By following a unique, old-fashioned approach to business, Whole Foods continues to thrive in a challenging economic environment.
There is a whole lot to crow about at the world’s leading natural/organic supermarket chain.
Same store sales at Whole Foods are up a healthy 8.4%, despite a lingering recession, sky-high gasoline prices and having a “Whole Paycheck” perception of being pricier than traditional supermarkets. In 2012 sales approached $12 billion, translating to sales per gross square foot of $932. Twenty-five new stores were opened, increasing total square footage by 8% to 12.7 million feet, and ushering expansion into eight new markets. The chain continues to successfully fend off onslaughts from other fast-growing competitors, including Sprouts Farmers Market, The Fresh Market and Earth Fare, and has set a lofty goal for itself—building its current 350-store footprint to 1,000 locations.
Vendors sing the Austin, Texas-based chain’s praises, citing Whole Foods’ ability to work closely with new manufacturers to nurture and grow upcoming brands. It does not charge cash slotting allowances and managers have the authority to build floor displays for products they think are stellar. Vendors also tout the company’s regional buying offices that encourage the taking on of local and artisan products.
Whole Foods is also a happy place to work. For the past 15 years it has been listed as one of Fortune magazine’s “100 Best Companies to Work for in America,” coming in at number 32 in 2012 and being only one of 13 companies to be included on the list since its inception.
It is for these reasons and many more that Grocery Headquarters is proud to honor Whole Foods Market as our inaugural Innovative Retailer of the Year.
“Whole Foods is one of the best merchants around and they have only gotten better,” says Spencer Hapoienu, president of Insight Out of Chaos, a New York-based database marketing company. “You have to give Whole Foods a lot of credit because they continually evolve and try to lead when it comes to labeling, humane treatment of animals, etc. The one thing that has always been very consistent about them is that they are very true to the culture that founder [and co-CEO] John Mackey set up. Everyone that works there believes in it passionately, and that comes through to the rest of the world. As a result, the customer base is very comfortable about what Whole Foods is all about. They trust them. Trust is a big issue.”
Burt P. Flickinger III, managing director, Strategic Resource Group, a New York-based consumer industry consulting firm, says Whole Foods has a depth and range of talent that is unparalleled in the industry. “They have developed a leadership team from the ground up, department by department, store by store, community by community, and then work very closely with their suppliers,” he says.
Flickinger adds that Whole Foods’ top officers, including co-CEOs Mackey and Walter Robb, and president and COO A.C. Gallo, have been with the company since its inception in 1980. “All of them have created a company that is a true meritocracy,” Flickinger says. “You don’t need to be at the top of your class from the best business schools, you just need to be one of the top team leaders on your shift, in your store department, in your store, in your district, in your region. Your talent and contribution to consumers and the theme of the company will take care of itself,” he says.
Citing corporate policy, Whole Foods officials declined to be interviewed for this article, but industry observers say Whole Foods is one of the stellar and unique operators in the supermarket industry.
Sue Ferrara, sales manager for SnackMasters, a Ceres, Calif.-based manufacturer of organic beef, turkey, Ahi tuna and salmon jerky, sums up Whole Foods in one word, “Fantastic.” SnackMasters products are carried in seven of Whole Foods’ dozen operating regions.
“Whole Foods is very easy to work with. They are very loyal as long as your product sells well,” she says. “They encourage you in every way to sell more product. They are very helpful in that way. And I have found that they don’t have the slotting allowance that a lot of the major chains require, and it is very helpful to us financially not to have to deal with that. They are fantastic to work with. I can’t say enough about them.”
Whole Foods swept Drew Adelman, CEO of Weehawken, N.J.-based Devotion Spirits, off his feet when he walked into their Venice, Calif., store and saw a 25-case floor display of Devotion Vodka that was put up by the store managers. “That’s not normal in the grocery industry, but they take pride in what they are doing, as you can see by the staff and everybody who works there. It is a different type of atmosphere,” says Adelman.
“Whole Foods really does their due diligence before they will stock your product,” he adds. “Our vodka is the first-ever sugar-free, gluten-free vodka and they tested it to make sure that it was. They do not simply take your word for it, but conduct their own tests to verify it.”
