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What’s
in your grocery cart? Odds are, if you’re like millions of
other consumers, organic foods are increasingly finding their way
not only into your home, but also are showing up on the menus of
more than half of the restaurants you frequent as well. In fact,
according to the 2003 Organics Trends Study conducted by The Hartman
Group, daily use of organic products has grown from eight percent
of consumers in 2000 to 11 percent in 2003, weekly use has grown
from nine percent to 16 percent, and monthly use has grown from
five percent to 10 percent.
These trends signal a significant driver to the impressive success
experienced by Whole Foods Market, Inc., the world’s largest
natural and organic supermarket chain. What began in 1980 as a single
small natural foods market in Austin, TX, with only 19 employees,
has since been parlayed into a thriving enterprise with 160 stores,
nearly 27,000 employees and sales inching near the $4 billion mark.
Whole Foods has captured a considerable percentage of the estimated
$10.8 billion in 2003 consumer sales, as reported in the Organic
Trade Association’s 2004 Manufacturer Survey, and by every
indication has no intentions of slowing down. Sales grew 17 percent
in 2003, a year that saw the opening of 12 new stores for a total
of 4.5 million square feet of retail space. Additionally, the chain
signed 29 new store leases, increasing its store development pipeline
to 35 stores and a record 1.6 million square feet. Whole Foods Market
paid its first-ever dividend in January of this year (15 cents per
share) since it went public in 1992 and recently opened its largest
grocery store in Manhattan at Columbus Circle. The company also
turned its sights overseas by expanding into the United Kingdom
with the acquisition of Fresh & Wild.
Recently, green@work had the opportunity to dialogue with three
of Whole Foods’ senior executives: John Mackey, founder, chairman
and CEO; A.C. Gallo, COO, East Coast; and Walter Robb, COO, West
Coast. Here’s what they had to say about the past, present
and future of the organics marketplace and their ever-expanding
endeavor.
Why does Whole Foods emphasize perishables?
Mackey: One of the reasons we
devote more space to produce than just about any other supermarket
in America is because of our commitment to organics. We work closely
with farmers to develop sustainable agricultural methods that will
help to eliminate harmful pesticides, herbicides and fungicides
from our environment and food chain. We are also a major outlet
for produce from small, family-run local and regional farms; many
of them still deliver directly to us in their pickup trucks. We
frequently visit their farms so we can check on the crops and build
solid relationships with the growers.
In the past year, Mr. Mackey, you visited
135 of your stores. What important lessons were learned from the
tour?
Mackey: The best part of personally
visiting 135 Whole Foods Market stores was the opportunity to talk
to team members on a one-on-one basis. I got to know and hear from
the people that directly serve our customers. The best part about
Whole Foods Market stores are the people. Most other businesses
put making profits as their most important value, and the stockholders
are the most important stakeholder. At Whole Foods Market, customers
and team members are both more important. Because we walk our talk
here, I think that it is a great place to work. This is why it is
extremely important to us to work to improve that all the time.
Whole Foods has grown via an acquisition
strategy. Why go this route versus starting your own stores?
Gallo: In the mid- to late ’70s
and early ’80s, a number of different entrepreneurs around
the country started their own natural food markets. They also started
a group called the Natural Foods Network to share ideas—they
were similar people on a mission to try to grow their stores into
bigger operations and grow acceptance by larger groups of people.
John was the first to raise venture capital and go public, so you
might say he had the biggest ideas and the biggest ambition. As
he expanded with the capital, he approached these other owners to
see if they were interested in selling. Each one decided it would
be best to sell to Whole Foods and let Whole Foods grow. So rather
than opening new stores around the country, with no base to start,
it was an easier strategy to go to, say Boston, and buy the Bread
and Circus stores, which gave us a good base of operations there.
Or go to Los Angeles and buy Mrs. Gooch’s, which gave us a
good base there. We have talked for a number of years about expanding
into the U.K., and it seemed the easiest way to get our feet wet
was to acquire a group of small organic stores there called Fresh
& Wild.
What is the“Future Search” process
all about?
Mackey: Every five years, Whole
Foods Market goes through a process called “Future Search,”
where we bring together representatives of our various stakeholder
groups—including customers, team members, investors, vendors
and our board—to help us collectively envision the future.
What goals have been identified for 2004?
Mackey: First, global expansion.
