Whole Foods Market: It’s Organic

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John Mackey and Renee Lawson Hardy the co-founders of the current Whole Foods Market simply wanted to provide quality healthy food to the American consumer. This was about three decades ago when the first store opened. According to Mackey, helping people eat better was his priority, not making money. Happily, for Mackey and Lawson, the residents of Austin, Texas were hungry, no pun intended, for just this type of product. At the time, though there were several small independent health food stores, there was not a full-sized grocery store. This is what set Mackey and Lawson apart from their competitors, their enormous sized health food grocery store was a huge success and now Whole Foods Market (WFM) is not only a household name but is recognized as a leader in providing healthier choices for today’s families.

Mackey and Lawson, a young couple, twenty-five and nineteen borrowed forty-five thousand dollars from their friends and family to open the grocery store Safer Way. This name sounds familiar because it is a play on the name of the major grocery store retailer at the time Safeway Foods. Mackey and Lawson's food alternative retail location was a vegetarian store and their suppliers were local farmers (Collins, 2013). With no money for living expenses, Mackey and Lawson lived on the third level of their commercially zoned grocery store, a converted three-story house. This couple met when they were part of a grocery co-op. Mackey feels if he had not been a part of this co-op and introduced to healthier eating becoming a vegetarian that WFM might not have happened (Collins, 2013). Two years after Safer Way opened their doors, Mackey and Lawson merged their store with another similar food-conscious store Clarksville Natural Grocery with its owners Craig Weller and Mark Skiles, and this resulted in the opening of the first Whole Foods Market on September 20, 1980 (Whole Foods Market History, 2014). This foursome invested in a market that some thought would not survive because of the eclectic food types, catering to upper-income individuals, and the higher food prices. However, history proved differently.

Whole Foods Market’s first retail location was in Austin, Texas. Today there are 342 stores in the United States, Canada, and the United Kingdom. The growth of this health-conscious conglomerate happened over the years by strategic acquisitions of profitable independent stores throughout the United States. Mackey’s idealism and respect are exhibited in his openness about the contributions of these retailers to the success of WFM, as the website provides an in-depth summary of each acquisition and its contribution to promoting healthier food choices (Whole Foods Market History, 2014). After four years in Austin, Texas WFM branched out into the city of Houston when it purchased the Whole Foods Company, and shortly after, on the west coast, a new store was built in Palo Alto, California. Subsequently, WFM began aggressive acquisitions over the next few years, which help to accelerate the growth rate of WFM in other geographical locations. In 2002 WFM opened in Canada and in 2004 through the acquisition of the United Kingdom’s grocery chain Fresh & Wild, it opened seven stores. Holistic eating is a worldwide affair that WFM is taking advantage of.

What Does Whole Foods Market Sell?

The name WFM and organic are almost synonymous. The healthy choice retailer is known for its organic food choices from fruits and vegetables to an array of seafood and meat. The selection of produce is a careful one. Several criteria must be met, especially from agriculturalists providing organic produce. As explained on the WFM website, organic conceptualizes a technique that stresses using resources that are can be used repeatedly when treated properly such as soil. It further explains that it supports “Agricultural management practices that promote healthy eco-systems and prohibit the use of genetically engineered seeds or crops, sewage sludge, long-lasting pesticides, herbicides or fungicides” (Organic Food, 2014). The beef is grass-fed, pork is purchased from family farms that ensure certain standards are met, and the chickens are fed an organic diet and raised caged free. WFM carefully chooses its farmed raised seafood from reputable companies who adhered to their strict guidelines such as not adding additives to extend the shelf life or to add color enhancements. The same criteria extend to merchants delivering wild-caught seafood as well.

As far as their packaged, canned, and boxed foods a variety of healthier choices are available. WFM does not just sell healthy food, but also skin care, vitamins, soaps, paper products everything a traditional supermarket sells, but their items are carefully chosen to keep in mind the environment and that their consumers are savvy when it comes to labeling and ingredients. WFM also offers a hot buffet of cooked foods, and some locations have full-service restaurants. Although the food prices are 10% to 30% higher it does not dissuade loyal customers who understand that quality cost extra.

Supply Chain Value

The WFM supply chain begins with its customers and how best to satisfy their needs and make sure that they keep coming back again and again. WFM holds itself to specific quality standards and this is what drives its decision about which vendors to use as suppliers. In the agricultural arena, it begins with organic farmers. This is the foundation of the end delivery to the customer. WFM’s vice president Margaret Wittenberg was selected to establish industry-wide organic standards in 1995 (Whole Foods Market History, 2014). Since then WFM has won awards for its high-quality standards in the organic food trade. These high standards also transfer to their seafood and meat suppliers. WFM does not have centralized suppliers (Whole Foods seeks local vendors for partnership, 2011). The vendors are regionalized and are at each store manager’s discretion on which ones to use. While there are specific standards, but this is an opportunity for small vendors to get their products on the shelf of a local WFM. The employees at WFM are some of the highest-paid retail employees. Employees that are satisfied with their work environment result in the end goal of WFM of retaining loyal customers.

