Whole Foods: Creating An Organic Experience
How “America’s Healthiest Grocery Store” leverages its operations to deliver on quality
While Whole Foods’ central aim is to provide its customer base with high-quality, fresh, organic, wholesome food, the business’ values reach beyond customer transactions to create a culture and experience that propel its success as “America’s Healthiest Grocery Store.” Its motto, “Whole Foods, Whole People, Whole Planet” encapsulates this attitude. The company’s operations have been clearly delineated to support and sustain its business model, so much so that Whole Foods claims to be a “a place for you to shop where value is inseparable from values.”
Business Model:
Whole Foods has historically created and captured value by providing consumers with knowledge about what their products contain, transparency into how their products are sourced, and a shopping experience unique to their stores. While the company does this in a multitude of ways, I’ve chosen to focus on the three areas that I found most interesting:
- Going Above and Beyond: While the USDA does not require retailers to be certified, Whole Foods ensures that each of its stores is Certified Organic. In addition, Whole Foods also works with third party certifiers to verify that the company is handling organic goods in accordance with USDA guidelines.
- High Quality: In addition to being certified, Whole Foods commits to offering high quality, organic produce. While competitors like Kroger, Target, and Walmart, among others, have begun to enter the organic space, Whole Foods’ differentiated itself by guaranteeing that its produce is of the highest quality.
- Unique Culture: Through an emphasis on customer experience, Whole Foods creates an atmosphere in its stores that is welcoming, engaging, and reflective of the local community. Each store offers local produce, regional flavors, and activities for the community to engage in, such as cooking classes.
Operating Model
Whole Foods has been able to deliver on this business model by meticulously marrying it to their operations:
- Going Above and Beyond: Whole Foods has been able to maintain its Certified Organic standing by creating an internal set of standards that is far more stringent than the USDA’s guidelines. The company has a list of ingredients—such as artificial flavors, colors, and sweeteners—that, while allowed by the USDA, are not allowed in the products Whole Foods stocks or produces.
- High Quality: The company is able to guarantee high quality products by creating and maintaining relationships with local suppliers. In doing so, Whole Foods knows exactly where and how its produce is grown and is able to ensure that all of the products meet their high quality standards.
- Unique Culture: Whole Foods is able to create and maintain its community-centric culture through the implementation of decentralized store operations. Individual stores are enabled to make many of their own operating decisions, allowing each store to retain its own local character and flair.
Both Whole Foods’ business and operational model work together to create the business’ value proposition. The value Whole Foods is able to provide its customers is largely derived from its operational choices, from sourcing to quality standards, etc. In addition, Whole Foods’ operations and business models give the company, as well as its customers, transparency into where and how its products are sourced, giving Whole Foods an incredible competitive advantage over newer entrants into the organic market. A few downsides to note, however, are the limitations such sourcing models put on growth, as well as the challenges that arise by having a decentralized store model. In reference to the former, Whole Foods has been experiencing a slower growth in recent years as it struggles to scale while maintaining its sourcing and quality standards. To address the latter, the company has recently been the subject of a pricing scandal that may have arisen due to a lack of national controls and oversight. However, all in all, I feel that Whole Foods’ alignment works in its favor to make it the premium provider of organic and natural products.
http://www.fastcompany.com/26671/whole-foods-all-teams
http://www.wsj.com/articles/whole-foods-results-add-to-growth-concerns-1438202546
Good write-up, Vicky!
I’m curious about how you think some of the recent controversies will impact public perception of the Whole Foods business/operating models. For example, the overcharging situation (http://money.cnn.com/2015/07/02/news/companies/whole-foods-overcharge-apology/) probably doesn’t inspire thoughts of community-centric culture, and organic farmers being unhappy with the food rating system (http://www.npr.org/sections/thesalt/2015/06/12/411779324/organic-farmers-call-foul-on-whole-foods-produce-rating-system) might call into question Whole Foods’ high quality values.
Seriously. Definitely hard to bounce back from that, especially considering the fact that it already has a reputation for being insanely expensive.
Whole Foods is one of my favorite stores, Vicky, so so great to see your write-up!
To Marc’s point above and as you’ve pointed out, can you lend us a bit more color on its internal controls? Why have they been cracking and how must they be changed? And why is Whole Foods struggling to scale so much if its had managed great growth before? Might there be a “limit” to organic, fresh produce? What would cause Whole Foods quality to crack? And how far removed is the original founder from today’s stores — might that have anything to do with it? What can it, like Starbucks, do to attract its original core demographic + its new members without alienating either as it becomes more “mainstream” and “commercial”?
Great write-up Vicky!
I share similar concerns to those expressed above regarding the decentralization of operations and lack of standardization in stores. Earlier this year, that lack of standardization resulted in reputational damage after a store was found to be selling $6 “asparagus water,” which was nothing more than a bottle of water with two sticks of asparagus inside (http://abcnews.go.com/Lifestyle/foods-asparagus-water-gate-people-arms/story?id=32897972). Any reasonable consumer would call into the question the value of such a product and the values espoused by a firm selling such a product. While this was certainly an isolated incident, it does highlight the struggle firms like Whole Foods face when deciding how much control of operations to cede to individual stores.
I hadn’t heard of the asparagus water issue, but that’s insane!
Thanks Vicky!
I’m curious as to how their operating model has changed as they’ve grown or what controls they’ve had to put in place to maintain it. I’d imagine having local supplier relationships (which makes sense given their value proposition) created some limitations or tensions as they looked to take advantage of their economies of scale during heavy periods of growth. I wonder how they looked to balance these levers and what they may have had to let go of as they grew.
Vicky – I really liked the linkage you drew with the business and operating model. There is a lot of quality that comes from Whole Foods (sometimes at prices more than I’d like to pay) but it’s great to really put it into perspective of the way the company operates. As a customer, it helps rationalize some of the prices with the true reality of these benefits they provide. I think about the scaling, similar to comments above, particular as it seems the local Cambridge Whole Foods is quite similar to those back on the West Coast so I’d imagine they have figured it out; could be interesting as they try to grow further.
Thanks Vicky- I love Whole Foods.
Although Whole Foods has differentiated themselves in the grocery ecosystem, I question their pricing strategy in light of competitors entering the organic food market. I think consumers will eventually turn to lower priced competitors for similar “organic” produce, especially in a stagnating or decelerating economy. However, as a WF shopper, I love their niche brands across grocery categories that aren’t available at larger grocery chains. As the company continues to grow, I would be curious to see how their product mix evolves. Whole Foods can further use it’s smaller size and decentralized operations strategy to outmaneuver the larger chains by introducing innovations in the grocery aisle.