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green@work : Magazine : Back Issues : Fall 2004 : Cover Story

Cover Story

The Green Grocer

by Katie Sosnowchik

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Side Bars
Understanding Organics

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.

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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