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Is Whole Foods Losing Its Sustainable Luster?

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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.

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