Our expansion into the U.K. offers us the opportunity to become
a global company as we begin spreading our mission beyond the boundaries
of North America. It is incredible to expand and learn from European
nations where there is already a greater acceptance of organics
and non-GMO foods. We will be able to stay true to our mission and
our core values as we evolve and continue to innovate the shopping
experience.
Next is animal compassionate standards. WFM has helped to instigate
the transformation of the food industry back to “naturalness”
in our 25 year history. We support small farmers, artisan food producers,
thousands of vendor partners, and millions of customers. We helped
to pioneer the movement in organic and natural foods.
More than 10 billion livestock animals are slaughtered for food
every year in the U.S., with the majority processed through industrialized
“factory farms,” which Whole Foods believes cause the
animals unnecessary pain and suffering. We decided that paradigm
can and must change, and we feel like we now have the scope and
scale to make that happen. While we believe our natural meat standards
are the highest in the industry, we have formed a team to examine
every facet of the process of raising animals for food to ensure
they receive humane treatment from birth to death.
Every species of animal sold at our stores will be assessed, beginning
with duck standards. The team includes company executives, animal
rights organizations, producers, animal experts and a third-party
auditor. After ducks—we will examine pigs, beef cattle, lamb,
turkeys, broiler chickens, egg chickens, dairy cows and farm raised
seafood.
Third is the Whole Foods Market University. This will offer us an
opportunity to upgrade the training and information available to
our team members and customers.
Recently, some stores have joined a clean
wind energy program. Are there plans to purchase green power nationwide?
Mackey: We are working to become
more conscious of our “greening” opportunities as more
of our stores become powered by the sun and wind. Whole Foods Market
now ranks among the top 10 wind energy purchasers in the U.S. Purchasing
wind energy is consistent with the Whole Foods’ “Whole
Planet” philosophy and our mission of environmental stewardship.
The amount of wind energy purchased by Whole Foods is roughly equivalent
to the electricity consumed each year by almost 2,000 average homes.
Also, Whole Foods Market was the first national food retailer in
the U.S. to make a major commitment to solar power. Our stores with
solar power typically produce over 25 percent of their total energy
needs through solar power. Hopefully over time, we will be able
to increase those numbers.
Is the industry where you thought it would be 30 years ago?
Gallo: Obviously we had no idea
it would turn into what it is. Many of us who were working in it
at the time were doing so because it felt like a good thing to do.
We saw it grow over the years and then about 15 to 20 years ago
you could start to see the interest in natural and organic foods
grow beyond the people who had initially come into our stores. This
interest from more and more people really spurred us on. We could
see that this was going to get bigger than what we had originally
imagined.
Robb: We never thought this
was going to happen. We hoped it would because we wanted to influence
the way things went—that was clearly the driving force behind
all of the people that were in it. We believed in our cause and
our mission. Today, the influence of the natural foods industry
is far greater than its size; we only represent about one and a
half percent of the total food industry in this country, which is
a $600 billion industry. We’re still relatively small in terms
of percentage, but I would say we are a giant in terms of influence.
Consumers are clearly shifting toward greater health and wellness
in their lives; wellness defined not just as the absence of sickness,
but the presence of vitality. We’re in the right place at the
right time to support that underlying movement. I also think that
we helped it to happen.
What are some of the challenges you face?
Robb: Particularly at the leadership
level, we need to grow the next generation of leaders. Second, to
make sure that we continue to have a culture that is vibrant and
true to course. We are a mission driven company; we care deeply
about our core values and our stakeholder philosophy. That’s
what beats at the heart of Whole Foods and, ultimately, is what
motivates and inspires people. People have always said that when
you get to be larger, you can’t do that anymore. But that’s
not been the case and it’s not been our experience. That being
said, there’s a vigilance to what got us here: the fact that
our stores are the expression of our mission and not the other way
around. Our stores create the experience for the customer and the
team member. That needs to continue to evolve. Lastly, we must be
willing to continue to take a leadership position in the natural
foods industry, as we have over the years in organics and GMOs.
There’s so much more to do and so many more places where we
can make a difference with our platform.
Gallo: Whole Foods is a mission
driven company; our core values are very important to us. We don’t
see ourselves as competing in the marketplace by trying to take
business away from anyone, but rather trying to further the mission
that we have by providing great quality foods in a nice environment
to as many people as possible. Another aspect of that is that we
have a very unique work culture. Our whole company is organized
into self-empowered teams and we give a lot of responsibility through
this process—it’s a very decentralized management structure.
