Whole Foods Market: Healthy Products with a Healthy Profit

The Whole Foods Market, Inc. (“Whole Foods”) motto of “Whole Foods, Whole People, Whole Planet” rings true in every aspect of the company. As a premium food retailer, Whole Foods does an excellent job of aligning its business model with its operating model.

Whole Foods Market, Inc.

organic-zone

The Whole Foods Market, Inc. (“Whole Foods”) motto of “Whole Foods, Whole People, Whole Planet” rings true in every aspect of the company.  As a premium food retailer, Whole Foods does an excellent job of aligning its business model with its operating model.  The 2014 Bain & Company report, “Winning operating models that convert strategy to results”, states that companies with strong operating models aligned with business strategy consistently outperform their competition (1.2% higher revenue growth and 2.6% higher EBIT growth over five years).  By empowering the customer, building selective supplier relationships, creating impact in the community, and investing in their employee base, Whole Foods has become a market leader in the U.S. based grocery store market.

 

Business Model-1x-1

Founded in 1980 by John Mackey and his then girlfriend Renee Lawson, Whole Foods was started as one small natural food store in Austin, Texas.  As of September 15th, the company has expanded to over 430 stores and employs over 90,000 people across the United States, Canada and the United Kingdom.  Whole Foods core value is to “support the health, well-being, and healing of both people — customers, Team Members, and business organizations in general — and the planet”.  The company primarily executes this strategy by selling high quality organic, natural, and/or local-based grocery store products (food, health care items, cleaning supplies, etc.) to the increasingly health conscious consumer, and with annual revenues of $14.2bn, the company has a strong future ahead.

 

Operating Model

Whole Foods is able to succeed with this business model due to its focused and well executed operating model which focuses on improving everyone they interact with: customers, suppliers, employees, and their local community members.

Educating the Consumer – Whole Foods strives to sell top quality products to its customers, but the business model does not work unless you create systems to show the differences in quality and sustainability.  The company has implemented rating systems on everything from meats and produce to beauty products, and it does not carry food items with certain types of ingredients, like MSG (monosodium glutamate). With meat, the company uses the 5-Step® Animal Welfare Rating Program designed by the Global Animal Partnership (see picture), and it also has similar methods to measure fish on quality and sustainability.  Whole Foods creates its own systems for items like fresh produce and flowers (see pictures and video).  By educating the customer, the company is not only helping the customer make the right decision in the store, but it is also making the business model more effective.

TheSteps'ResponsiblyGrown_Poster_Infographic.jpg''ResponsiblyGrown_Poster_Overview.jpg'

 

Purchasing from Suppliers – Whole Foods sources its food from local, regional and national wholesale suppliers, but it focuses regionally and locally where it can.  Some stores even have a “forager” whose sole job is to source environmentally friendly foods from neighboring farms.  One of the most successful programs in purchasing is the Whole Trade Guarantee.  This program focuses on responsibly sourcing products in a way that is environmentally friendly without lowering the quality.  1% of the profits go to support the Whole Plant Foundation which focuses on community development (see video below).  Improving the quality of the farms directly increases the quality of the products that Whole Foods can sell.  Everyone wins.

Improving their Communities – Whole Foods Market donates up to 5% of its store profit to charity through a number of charities like the Whole Cities Foundation.  This foundation focuses on bringing healthy eating habits and options to people in urban food deserts. Improving the lives of the people in its communities is crucial to it operating model, and it can also lay the groundwork for future customers.  For more information, click here: https://www.wholecitiesfoundation.org.

Investing in its Employees – For over 15 years, Whole Foods has been ranked as one of the top companies to work for by Forbes, and it’s not hard to figure out why.  The company does the following:

  • Promotes healthy habits – 20% discounts off food in the store and more available if you meet health criteria (ex: improving blood pressure)
  • Radical transparency – all employees receive the annual report and can see what everyone else is making in compensation; benefits are collectively voted on every 3 years
  • Putting the team first – manager and executive promotions are done through peer panels and more senior positions go through a town hall review
  • Employee idea generation – employees are encouraged to figure out solutions to different problems and even come up with new product ideas; there are systems in place to make sure these ideas are heard.

It is no accident that Whole Foods has been listed as the best company in its category, and it’s one of the strongest brands in the world.  Going forward, the challenge will be to see if Whole Foods can compete with increasing competition from lower priced retailers without losing its way.  It’s going to “get real in the Whole Foods parking lot”.

