012). Modern finance through the eye of faith: Application of financial economics to the Scripture. Christian Business Academy Review , 7 .
Work, T. (2020). Business Forecasting (James 4:13–17) | Bible Commentary | Theology of Work. Retrieved 4 May 2020, from https://www.theologyofwork.org/new-testament/general-epistles/james-faith-works/business-forecasting-james-413-17