In 2013 their average hourly wage was $19.00 and their average salary just under $40,000 (Peterson, 2014). Customers not only enjoy the food, but they also like the eclectic culture which may vary from store to store or region to region.

However, opponents of using a decentralized supply structure believe that it undermines the overall profitability of WFM. They feel that other retailers who use a centralized supply approach are more competitive and will eventually undermine the profitability of WFM (Competitive Analysis of Whole Foods, Inc., 2010). However, thus far, the business acumen of treating vendors and employees as part of the WFM family has been a strategy that has worked. To make the vendor billing process easier, WFM has a vendor site and staff at its Austin, Texas headquarters dedicated to making the vendor process seamless.

Employees are an important asset to WFM and the investment the co-founder makes in them is obvious. They are some of the highest-paid retail employees and to prove it Mackey makes payroll information public. This has been met with criticism from internal and external parties. Mackey has been approached by employees asking why some at the same level are paid more and his answer was because they do more (Patton, 2013). However, employee retention at WFM is significantly higher when compared to other retail stores. Employees encourage the diverse atmosphere as they happily engage with the customers taking ownership of their personal contribution to each store.

Walter Robb shares the role of the other chief executive officer of WFM with Mackey. He also shares the same ideas that their employees bring significant value to the table. He considers that this is one of the secrets of their success. Creativity and flexibility are stressed to their seventy-eight thousand employees (Colvin, 2013). This openness to employee initiatives and ideas fosters a competitive work environment which is not just about a paycheck. Robb does not speak in terms of idealism, but realism as the top management can earn no more than nineteen times the average annual salary of their employees. This is a significant departure from what other CEOs and CFOs are paid which tops more than 500 times the average salary of their workers. Therefore, when Robb delivers the message to his employees that they are traveling together on this journey, it is a believable quest. WFM has honed in on the fact that achieving high levels of work quality only begins with salaries, but its longevity is steeped in how people are treated and appreciated.

While other retail turnover rates skyrocket at 100%, Robb notes that WFM’s in only nine percent. In management, the turnover rate is three percent. Team building, Robb believes, directly impacts employee satisfaction (Colvin, 2013). Everyone belongs to a specific team, even CEOs Robb and Mackey. This fosters the concept of team building and the positive notion of teamwork. At WFM teams are awarded money for their efforts and they all share equally in bonuses. Empowering people are important as they are the front line of contact for WFM customers.

Competition

The strategy of WFM co-founder Mackey is to continue offering healthier options for its customers. The movement into Canada and the UK in the last few years lays the footprint for additional global expansion. Mackey intends to increase WFM to 1000 stores. The question is whether it will happen through acquisitions or new store locations. The answer, based on their history is a combination of both. The store in Canada opened in 2002. Since brand recognition is not as strong, the store struggled somewhat in the beginning; however, the expectation is that it will grow to one billion in the next ten years (Patton, 2013). The stores in the UK, which are in the greater London area, have received mixed receptions, and some stores are selling well while other locations are not. However, Mackey is not deterred and believes that longevity will produce the desired results.

Mackey acknowledges that Trader Joes is probably their most aggressive competitor, especially since some perceive their pricing to be lower. Conversely, WFM has answered back with its price strategy, developing a store brand organic line, 365 Foods. With the number of consumers demanding organic increasing over the years, major grocery chains like Kroger have added organic and specialty food choices to capture some of WFM customers. So have other stores like Wal-Mart and Meijer. However, ask any WFM loyalist and they will tell you that the product offering in these stores cannot stand up to the standards they are accustomed to. However, other holistic competitors such as Sprouts Farmers Market and The Fresh Market are showing that they are serious competitors as they cautiously add stores. Also, WFM stocks did not do as well as stockholders anticipated (Competitive Analysis of Whole Foods, Inc., 2010). This is because the comp-sales were lower than expected and the corporate forecasts dropped minor percentage points as well.

Mackey’s partner and co-CEO Robb notes food pricing as the main barrier between WFM and other large retailers. However, over the years this has become less of an issue as their marketing efforts have been directed towards price competitiveness. While pricing for some may be an issue, quality is not. WFM does not have a standalone competitor that equals their product quality or line of products sold. WFM is the Audi or Mercedes Benz of food. The consumers that shop at Wal-Mart are probably not the same ones who shop at WFM. Colvin’s in his Fortune Magazine article asks WFM CEO Robb if their customer is “Someone with a graduate degree, driving a Prius, with the radio on NPR. Accurate or off-base?” (Colvin, 2013). Robb answers affirming this is true, but that he expects their customer base to expand beyond this. However, affluent consumers are a significant part of the WFM customer base.

