Whole Foods: A Whole Package from Austin, Texas
Whole Foods: A Whole Package from Austin, Texas
Whole Foods Market was founded in 1980, as the merger between two small independent organic food stores–SaferWay and Clarksville Natural Grocery. The original store was larger in size than a typical natural food chain, moving towards a supermarket format, and quickly developed a following as a one-stop-shop for natural food products. Due to the success of the store, Whole Foods Market expanded rapidly into Texas, California, and other parts of the country through a combination of acquisitions and organic growth.
Whole foods market is the leading retailer of natural and organic foods, and has 431 locations, 91,000 employees, making it the 30th largest retailer in the US based on revenue. Whole Foods also maintains a significantly higher operating margin than competing supermarkets.
The Business Model:
Whole Foods initial value proposition was to bring a larger, supermarket format to the natural foods industry. Since then, the business model has evolved to sell premium grocery products that reflect high quality, high price, responsible agricultural practices, organic/natural/non-GMO products, and environmental stewardship in one large and convenient place. Whole Foods has also grown into offering its high-quality products in stores that are better designed and more tastefully decorated than competitors, while also providing a higher level of service and driving innovation from the ground up.
Below: a representation of Whole Foods’ business model.
Key Operating Model Differentiation:
Stores in Whole Foods generally comprise of 10 self-managed teams, each led by a team leader, rather than a traditional hierarchical structure. Management within a store is decentralized and emphasizes decisions being made by individuals all across the organizational chart. The teams within the stores are assigned a focus area–either on different a product line or aspects of store operations. Teams are assigned a target of expenses and are allowed to share in the extra profits if they come in under that level of expenses (Gainsharing program). This ability to be more productive than expected, and share in the rewards of your labor, empowers employees to do their best. In addition, team members have access to the books of the stores so they can see how the store is faring financially, and how other departments are doing.
At a corporate level, Whole Foods messages that employees have a ‘shared fate’ by calling everyone team members and provides team members that have worked 6,000 hours with a stock option plan. 94% of equity awards granted under the Company’s stock plan have been from non-executive officers. Whole Foods also provides extremely low-cost health insurance to any workers working over 30 hours a week–something typically unheard of for hourly employees. In addition, Whole Foods offers numerous other health and wellness programs that are best-in-class in the grocery industry. These actions serve to build employee loyalty, reduce turnover, increase service quality, align even low-level employees with shareholders, and encourages all employees to ‘think like an owner’.
Below: a self-managed team inspects and distributes fresh bread.
Whole Foods spends a substantial expense carefully evaluating every product that they sell and ensuring they comply with the strictest quality standards in the industry–standards that ban hundreds of ingredients found in many agricultural products as well as inhumane farming practices. Whole Foods further differentiates itself by being very transparent about their quality standards, posting them on the website, and labeling them on the products that they sell. This extra step in the packaging process appeals to consumers who are more conscious of what they are buying and want to know how the products got to the store.
Below: an example of Whole Foods quality/sourcing labeling.
Store Layout & In-Store Food Preparation Stations
Whole Foods differs from most grocery store competitors in its ‘action stations’–areas of the store where food is being prepared. Whole Foods not only produces much higher quality products from these stations, which include bakeries, pizzerias, bbq stations, sushi bars, gelaterias, sandwich shops, coffee shops, juice bars, and liquor bars, but they also place a heavy emphasis on freshness and service. At most of these stations you can get products made from scratch from a friendly employee to your specifications. In many other grocery stores, these stations mostly exist to place ‘relatively fresh’ product in an area for sale without much interaction with the employee. These stations further contribute to Whole Foods value proposition as a higher quality and higher service supermarket.
Below: an example ‘action station’ that feels more like a restaurant than a supermarket.
In keeping true with its mission of promoting healthier products and responsible agricultural practices, Whole Foods seeks to donate at least 5% of after-tax profits to nonprofit organizations. Whole Foods also operates or supports many various charitable programs, including the Whole Planet Foundation, Whole Kids Foundation, Whole Cities Foundation, Healthy Eating Education, Green Mission, and others.
Below: an example of a Whole Foods charitable organization.
Student comments on Whole Foods: A Whole Package from Austin, Texas
Great article! I have read that Whole Foods new rating system got many of the organic farmers upset: the new system allows farmers that do not meet the stringent requirements for federal organic certification the same rating as an organic farmer, or even a higher one by using methodologies like garbage recycling program or relying more on alternative energy sources. As farmers have more and more alternatives to sell their produce to other chains – how do you think this might effect the company supply chain? Should Whole Foods focus only on the organic growers or should it continue to use other produce as well?
Great post. One additional interesting facet of Whole Foods’ operating strategy is the decision to purchase locally. Founded in Austin, the firm was founded with the city’s locally-driven identity at top of mind. A former colleague of mind ran a gelato business on the side and her gelato was picked up by Whole Foods in Rhode Island, and then regionally to the entire North East. Not only does this strategy align with the “eat local, buy local” part of the company’s strategy, but it also helps strengthen local suppliers and boosts the local economy. Local shipping also keeps food fresher and delivery costs low. Additionally, WF even provides low interest loans to independent farmers who provide produce for their stores!
What effect do you think that cutting 1,500 jobs, as announced on the 28th of September, can have in their operating model and the autonomous teams?