Whole Foods – Natural & Organic. Sustainable?
How should supermarket chains prepare for global warming? Many are taking steps to reduce their carbon footprint and dependence on fossil fuels, but will that be enough?
Introduction
Founded in 1978, Whole Foods Market (WFM) is a leading natural and organic foods supermarket chain with 464 stores and 87,000 employees in the US, UK and Canada [1].
As is the case with many companies, climate change presents several challenges (and some opportunities) to WFM, and the company must take steps now to prepare for the future.
Likely effects of climate change
The risks posed by climate change to businesses can be classified into six kinds, as illustrated below [2]:
For WFM, price and product risks would likely be the most severe. WFM sources a wide variety of food products from 69 countries including the US. The price, availability, and quality of a range of food products will be increasingly adversely affected by climate change [3]. For example, global crop prices are expected to be 20% higher in 2050 than they would have been without climate change [4]. The effects on supermarkets could be amplified for carriers specializing in perishable and organic products like WFM, where perishable products accounted for 65% of FY 2015 sales [5]. Extreme weather events such as heatwaves, droughts and floods are already causing losses in yields of food products, in turn affecting availability, quality and price. For example, a huge crop failure in 2014 in Turkey – the world’s largest producer of hazelnut (70% of global production) – led to a doubling of world market prices [6]. WFM’s supply chain could also be disrupted by extreme weather events.
Aside from price and product threats, other key risks include:
- Increased energy costs (transportation and store operations) due to carbon regulations [7]
- Potential physical damage to infrastructure and other assets from extreme weather events [8]
Alongside these risks, there are two notable climate change-related opportunities that WFM could capitalize on:
- Concern about climate change has greatly increased the public appetite for environmentally friendly products, which are closely associated with WFM’s brand.
- Weather changes could increase WFM’s ability to source products locally, boosting its brand image. Global warming has extended the season length for growing certain products domestically, and has enabled some products that previously could only be sourced abroad to be grown closer to home [9].
Steps WFM is taking to address the impact of climate change
The main steps WFM is taking relate to efforts to reduce the company’s carbon footprint and dependence on fossil fuels [10]. For example, WFM has taken steps to:
- Reduce waste in stores e.g. through composting, which has reduced landfill waste by up to 80% in some regions and resulted in zero waste in several stores
- Promote the use of renewable energy sources to power its operations, e.g.:
- Supplementing traditional power with renewable power
- Purchasing renewable energy credits from wind farms to offset 100% of the electricity used in all US and Canada stores and facilities (led to recognition by Environmental Protection Agency)
- Providing electric vehicle charging stations at its stores (45 as of 2015, with 31 more being built)
- Converting truck fleet to biodiesel fuels, and fitting trucks with fuel-saving systems
- Use green building techniques for store construction, e.g.:
- New stores are constructed in line with guidance from ‘Leadership in Energy and Environmental Design’ and ‘Green Globes’, resulting in special certification
- As of 2015, twenty Whole Foods’ stores had been awarded the Environmental Protection Agency’s GreenChill
- Strengthen brand association with environmental responsibility, e.g.:
- Often partners with non-profit environmental organizations e.g. it is currently partnering with Recycle For America [11]
- Offers CSR days for employees to volunteer for local clean-ups and non-profit conservation work
Additional steps that could be implemented
The main threat to WFM’s operations is price and product risks from exposure of its supplies to climate disasters, including the potential disruption of its supply chain. As such, the company needs to quantify the potential impact on its supplies by mapping its global fresh produce supply chain against models used by the Intergovernmental Panel on Climate Change. This would allow it to place a value on the risks of climate change and develop appropriate strategies, such as identifying new locations to source products in at-risk areas or working with suppliers to improve their climate change resilience strategies. UK supermarket Asda did a similar mapping exercise and found that 95% of its entire fresh produce range is already at risk from climate change [12].
