Whole Foods Market: Feeling a Bit… Under the Weather?
Climate change will continue to wreak global mayhem on the food industry supply chain—can Whole Foods sustain its upmarket ways in the face of this new era?
“I guess my position on it is that I don’t think that’s that big a deal.”
-John Mackey, Whole Foods Co-Founder & CEO, upon being asked his views of climate change [1]
On September 20, 1980, twenty-five year-old John Mackey, along with girlfriend, Renee Lawson, opened the first Whole Foods Market (WFM) in Austin, Texas. [2] Thirty-seven years later, upscale grocery hub WFM sits on the outskirts of a complex web of suppliers and distributors, whose pains are projected to grow astronomically in the face of climate change. How can WFM sustain itself as its supply chain suffers?
Climate Change’s Assault on the Food Supply Chain
The food industry’s supply chain simplifies into five key players, as shown below. [3]
Farmer’s Fight: Crop yields are of major concern for the farmer. Increased atmospheric CO2 actually appears to improve yields for plants such as rice and wheat; however, the accompanying temperature increase doesn’t play so nice. [4] For every degree Celsius increase in global mean temperature, wheat yields reduce by about six percent–concerning for a crop that accounts for one fifth of the world’s daily protein consumption. [5, 6]. Also, geography matters—while some areas may experience warped growing seasons due to warmer temperatures, other areas may experience decreased water availability due to changing rainfall patterns. [4] Extreme weather such as flooding and drought also damages crop yields, and related challenges include built-up pest-resistance and growing disease-spreading susceptibility. [7]
Processor’s & Distributor’s Pains: Food safety regulations make food handling and storage a major concern, both in warehouses and transit. Careful refrigeration measures are complicated by rising temperatures. [8] Also, the potential for extreme weather events poses threats to food transportation via damage to physical infrastructure.
Retailer’s Struggle: This all trickles down to two major challenges for the retailer: uncertain food availability and increasing food prices. “Changes in the availability and quality of land, soil, and water resources… are later reflected in crop performance, which causes prices to rise,” according to the UN’s Food & Agriculture Organization. [9] When prices rise for the retailer, they often rise accordingly for the end customer. [10]
Current Efforts
Despite Mackey’s comments, WFM’s website boasts its “Green Mission”; beyond Reduce, Reuse, Recycle, WFM pursues composting, reusable grocery bags, renewable energy credits, and even sometimes on-site solar panels. [8] However, these near-term efforts illustrate how WFM tries to lessen its contribution to climate change—rather than how WFM tries to protect itself from climate change.
One instance of WFM protecting itself from supply chain problems triggered by climate change is Gotham Greens—WFM’s operating partner that installed a garden on WFM’s roof in Brooklyn, NY, supplying the store with fresh, on-site herbs and produce, as shown below. [11-14] This way, if the supply chain is unable to provide produce due to, say, farmland flooding, WFM can provide for its customers regardless.
Partnership projects like Gotham Greens can help WFM following extreme weather events that block roads or ruin farmlands. On-site sourcing also gives WFM more pricing control; because WFM is already known for being high-end, increased tag prices from supply chain pains may make WFM less competitive. These types of measures help WFM stay afloat in the medium-term as supply chain problems intensify.
So what now?
Climate change attacks WFM’s supply chain in endless ways beyond just those described here. WFM must prepare itself not only for the sake of its business, but also the communities it serves. Its best shot starts with diversifying sources, pursuing partnerships, and accepting climate change as a real threat.
- Diversifying sources: WFM should strategically diversify food sources in the events that major farmlands or transportation routes are compromised. Similar to its Gotham Greens project, WFM could pursue more on-site food sourcing to ensure more reliable food availability.
- Teaming Up: WFM should also seek operational synergies with new parent company, Amazon, to protect itself from upstream transportation issues. It can also form alliances with other players in the supply chain to support each other however they can; for example, sponsoring farmers to obtain better yielding seeds or having on-site storage in case of emergency. It should also partner with climate researchers to determine how WFM can continuously improve operations to best support its supply chain.
- Acceptance: None of these efforts can fully support the supply chain without senior leadership encouragement. Statements like, “climate change is perfectly natural and not necessarily bad,” may not inspire the type of work needed to combat climate change’s impact on WFM’s entire supply chain. [15] This cultural hurdle is vital to WFM’s ability to weather this storm.
And finally, some lingering questions…
- How does global perception of climate change impact business decisions?
