Is Whole Foods Losing Its Sustainable Luster?
Lost in the ear-splitting uproar over Whole Foods CEO John Mackey's controversial venture into the health care debate, is a bigger, though less subtle story.
It's a story about how a small, well-intentioned sustainable food company lost its way. It's a story of how that company went from a single natural foods store in Austin, Texas to industry juggernaut, with every intention of dominating the natural foods retail category, in the nearly-identical way its conventional competitors came to dominate their sectors, i.e., achieving massive scale through acquisitions, new stores and eliminating smaller competitors.
Along the way, that company, Whole Foods, traded in any sense of purpose it had regarding regional food systems to pursue increasingly larger financial objectives, e.g., $12.0 billion in sales by 2010, up from $8.0 billion in FY08 sales and maintaining its 30% CAGR in sales since '91 IPO. Today, Whole Foods, which publicly trades on the NASDAQ exchange (symbol: WFMI), owns the natural foods retail category, providing solid annual financial returns to its shareholders. Significant accomplishments considering Whole Foods' humble beginnings.
But alongside this growth, a company with great potential to fundamentally change sustainable food lost its luster. Although shareholders, who have earned handsome returns over the years - 15% CAGR in stock price since IPO - cannot complain, sustainable food advocates can. Here's why.
After acquiring 19 regional chains since 1991, beginning with New Orleans-based Whole Food Company and ending with its recent $565 million acquisition of Wild Oats (#2 national chain with 110 stores, compared to Whole Foods' 191 stores), the resulting natural foods landscape now resembles the highly concentrated, conventional food retail space more than it does the regional food systems that sustainable food advocates identify as key to improving the food we eat.
The problem with Whole Foods isn't necessarily its management or financial performance; it's that the company has morphed into what amounts to a "sustainable" version of Wal-Mart and Kroger and every other multi-billion dollar supermarket chain. As evidence, the original Whole Foods Market opened in 1980 at 10,500 square feet, quite large compared to other natural foods stores at that time. By 2008, its 276 stores averaged 36,000 square feet, and it plans to open 70 new stores through fiscal year 2013 at an average size of 47,300 square feet, slightly above the conventional food supermarket median average of 46,755 square feet. Taken together, these stores will occupy over 13 million square feet of retail space, stocked with tens of thousands of packaged, processed and perishable items, purchased almost entirely through large national distributors, much like any other large supermarket.
There's every indication that these massive Whole Foods "natural foods" stores will continue popping up in more regions, including smaller markets, e.g., Burlington, Vermont, a city of less than 40,000 citizens in a county barely breaking 150,000 people. Burlington is home to one of the more vibrant sustainable food communities in the country. There are no Whole Foods Markets or Trader Joes in this town. Instead, residents frequent food cooperatives, farmers markets and community supported agriculture (CSA) farms, purchasing above-average quantities of food from local farms and processors.
Whole Foods entering markets like Burlington begins the systematic weakening of the fabric of such vibrant regional food economies. Unintentional or not, Whole Foods' very presence in these markets undermines established relationships between regional food retailers and suppliers, including farmers, processors and related service providers.
When you consider Whole Foods in this light, you see yet another national, multi-billion dollar corporate giant entering regional markets, amassing market share through lower prices (leveraging economies of scale from its large-scale distribution partner, United Naturals Food Inc.), chronically injuring or killing off local and regional businesses, and exporting massive financial value out of each region. Do they care that regional farmers and food processors are stuck having to find new channels to market or entirely new markets? Difficult to say, but smaller suppliers don't work well within Whole Foods' centralized distribution system, which clearly favors large-scale sustainable food suppliers, many of which are now owned by the world's largest food processors, e.g., Stonyfield Yogurt, Kashi, Muir Glen (more).
The unfortunate part of all this is that most people associate Whole Foods with organic and sustainable food, which is deserved for the good work the company has done over the years, but less so when you consider the overall sustainability of the large-scale, nationally-controlled food system that Whole Foods is now part of. In my book, Whole Foods is only slightly better than Wal-Mart or Krogers, respectively the first and second largest supermarkets in America, which is what the debate should really be focused on.
Perhaps there are reasons to "boycott" Whole Foods. One could protest its decision long ago to turn over its long-term objectives to shareholders, rather than considering all stakeholders, especially regional farmers and food processors; but that isn't going to change Whole Foods, since it can't undo what is done without certain financial ruin.
Rather than boycott, why not leverage Whole Foods' evolution into a Kroger, Safeway or Albertsons-style supermarket in more sustainable clothing? Tell your friends, family and coworkers that they can get anything they are accustomed to buying at conventional supermarkets at a Whole Foods instead. Tell them doing so is more sustainable than those alternatives, which is generally true.