Additional steps WFM could introduce include:
- Conducting flood risk impacts for its stores and distribution centers
- Joining and persuade other retail partners to take the American Business Act on Climate Pledge [13]
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References
[1] Whole Foods Market, Press Release, 2 November 2016. Available at: http://investor.wholefoodsmarket.com/investors/press-releases/press-release-details/2016/Whole-Foods-Market-Reports-Fourth-Quarter-and-Fiscal-Year-2016-Results/default.aspx
[2] McKinsey, “How companies can adapt to climate change”, July 2015. Available at: http://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/how-companies-can-adapt-to-climate-change
[3] Business Social Responsibility, “Business Action for Climate-Resilient Supply Chains”, May 2015. p.14, Available at: https://www.bsr.org/reports/BSR_Report_Climate_Resilient_Supply_Chains.pdf ; Paloviita & Jarvela, “Climate Change Adaptation and Food Supply Chain Management” (New York: Routledge), 2015
[4] World Economic Forum, “The Global Risks Report 2016”, p51. Available at: http://reports.weforum.org/global-risks-2016/
[5] Whole Foods, “Annual report – 2015”, Available at: http://s21.q4cdn.com/118642233/files/doc_financials/2015/Annual/2015-WFM-Annual-Report.pdf
[6] WWF. “The consequences of climate change for the agricultural economy and consumers
with examples of selected products and their main growing countries”, October 2015, p5. Available at: http://wwf.panda.org/wwf_news/?256676/Climate-change-food
[7] Business Social Responsibility, “Business Action for Climate-Resilient Supply Chains”, May 2015, p.12. Available at: https://www.bsr.org/reports/BSR_Report_Climate_Resilient_Supply_Chains.pdf
[8] KPMG. “Climate Changes Your Business: Business Action for Climate-Resilient Supply Chains”, 2008, p26. Available at: www.kpmg.com/EU/en/Documents/Climate_Changes_Your_Business.pdf
[9] The Financial Times. “Climate: Growers and supermarkets face challenge of worsening weather.” November 20, 2012. Available at: https://www.ft.com/content/ba2fc410-29de-11e2-a5ca-00144feabdc0
[10] Whole Foods Market. “Environmental Stewardship: Our Green Mission”, Available at: http://www.wholefoodsmarket.com/mission-values/environmental-stewardship/green-mission
[11] Food Weekly News, “Recycle Across America; Whole Foods Market North Atlantic Region Joins Recycle Across America’s “Leaders for Progress” Initiative to Help Reduce Global Waste”, May 28, 2015. Available at: http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/1681975007?rfr_id=info%3Axri%2Fsid%3Aprimo
[12] Asda. “The Challenge of a Changing Climate.” 2014. Available at: http://your.asda.com/system/dragonfly/production/2014/06/17/15_38_19_612_4234_Climate_Resilience_Campaign_a5_Brochure_v10.pdf
[13] https://www.whitehouse.gov/climate-change/pledge
I am curious to see how Whole Foods, along with other supermarket and grocery chains, will combat both the availability of foreign grown produce and the environmental impacts of shipping the produce to the individual stores. Ultimately, with the impact of droughts or unfavorable growing conditions for produce and the significant environmental costs of transportation, I wonder if certain produce items will become more and more scarce across the U.S. Even bananas, a fruit that has become so commoditized and ubiquitous in grocery stores everywhere, have a disproportionate cost of transportation to get to stores across the U.S. I wonder if end consumer behavior will ultimately have to change, and if expectations of availability will have to be reset.
This post brings up an interesting contradiction in what it means to be an environmentalist. On one hand, environmentalists seem to love organic foods because they are more natural and likely healthier than non-organic foods. On the other hand, organic farming is not sustainable. According to Forbes (http://www.forbes.com/sites/henrymiller/2014/11/19/why-organic-isnt-sustainable/#3202903a37aa), organic farming yields are 20-50% lower than conventional yields. With global food shortages looming as a result of global warming, it seems that organic farming is at odds with sustainable agriculture. Genetically modified crops (GMO’s) get a bad rep among environmentalists, but are proven to increase crop yields and might be a key weapon in the fight against the impacts of climate change.
Whole Foods is in an interesting position, as this blog identifies, in which its brand image is very closely linked with environmentally-friendly causes such as reduction in greenhouse gasses, and is also in a position to potentially profit from global warming. With global temperatures rising, Whole Foods may be able to capitalize on its customer value proposition by providing more locally sourced foods from the longer growing seasons that come with elevated temperatures. It will be interesting to see how the company behaves moving forward, as its economic interests are somewhat misaligned with its brand image.