Sources

  1. http://www.bain.com/publications/articles/winning-operating-models-that-convert-strategy-to-results.aspx
  2. http://www.wholefoodsmarket.com/healthyratings
  3. http://www.hobbyfarms.com/food-and-kitchen/whole-foods-local-forager.aspx
  4. http://fortune.com/best-companies/whole-foods-market-55/
  5. http://fortune.com/worlds-most-admired-companies/whole-foods-market-18/
  6. http://for.tn/1G2lNNp
  7. http://www.wholefoodsmarket.com/whole-trade/whole-trade-videos
  8. http://www.wired.com/2011/06/whole-foods-parking-lot/
  9. http://fortune.com/2015/11/06/fortune-live-whole-foods-facebook-levi-strauss/
  10. http://fortune.com/2011/05/18/5-reasons-why-its-great-to-work-at-whole-foods/
  11. http://www.economist.com/news/business/21610289-peddler-pricey-organic-and-natural-foods-finds-it-has-competition-victim-success
  12. http://www.bloomberg.com/news/articles/2015-01-29/in-shift-whole-foods-to-compete-with-price-cuts-loyalty-app
  13. https://www.wholecitiesfoundation.org
  14. https://www.youtube.com/watch?v=8eDKFWHVFdk
  15. http://www.globalanimalpartnership.org

Previous:

Yoobi: One for You, One for Me!

Next:

Deliveroo: When Fine Food Meets Exceptional Logistics

7 thoughts on “Whole Foods Market: Healthy Products with a Healthy Profit

  1. Very interesting Terrance, specially the part where you explain Whole Food’s sort of “vertical integration” into the food certification step of the chain to differentiate itself and its products establishing a premium positioning to attract its customers. I was always very intrigued by this “unusual” brands sitting at whole food’s shelves which I guess makes sense given the sourcing strategy you explained in the article. I wonder how much Whole Foods business model is superior or comparable to, let’s say, Trader Joe’s with much more of a private label, cyclical and limited assortment strategy that still manages to be somewhat positioned as “health conscious”.

  2. This is a great example of a successful supply chain driven business model taking advantage of market opportunity in consumer health consciousness and environmental protection. As the video mentioned, organic, natural, and good farming practices are usually not directly visible to consumers. By making it visible during the consumers’ shopping experience, this sends a positive feedback loop into the supply chain favoring continuous process improvement. I wish more B2C companies utilized this strategy to demonstrate responsible supply chain management and process improvement that ultimately improves the product consumer buys.

  3. Great post about a great company – WFM has truly embraced “conscious capitalism” and pioneered the way for others to follow suit. It’s very telling that the company has been listed on FORTUNE’s “100 best companies to work for” for 17 years in a row. Although it may not seem profitable in the short-term, by truly partnering with suppliers and consistently treating employees well it seems to pay off in the long-term. I think the most innovative facet of WFM’s operating model is the education piece (e.g., 5-step ranking). It’s difficult for the average consumer to differentiate, but Whole Foods can probably upsell the customer to higher levels of quality / welfare while furthering its transparency. Whole Foods may be somewhat pricier than other supermarkets, but it does seem like this is the direction the industry is moving!

  4. Great post! I used to live down the street from the original Whole Foods in Austin, and was always fascinated by how that location is almost more of a community gathering place than just a grocery store. In general, I think Whole Foods has done a great job creating this consistent feel in all of its locations, even as it’s expanded across the country. Despite being a national chain, it retains some elements of being a “local” market, and I think this drives a lot of the customer loyalty it sees. I think the company has a great value proposition, and clearly the different elements of its operating model work together seamlessly in support of that. I’m a big fan of the company, and big fan of your post!

  5. This is a great post Terrance. Whole Foods is great example of how a company can do business in a very responsible way and also play a very important role in strengthening the local communities through their operating model decisions.

  6. Great read Terrance. Love your exhibits/attachments. Whole foods is at the forefront of a pan-national “go healthier” culture in America today. I do wonder though, how healthy the things they sell really are. I’m a reasonably sophisticated consumer and notice that a lot of basic supermarket items are also on shelves at Whole Foods, with a small premium. This strategy seems to be working so far but I think it is ripe for disruption.

    My post was on Chipotle which has some loosely similar values. It seems to be seeing some issues because of isolated health scares, I think Whole foods may have to deal with similar problems at some point in its life.

  7. Great post on a great co. WF is my happy place. Given that they were clearly a first mover in the space and other less expensive markets have caught on to the healthy products bandwagon and are offering organics (i.e., Trader Joes, Safeway’s Organic line etc.), I do question whether they will be able to be a go-to grocery shop for all items or more of a specialty shop where customers pick up a select # of products.

    Another aspect of their business model on which they were originally differentiated was vis a vis their premium selection of prepared foods. I’ve always been a fan of WF for lunch / dinner and people go their in droves for the consistency/quality. Now that more fast casual “healthy” alternatives are popping up, I would presume they’re losing some customers on this front.

    Last, I think their partnership with Instacart is spot-on! They even have a dedicated Instacart shopping line at the River St. location, so they’re clearly looking ahead at what the next-gen of grocery shopping will be.

Leave a comment