- What are the ethical implications for Whole Foods to not act in the face of climate change?
(word count = 793)
- Samuel, Maia. “Whole Foods Founder Says Global Warming ‘Not That Big a Deal’.” Yahoo! Finance, Yahoo!, 24 Jan. 2013, finance.yahoo.com/blogs/off-the-cuff/whole-foods-founder-says-global-warming-not-big-224803744.html.
- “Whole Foods Market History.” Whole Foods Market, www.wholefoodsmarket.com/company-info/whole-foods-market-history.
- Kuldiloke, Jarupan. “Food Supply Chains.” YouTube, YouTube, 15 Oct. 2014, www.youtube.com/watch?v=Tffcy7269LE&t=184s.
- Ranger, Nicola. “How will climate change affect food production?” The Guardian, Guardian News and Media, 19 Sept. 2012, www.theguardian.com/environment/2012/sep/19/climate-change-affect-food-production.
- “Climate change will cut crop yields: study.” Phys.org – News and Articles on Science and Technology, phys.org/news/2017-08-climate-crop-yields.html.
- reakout session P1.1 National Food Security – The Wheat Initiative. Global Conference for Agriculture Research and Development, Nov.1, 2012, www.fao.org/docs/eims/upload/306175/Briefing%20Paper%20(3)-Wheat%20Initative%20-%20H%C3%A9l%C3%A8ne%20Lucas.pdf.
- “Climate Impacts on Agriculture and Food Supply.” EPA, Environmental Protection Agency, 6 Oct. 2016, 19january2017snapshot.epa.gov/climate-impacts/climate-impacts-agriculture-and-food-supply_.html.
- Alcamo, Joseph, and Jorgen E. Olesen. “Life in Europe Under Climate Change.” Google Books, John Wiley & Sons, Mar. 2012, books.google.com/books?id=alEGYtdaW1MC&lpg=PA56&ots=j-MSScnO4a&dq=food safety climate change refrigeration&pg=PA56#v=onepage&q=food%20safety%20climate%20change%20refrigeration&f=false.
- “Climate Change: The Unseen Force Behind Rising Food Prices?” Climate Change: The Unseen Force Behind Rising Food Prices? | Worldwatch Institute, Worldwatch Institute, www.worldwatch.org/node/5434.
- Majoroh, Efemena. “Climate Change and Food Security.” LinkedIn, Apr. 2016, www.linkedin.com/pulse/climate-change-food-security-efemena-majoroh/.
- “Brooklyn Greenhouse: Gotham Greens.” Whole Foods Market, www.wholefoodsmarket.com/service/brooklyn-greenhouse-gotham-greens.
- Image: http://gothamgreens.s3.amazonaws.com/farm/greenhouse_gowanus.jpg
- Image: https://tctechcrunch2011.files.wordpress.com/2014/11/bib_gotham_greens_feature_img_06.jpg?w=680&h=453
- Image: http://millennialmagazine.com/wp-content/uploads/sites/4/2015/10/Gotham-Green-Headquarters.jpg
- Harkinson, Josh. “Whole Foods CEO Welcomes Climate Change, Warns of Fascism.” Mother Jones, Jan. 2013, www.motherjones.com/environment/2013/01/whole-foods-market-john-mackey-interview-conscious-capitalism/.
- Header Image: https://futureleadershipinstitute.files.wordpress.com/2016/03/fli-food-production-climate-change.jpg
Ah, Whole Foods – or should I say, “Whole Foods, Whole Paycheck.” And yet, I’m guilty of being a regular Whole Foods customer (despite the hit my wallet takes after every visit). Having now read your post, I wonder whether prices will continue to skyrocket (as climate change makes products more expensive, due to unavailability), or whether Amazon will be able to drive down distribution costs enough to make the grocery chain affordable once again. In a quick personal anecdote, I just ordered Whole Foods groceries via Amazon Fresh for the first time yesterday, and I must admit, the prices seemed much more reasonable (and they were delivered right to my door at no cost).
But let’s refocus on your proposed solutions. Your recommendation on diversifying sources has me wondering whether or not locally sourced and sustainable products – the food we should all be eating (if we could afford it) – would ever reach a scale large enough to make a significant dent on Whole Foods’ costs or product offerings. Sure, we see local apples in the fall and (when I was in Ohio, at least) corn in the spring – but what about the rest of the produce aisle?