Interesting post. I agree that WFM has done a great job so far, however I think there are some additional areas in which they are also doing fantastic work.
One of the sustainability practices that WFM does really well is sustainable fishing. Per the most recent Greenpeace report on sustainable fishing (http://cato.greenpeaceusa.org/Carting-Away-the-Oceans-9.pdf), WFM placed first for the third year in a row for its sustainable fishing practices. While crop yields are often the most-discussed area for climate change affecting food, there is also concern with warming waters and changing oceans that will destroy or alter existing habitats. WFM ranks #1 for canned tuna sustainability and recently called on government regulators to review Bering Sea Canyons ecosystems to ensure ocean ecology was not being hampered.
Combining the renewable energy / reduced waste initiatives with actually procuring sustainable food makes WFM a leader in the grocery industry. I look forward to them continuing this leadership and convincing other market participants to join in greater sustainability!
Interesting article, thank you. It is great to see how WFM has strived to decrease its store network environmental footprint.
Although I agree with the climate change impact raised, I am skeptical about how WFM is positioning itself against these risks. More precisely, it seems that WFM would have to incur higher costs to source raw material, as global warming is decreasing yields (esp. organic ones) and more and more farmers resort to pesticides to fight increasingly prevalent diseases. Is WFM helping/training farmers to use sustainable techniques? Is WFM investing in building required infrastructure and/or systems to enhance farming of organic products? These are potential areas that might be worth further investigation.
Thanks for such a comprehensive look at the issues WFM faces as a result of climate change. What struck me is that the steps WFM is taking focus primarily on reducing their own operating impact on the environment rather than on securing their raw materials (ingredients/products/fresh produce) as climate change reduces supply and increases prices.
I suspect that this is happening in part because it is much easier for WFM to make their own stores carbon neutral/have electric car charging stations and indeed a more achievable goal, than it is for them to affect positive change on a larger level for their suppliers. I think this is the biggest challenge facing us today; who focuses on and pays for the most impactful actions which will not just benefit one company but everyone. Maybe ‘climate change’ global taxes are the way to go here?
I agree with GTaylor, Whole Foods is in a very interesting position. Whole Foods is at the end of the supply chain, and while it may not have as much control over certain products given the since global warming impacts the availability of such products, it can benefit from the lack of availability. How Whole Foods forecasts inventory and prices its products will be interesting as global warming continues to impact food production.
One piece of information that I don’t think is painting the picture the right way is that some stores have zero waste because they compost. While I agree that composting is a great thing and can really reduce the waste, it is not a remedy for all waste. If it was then we would turn our landfills into compost piles. A store may have zero waste for its food, but it will still have other waste like light bulbs and cleaning products to consider. So, waste can be reduced to a point near zero, but other methods besides composting will have to help with the non-compostable items.
Whole Foods is my favorite supermarket because of the wide variety of fresh local produce, and I am pleased to see that they have taken numerous measures to become a more environmentally-sustainable business. I agree with you that pricing is one of the most significant value-chain risks they face. After all, consumers already perceive the company as expensive (aka “Whole Paycheck”), and their reliance on high quality ingredients means that they may be forced to raise retail prices despite their efforts to lower them over the last two years. I think you posed an effective mitigation to source more products locally and take advantage of longer growing seasons, which would help them control supply more easily.
That aside, I am also concerned about reputational risks. Whole Foods’ CEO Mackey has been notably outspoken about his climate views, even claiming that “Climate change is perfectly natural and not necessarily bad […] Most of humanity tends to flourish more when global temperatures are in a warming trend and I believe we will be able to successfully adapt to gradually rising temperatures” [1]. These statements detract from Whole Foods’ credibility as an industry leader in sustainability and threaten its ability to persuade retail partners to take sustainability seriously as you suggested they should. I wonder, can Whole Foods successfully get retail partners to sign the Climate Pledge and enforce industry-wide sustainability practices if they do not “talk the talk”? In my opinion, Whole Foods needs to better align its external communications with its sustainability efforts in order for the industry and even its own suppliers to commit resources to mitigating climate change risks.
[1] http://www.huffingtonpost.com/2013/01/24/whole-foods-ceo-climate-change_n_2511482.html