Then, knowing that your personal defection from Whole Foods will have little impact, start shopping at a local food store or regional chain offering produce, meats and other regionally-produced foods. Your challenge will be finding such businesses since they were likely acquired or put out of business by Whole Foods years ago.
In time, a new generation of Pro Food ventures will show up to fill this void, region by region. Until then, you might want to start a garden.
Follow Rob Smart on Twitter: www.twitter.com/Jambutter
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You're absolutely right. And businesses should be based on the interests of stakeholders (which includes the environment and health of people in the community), not shareholders.
Whole Foods could have been a model of small-is-beautiful, networked local stores, emphasizing organic local produce and healthy nutrition.
What the store near me now is a "whole-paycheck" overpriced behemoth that carries lots of expensive heart-unhealthy, butter and egg filled goodies for people with big bank accounts and devil-may-care attitudes about their heart health.
I don't get this sudden outcry against Whole Foods. They are what they've been for years - an overpriced, pretentious store that happens to have some products that can't be found anywhere else. I go there to get those products and I leave.
So what if they are in it for profit? Who was every naive enough to believe they were in it for love? So what if some of their products are disgustingly new-ageish? I don't go to that section of the store. And why do I care what a company executive has to say about anything?
Whole Foods has some good products that I want, at a price I'm willing to pay. As a responsible consumer, that's all I need to know or care about.
Seeing Whole Foods from any one angle makes them more attractive to sustainable food and regional food economies than if you take them in their full glory. For example, and as you point out, they carry some good products that you are willing to pay for.
But the impact this fast growing, centrally controlled supermarket chain is having region by region is what should bother every "responsible consumer." Proliferating the bigger-is-better food industry model into sustainable food has systematically redefined the very concept, and not for the better.
Thankfully, there are efforts underway in regions throughout the country to take back at least some of the control we have over the food we eat. And with mainstream media jumping in (e.g., Time Magazine cover story on food), I expect the momentum and breadth of these efforts to accelerate.
"Thankfully, there are efforts underway in regions throughout the country to take back at least some of the control we have over the food we eat." But we each get to do that, every day. We decide what goes into our mouths.
Try Safeway Organics. They are just as sustainable as Whole Foods; cheaper; and come without the new age b.s. and wacko libertarian CEO.
A new Meijer store just sprung up in my neighborhood, and it also has a lot of organic and "locally grown" (although they don't say how local) produce. Anyone who is dedicated to getting the best deal for the dollar in an organic ecofriendly manner will most likely find themselves going to one store for this and another for that, as I have. It's a small price to pay.
I gave up on WF years ago when it became a parody of smug, Axis of Me-ville hypocrisy. The parking lot is crammed with Range Rovers and Priuses, the store is crammed with things trucked in from counties away. They sell ear candles in the 21st century. I won't comment on the substance of Mackey's tone-deaf WSJ op-ed piece, since it wasn't entirely wrong-headed, but it's timing and choice of venue was guaranteed to send the true-believers shrieking out into the streets with giant puppets and hand-made signs. It was the dumbest business move I've seen since New Coke.
Okay, they've made some dumb business decisions. They sell ear candles. Their customers drive Range Rovers.
It sounds more like you're looking for a new best friend than for the products you need or want.
Our country is going over 300 million population at the moment and heading fast towards 400 million and you expect to feed them with Farmer's Markets.
Get real.
He is living on another planet.
Who said anything about farmers markets feeding the majority of the population? While they are great models of how to bring intimacy and transparency into food buying decisions, they don't scale. Nor do community supported agriculture (CSA) programs. But food entrepreneurs are taking what works in this retail channels and applying them to new food retail models that will bring broader, year round offerings to consumers throughout the country.
Having worked at WF both as a team member and in management I can report that WF is nothing more than a dressed up big box store. Their real problem is that the era of "abundance" is over and their whole world is all about "abundance." They promote sustainability yet their business model is unsustainable.
Changing demographics, consumer purchasing habits, economics and rising energy costs are a rising tide working against them. Right now they are doing fine by restricting new store development and tighening management metrics. Marginal profits generated in the food retail industries, generally less than 2% require huge sales volumes to maintain. Presently, they surivive due to the reserve wealth of baby boomer's who have been their traditional consumer "base." This will change as the "replacement" generation will no longer have the wealth of their parents, nor the same consumer habits.
During these difficult economic times Walmart has seen it's customer base grow by over 24 %. Of that , over half have incomes over $50,000. These are the same folks who would normally frequent WF.
The future will be local and small and I'm all for it. I would like to see more community food co-ops. Where did they all go? Maybe I've been too busy? Things I remember from my college days nearly 40 years ago, peanut butter in 5 gal. buckets, 50 lb bags of rice, Gals of honey, empty jars, a scale and a bunch af people having fun.........Yes!
We have thirteen terrific co-ops up here in the Twin Cities area. Several have expanded dramatically in recent years.