So much of the dilemma, as I see it, tracks back to changes in consumer behavior. We want a mango when we want it, no matter where it’s grown or what season it is. As a result, the demand for out-of-season products leads chains like Whole Foods to fulfill procurement needs from far away (e.g., tropical areas that can grow mangoes and ship them to snow-filled Boston in the dead of winter), leading to much higher prices for consumers – but do we care? Given Whole Foods stock price (and leaps from 2016 to today), I’d guess not.
Even with more reliable food availability, it’d be my guess that without a significant shift in consumer behavior (e.g., accepting that you’ll only get that mango when it’s in season, and perhaps only when it’s locally available), local sourcing won’t be an option for big box grocery chains; they’ll keep providing what the consumer wants, and try to drive down costs through other means (e.g., more efficient supply chains, as you’ve described above). But, that won’t stop me from shopping for seasonal produce at the local farmers markets whenever possible; after all, it’s cheaper, tastier and better for my health – or so I’m told.
I am a proponent of your solution to team up with other players in the supply chain. It made me wonder if Whole Foods could play a part in startups like Indigo Agriculture by participating in the testing phase of their seeds and owning a stake in the increased output from those seeds. On the solution to diversify the sources of suppliers, I believe that this mitigates the risk of a drastic climate event having an impact on Whole Foods’ bottom line. However, it still wouldn’t address the issue of a broader decline in production that all suppliers would be facing in the long run, regardless of geography.
On the global perception of climate change: This may impact what Whole Foods does to lessen its contribution to climate change, but ultimately I do not think that it will impact how Whole Foods is handling its supply chain since this would be of core interest to Whole Foods regardless of public perception. It may, however, impact how leaders of Whole Foods think, and as a result, the aggressiveness with which they pursue strategies to mitigate the impact of climate change on their supply chain.
I absolutely love your point that Whole Foods Market (WFM) is focusing on its impact on global changes, but is neglecting to consider the effects on its operational model – so many companies are falling into this trap! It makes me wonder what could be the root cause that is driving so many companies to miss such an obvious problem. It could be that the only reason companies are focusing on the environmental issues is more for positive public optics rather than genuine concerns. But that’s a discussion for a different day.
I agree that WFM should look to diversify its suppliers in order to decrease the likelihood and impact of supply challenges due to environmental climate changes. However, I disagree that they should make investments into producing products itself. My concern is that moving down the supply chain requires high capital investments and greatly increases WFM’s exposure to the market risk that farmers are facing. For this reason, I would suggest that WFM limit their use of on-site sourcing.
One opportunity for WFM is to investment in partnerships with their farmers to use technology that increases their yield. WFM can promote the adoption of technologies and products that decrease environmental effects on yields. Ultimately, WFM wants its farmers to maintain or improve yield levels. So instead of trying to displace them as part of the value gain, it should be partnering with these farmers to improve their performance. This approach allows them to have less capital investments while driving what could be larger percentages of improvement.
Marissa, well done, and great topic. The two questions you posed reminded reminded me a lot of our IKEA case. As companies continue to grow and expand resources and infrastructure, inevitably, the impact on the environment also grows. I was surprised by the quote from John Mackey downplaying the gravity of climate change, which does not seem to align with all the measures that Whole Foods takes to be environmentally friendly. On the other hand, I am a little skeptical by the impact that these sustainability measures that IKEA and WFM make. While I do agree that other less thoughtful or careful measures would render more damage to the environment, the damage to waste creation, forrest clearing, air pollution, and global warming is still increasing as these companies continue to grow. We debated the authenticity of IKEA’s motives and intent, and I think the same can be considered for WFM. In order to minimize bad press or image, both companies need to continue to pursue and promote these types of measures in order to show consumers, competitors, and public regulation agencies that they are at least trying to do what they can to do the right thing.
Marissa, you raise a great question about how WFM can protect itself FROM climate change, not just how it can protect the earth.
I would say that these two are intricately linked. While the academic community is very aligned on the evidence that supports climate change today, actions to slow or reverse the change is unfortunately highly political. The scientific evidence often points of the economic costs of climate change, but often these costs mostly do not become material for another 50-80 years. This takes away incentives from those in government to make major investments or major economic sacrifices today. I do agree that the diversifying sources of food products, teaming up with Amazon and gaining top management support will alleviate the pains from climate change in the short and medium terms. However, in the long run, only consistent government lobbying for commitments to alleviate/reverse climate change will ensure that WFM’s business model will endure.