We have been named for the last seven years as one of Fortune magazine’s
100 Best Companies to Work For—so we feel that as we expand
our stores and our reach, not only are we providing good quality
food to more people, but we’re also providing a good work environment.
Robb: We also started, about
a year ago, the Organic Center, which works in parallel with the
Organic Trade Association, to generate peer-reviewed, scientific
data on the organic benefit and to communicate that data. What’s
happening is that you have people trying to undermine the credibility
of organic and it’s time now for that to be science-based.
So we gathered scientific studies in a number of areas—our
first study was about pesticide risk to children via the food supply.
Our commitment to the organic industry and the evolution of the
organic industry continues.
Do your stores differ region to region?
Gallo: Each region has a lot
of leeway in how they design their stores, in the way they organize
their teams to function, the product mix that they sell. You would
absolutely recognize a lot of similarities between stores on the
East Coast, West Coast, Southwest or Midwest, but you will also
see a lot of differences as well. Every store is decorated a little
differently, laid out a little differently, has a different product
mix, because they are trying to develop the store in harmony with
the community that it is in. The last thing in the world we would
want is cookie cutter stores designed by someone in Austin saying
that this is absolutely how all stores need to be.
Does your customer base also vary across
the country?
Gallo: Absolutely. Anywhere
we have a concentration of stores, people tend to be more aware
of organics and issues concerning organics. For example, when you
go to a college town like Madison, WI, you have a lot of educated
people who are very aware of social issues, political issues, environmental
issues—you have a very well-informed customer base there. They
may be different from the customers we get in our downtown Chicago
stores, where there’s much more of an urban lifestyle and people
have different things that they are interested in. That’s one
of the reasons why our stores vary quite a bit; we do tailor them
to the type of customer who’s coming in.
Five percent of a store's pre-tax profits
go back to community orginizations. how are those decisions made?
Gallo: Most of it is given out
at the store level. Each one of our stores has a donation budget
that gives them the latitude to pick the local community organizations
that they feel should be supported. For instance, a store may decide
in their community that they want to support the local food pantry
or a special program at a local high school. Stores that are together
in a particular metropolitan area will often pool their donations
and do something together, like support the Race for the Cure in
Boston. We give them pretty free-hand; although many are food-related
or health-related as these are the areas we tend to focus on.
Which achievements are you personally most proud of?
Mackey: First, I am most proud
of the Team Members at Whole Foods Market. We are a caring community
of people and have based our company on love and respect. It is
incredible to see this in action. I am also very proud of all the
good that Whole Foods has accomplished. Some examples include improving
the health and well-being of millions of people through providing
healthy, natural and organic foods. As the leading retailer of organic
foods in the U.S., we have also had a major effect in helping change
agricultural practices to more sustainable methods. This has also
improved the health of farm workers by lessening their exposure
to toxic synthetic pesticides.
How do you ensure that your organization
of Team Members does not become complacent?
Mackey: Our success is dependent
upon the collective energy and intelligence of our all of our team
members. We strive to create a work environment where motivated
team members can flourish and succeed to their highest potential.
We appreciate effort and reward results. The fundamental work unit
of the company is the self-directed team. Teams meet regularly to
discuss issues, solve problems and appreciate each others’
contributions. Every team member belongs to a team.
Robb: What’s happened in the last year is that Whole
Foods has reached a kind of tipping point and people seem to know
who we are now. People are drawn to us; our turnover at the company
is now down below 30 percent, which for a grocery business that
includes some seasonal people in the summer, is a pretty extraordinary
number. And our turnover once someone gets to the team leader level
is around two percent—that’s exceptional. So once somebody
gets to a leadership level, they don’t leave.
What’s next on Whole Foods’ agenda?
Mackey: WFM is poised for terrific
growth and opportunity in the fast growing natural and organic foods
segment of the supermarket industry. We helped pioneer this movement,
and we see significant opportunity to stay true to our core values.
We are very excited to be starting two new foundations in the upcoming
years. The Whole Planet Foundation will take a proactive approach
toward the “Fair Trade” movement by addressing the social
issues in the developing world. And we are also starting a foundation
to address animal-compassionate farming research for the meat and
poultry that we sell.
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