National co-op map here:
http://www.ncga.coop/member-stores
unless they figure a way to improve their product offering (you have to hunt for organic produce and unprocessed food there) they are toast.
its a crappy market... medium low end consumers who think that they are doing something good for themselves by just stepping in the door.
more specifically, this model does not lend itself to the most obvious part of sustainability and health:
LOCAL FOOD.
nothing sustainable about selling (unorganic) grapes from california in new york.
Your kidding yourself.
Local Food? I live in Manhattan; how does Local Food work here?
As you hit more populated areas, e.g., New York City, the idea of local breaks down somewhat. That isn't to say that the percentage of locally grown foods (within 100 mile radius) can't be increased significantly from present levels, but it can't feed everyone. That is why sustainable food is a more important concept to drive change. Local is a subset, which hopefully grows as a percentage up to its physical limits within the region.
I'm over the - BIG IS BETTER - concept for business. I stopped shopping at Whole Foods for a couple of reasons.
1. Their bakery goods taste like cardboard.
2. Their hot food buffet is overpriced and not special. [ditto for the salad bar]
3. Trader Joe's is just superior in every way.
It took me awhile to make my way around the store, sampling enough to make the decision.... but, size aside..... Whole Foods just isn't worth the price.
Trader Joes beats em on fresh salads, deli items, nuts and candy, and especially store brand hummus, and salsas.... I"m always impressed with the quality at TJ's.
Excuse me, but the food sold at Trader Joe's is basically salt and sugar infested garbage held together with perservatives and catchy packaging. The bakery goods at Whole Foods are anything but cardboard (you must have bought like one thing and judged based on that small sample), and buying bulk is a real perk ((15% off for buying cases of most items). The vegetables at TJs are almost always bagged in plastic, wilted and never last long in the fridge.
As far as price, you get what you pay for, period.
My only Whole Foods experience was in Ft Lauderdale. I had just returned from a vacation in Vermont, and I decided to take a break from Publix, and see if WF had the same quality food that was offered at City Market, in Burlington. (leaving Vermont, and it's fabulous food, made me sad, so I eventually moved there) It looked the same, and had a lot of the same products, but some how there was just this McFeeling to the whole place, that was quite different from CM. It was as if they were trying to sell a hippie turned yuppie "lifestyle" instead of groceries.
There was even an attached "Whole Foods Lifestyle Center" where I could use a credit card to take a class in sipping Merlot while doing yoga.
Only after my third (and final) visit to Whole Foods did I find out for sure that it was a chain. Although I suspected it on my first visit, just because of the overpriced, tasteless food they sell. You may find some humor in my blog www.suburbanempire.com, I will be poking fun at WF in future posts.
At least in the summer, people can grow their own vegetables and look to local farmer's markets for fruits and vegetables that they can't grow themselves. Nothing tastes better than a tomato from your own garden.
Whole Foods have become highly unwelcome predators on our area - Santa Cruz County on the Monterey Bay in California. We have some of the finest indie natural food stores in the nation, including a local 'chain' of six beautiful stores, plus seven Farmers Markets. Whole Foods pushed really hard for permits, took over older style grocery stores and opened both this summer. Long time residents refuse to go in, for we have fought for indie bookstores, and we will fight for indie food, too.
May the CEO's revealing OpEd last week expand the boycott of Whole Paycheck.
Very encouraging to hear how Santa Cruz is fighting back. Are there any signs on how well it is working? Given your location, climate, etc., I assume you are well aware of how fortunate you are to have such an abundance of locally grown food. Living in Vermont, we have a 3-4 month growing season, so we have to work extra hard, but that's what powers "Yankee Ingenuity".
If you really want to support sustainable markets, shop at the Farmers Market in your area Saturday mornings. First, you get to associate with you neighbors and second you are not paying for the fancy set up you pay for at Whole Foods, whose prices are so ridiculous, the average family cannot afford to shop there. Supporting Whole Foods is like supporting WalMart. They started out as a good idea and now they are just a corporate monster. The stores are nice and in good neighborhoods, but it seems that most shop there because it's chic to do so. If you are really trying to be socially responsible go to the Farmer's Market.
People rant about Starbucks but don't they at least pay for the health insurance for their employees. From what I understand their benefits are pretty good for that type of business. Think about it, what do McDonalds, etc. offer for benefits? Nothing. I work part time at Panera and you are only eligible for health insurance if you are full time. Good thing I have a day job!
Thanks, CatsRule1, for your comments. I'm a big fan of farmers markets and have been a CSA member for the last five seasons, so I appreciate the value of these channels.
The problem is that neither fits within most consumers food shopping behaviors, requiring them to change something to make them work. For example, in most cases, these channels are once-a-week events. In addition, they are seasonal in nature.