Quality the Foundation of WFM

The founder, now billionaire Mackey built his empire on the ethics of quality. This objective to promote excellence and non-conformity is the cornerstone of his success. A small vegetarian grocery store opening in 1978 has grown into the conglomerate seen today. Initially, Mackey’s customer base complained that his prices were too high, even today some jokingly refer to WFM as Whole Paycheck because their prices are expensive (Collins, 2013). But Mackey’s focus was a niche customer base and included people with similar health ideologies who were willing to pay extra to eat well.

WFM endorses healthy food, period. Their website not only promotes their brand, but it also encourages the benefits of eating healthy by detailing four main directives. The strategy here is to first explain what pure food eating means. Pure food has not been genetically modified (GMO), meaning that the original DNA of the food has not been changed or modified. Many conversations are going on about the long term health hazards of eating GMO foods. While WFM sells GMO products they are committed to clear labeling to assist those who want to avoid them. Pure food also has more nutrients and taste better. The website also discourages eating foods that contain artificial preservatives, additives, colorings, and hydrogenated oils. Other directives are to consume healthy fats, plant-based foods, and a diverse nutrient blend of foods. WFM has positioned itself as the expert thus making its customers feel secure about shopping there and paying higher prices.

What Does Not Work

While WFM is positioned as one big happy family, some see problems in their infrastructure. For example, they are anti-union and this is rather contradictory to their open culture. Mackey is on record as saying that “The union is like having herpes. It doesn’t kill you, but it’s unpleasant and inconvenient, and it stops a lot of people from becoming your lover” (Paumgarten, 2010). Mackey is known as a right-wing conservative who is in direct contrast to the free-spirited culture present in his WFM stores. Therefore his ultimate goal, as with most capitalists, is to make a profit, which may compromise his idealism. Some analysts predict that WFM has other retailers to worry about and should take it seriously.

While WFM boasts about its unparalleled quality standards, there have been food issues. For example, GMO labeling has only been enforced within the last two years. This is a significant concern considering that WFM touts itself the healthier alternative. There have been problems with mercury in seafood at California stores, E-coli in beef in 2008, and allowing farms to use non-organic pesticides (Bluejay, 2013). Some of these problems may be attributed to the decentralized approach of WFM. Also, not all of their produce is organic. WFM also has an extensive wine selection and also sells foods that are considered not exactly healthy such as cookies, candy, and potato chips.

The final analysis is the WFM story is a good one. The company will celebrate its thirty-fifth year in business next year. Mackey and Robb are agents of change and redirection when needed. The essence of why WFM began remains today in the philosophy of the company, and that is to give consumers healthier food choices.

References

Bluejay, M. (2013). Whole Foods Market: What's wrong with Whole Foods? Retrieved from michaelbluejay.com: http://michaelbluejay.com/misc/wholefoods.html

Collins, B. (2013, May 29). John Mackey, Whole Foods: Ethical appetite. Retrieved from http://www.billionaire.com/wisdom/417/john-mackey-whole-foods-ethical-appetite

Colvin, G. (2013, May 20). Walter Robb: Whole Foods' other CEO on organic growth. Fortune Magazine. Retrieved from http://money.cnn.com/2013/05/06/leadership/whole-foods-robb-ceo.pr.fortune/

Competitive Analysis of Whole Foods, Inc. (2010). Retrieved from http://warrington.ufl.edu/: http://bear.warrington.ufl.edu/dinopoulos/ECP6701/projects/CS-Whole Foods-Web.ppt

Organic Food. (2014). Retrieved from http://www.wholefoodsmarket.com/about-our-products/organic-food

Patton, L. (2013, February 14). Whole Foods Fattens Up in Grocery Retail. Retrieved from http://www.businessweek.com/articles/2013-02-14/whole-foods-fattens-up-in-grocery-retail

Paumgarten, N. (2010, January 4). Food Fighter: Does Whole Foods’ C.E.O. know what’s best for you? Retrieved from http://www.newyorker.com/reporting/2010/01/04/100104fa_fact_paumgarten

Peterson, K. (2014, March 5). At Whole Foods, paychecks are public. Retrieved from http://www.cbsnews.com/news/at-whole-foods-paychecks-are-public/

Whole Foods Market History. (2014). Retrieved from Wholefoodsmarket.com: http://www.wholefoodsmarket.com/company-info/whole-foods-market-history#wholefoodsmarket

Whole Foods seeks local vendors for partnership. (2011, February 16). Retrieved from http://thebusinessjournal.com/news/agriculture/40-whole-foods-seeks-local-vendors-for-partnership