Until sustainable food meets average consumers where they need it - e.g., seven-day-a-week, year-round food retail stores in convenient locations with some level of selection - it will continue to serve only those willing to accommodate.
Companies like Whole Foods do not put stores in areas where there isn't already a demonstrated customer base for their products. If there's a Whole Foods in your town, you can bet there's a co-op or other natural food store located nearby...probably within just a mile of the Whole Foods. There are so many reasons not to shop at Whole Foods, some of which I blogged about last year: http://chezmusser.blogspot.com/2008/12/when-whole-foods-aint-so-wholesome.html . Personally, I wouldn't encourage people to shop there, but to seek out stores that are sourcing food locally and with integrity and doing business fairly.
Rob, Although I tend to agree with the "small is beautiful" perspective, I think this post is a little hasty. WFM does support regional farmers and food producers, most prominently in their meat case, produce, and bakery sections. They could do more to support regional, as they once did before they found efficiency through scale, but they still offer some options. I have friends who've worked in WFM stores for years and they're very happy employees. WFM seems to be a pretty great company to work for - treating their employees better than most of the other chains and certainly better than Wal-Mart.
I think WFM also deserves credit for changing the way Americans shop. Prior to WFM, most grocery stores had few bulk options. I buy most of my staple groceries (grains, pasta, cereals) from the bulk section of my local co-op. But I developed that habit after being a WFM shopper in a town where there was no co-op.
Now, I rarely shop at WFM because I don't have to. I go to the farmers markets, volunteer at my neighborhood co-op, or go to New Seasons, my locally owned grocery with a great selection of natural foods. But I think WFM deserves some credit for the cultural changes they've brought about. It's up to consumers to preserve choice. That's why when I visit Burlington, I always make a point to support the co-ops.
Thanks for the great comments, John. To be clear, I'm not advocating "small is beautiful", but do think that there are much better approaches to sustainably-oriented regional food systems that can do a much better job of presenting the peripheral foods in today's mainstream supermarkets, i.e., perishables and those foods requiring some level of in-home preparation.
You will notice that I didn't specifically bring up the quality of Whole Foods work environment because that really doesn't address the decision WFM management has made with regard to acquisitions, etc.
I also made it a point to give Whole Foods a lot of credit for putting "natural foods" on the national map, and went so far as to recommend people work to convince their friend, families and coworkers to abandon conventional supermarkets for Whole Foods because of that focus.
None of that changes how such national chains impact regional food economies. And if I had the ability to choose, I would always choose regional players over national for a host of reasons.
Cheers,
Rob Smart
Yes, very nice... and INITIALLY, that was one of the most welcome aspects of the WFM story. But local producers will tell you, increasingly, the company has been negotiating ever lower prices with local farmers, especially when huge shipments of remote vegetables (with huge carbon foot prints from deals negotiated at HQ) end up in their distribution centers and ultimately compete with (crush) local producers' whose contracts with the stores' produce managers are ignored when vast cheaper shipments can be off-loaded to multiple regional stores. This increasing practice often reduces the local farmer to a last minute resource that can either be squeezed or dismissed. WFM will keep its margins at the expense of the local producer - that is a fact!
Quite possibly, the transition from the local, initial Whole Foods supermarket in Texas to a nationwide duplicated model, and entering into to the stock market were enough to irreversibly pollute the original mission of the first store. By entering the stock market, stockholder imperatives became prominent business drivers: by losing the product concept and entering a purely financial competition (for investor dollars), the essence of the Whole Foods operations inevitably transformed from an equitable and respectful relationship with local growers into a cost-containment, cost-streamlining and increasingly competitive dogma imposed by necessary Wall street practices. Local growers became mere suppliers, whose costs had to go down in order to extract more value, take the growth away from local producers and move it into stock equity. Isn’t it time (some of the) food should be firewalled away from market velleities?
I've never been much of a Whole Foods shopper -- too expensive and too far away. But even now we still have occasional needs for which Whole Foods really is the most affordable, local option. I don't mind giving them my business when the need arises.
But yes, they really are simply a large nationwide supermarket filled with lots of unnatural, fake, processed foods (even the ones bearing "natural" or "organic" on the label). The best foods for you are almost always the ones you can grow or raise yourself, or buy directly from a farmer/rancher.
Cheers,
~KristenM
(AKA FoodRenegade)
http://www.foodrenegade.com
Hi Kristen,
Thanks for the great comment.
While I agree that growing or raising your own food or buying direct from farmers or ranchers is ideal, I can not see it making a meaningful dent in the conventional food system's dominance, including Whole Foods.
What I am advocating for in this post, as well as with Pro Food in general, is the development and replication of successful regional food systems that keep money in regional economies longer; reward farmers, ranchers and processors with better bottom lines; and engage customers in a way that strengthens in-home food preparation.
These sorts of developments will give national chains, whether Whole Foods or Wal-Mart, a run for the money.
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