Most will agree that as the industry leader, Whole Foods has a very special place in the market as the bellwether for natural foods. “Vendors who have had a chance to work with Whole Foods are very lucky,” says Steve Broad, CEO of GimMe Health Foods, the San Rafael, Calif.-based manufacturer of GimMe Health organic, non-GMO certified seaweed snacks. “They are at such a high level a lot of people look at them as the trend leader that further benefits manufacturers who are able to work with them.”
Broad should know. He, along with his wife Annie, owned and operated Annie Chun’s for 15 years before selling it to CJ Foods, and Whole Foods was instrumental in helping the brand become what it is today. “Whole Foods is very good about partnering with companies they want to work with and then really supporting those companies within the Whole Foods format,” he says.
Whole Foods’ regionalized buying practice is another key advantage.
“At Whole Foods, the regions have a very key role in the process compared to other corporate accounts where you go to a central office and all of the buying for the country is done out of there,” Broad says. “At Whole Foods the regions have a substantial say and typically products go into Whole Foods through the regional buying system.”
George and Debbie Crave, president and vice president, of Crave Brothers Farmstead Cheese, based in Waterloo, Wis., were in New York City recently showcasing their cheeses at Rinds and Vines, a media-only event at the Whole Foods flagship store in the Time-Warner Center on Columbus Circle.
“Rinds and Vines was a sustainability event and we were invited by Whole Foods to attend because the sustainability green focus that we have at our cheese factory lines up really well with the goals of their business, stores and the message they want to send their customers,” says Debbie Crave.
Last year Crave Brothers was honored as “Cheese Supplier of the Year” by Whole Foods, partly because, for the last few years the Craves have hosted small groups of Whole Foods store-level cheesemongers from around the country. “They do this intensive education program where they tour farms and cheese companies and really learn about the cheese,” she says. “They really invest in their employees. They want them to talk and know the cheeses that they sell.”
In addition to selling its Crave Brothers branded cheese, the Craves also make some Whole Foods private label cheeses—“Whole Foods Exclusive Brand,” as George Crave calls it.
No whole paycheck
Industry observers say that in recent years Whole Foods has greatly expanded and retooled its private label offerings, especially its 365 Everyday Value line. It is a move that has helped lessen their “Whole Paycheck” stigma.
“Whole Foods has taken a lot of remedial steps to improve their price image with the help of their private brands,” says Dr. David Rogers, president, DSR Marketing Systems, a consulting firm based in Northbrook, Ill. “They are obviously doing a lot right because how can you say that they are not doing well when they have same store sales trends of plus 7%. That is very good these days.”
According to Rogers, that same store sales growth curve has prompted the chain to begin building larger stores. “One of Whole Foods characteristics is that it has seven-year maturity curves when everybody else in the industry has three-year curves. That gives the stores more time to grow profitable,” he says.
Paying scant attention to advertising is also helping the bottom line, observers say. According to the company, Whole Foods only spends 0.4% of total store sales on advertising and marketing.
“As a result of being so good at retaining their culture and fantastic merchandising, they don’t spend very much money on marketing,” says Hapoienu. “They are one of the few businesses, especially at retail, able to get away with that because they are such a unique animal, like Trader Joe’s.”
For the most part, except for one-sheet handbills at the store entrance and occasionally dropped into a newspaper, Whole Foods largely eschews traditional advertising.
Hapoienu adds that Whole Foods does not employ a loyalty card program, although he worked with them on a short-lived one that was implemented in the late ‘90s. “It was very successful, but we couldn’t keep it going because they are so decentralized and driven so much by each store,” he says. “This was before the Internet so we weren’t able to distribute all of the data back to the stores. Plus it was being controlled out of Austin and the stores really rebelled against that.”
Another reason for Whole Foods success is that for the vast majority of consumers it is not their sole grocery shopping channel. “Less than 20% of Whole Foods shoppers exclusively or primarily shop Whole Foods,” says Bill Bishop, chief architect, Brick Meets Click, based in Barrington, Ill., and founder of Willard Bishop Consulting. “That means people are going there as a destination for something special—seafood, meat, bakery. You get that destination status. That neutralizes price and allows for a more extensive trading area.”
Whole Foods is also ahead of the game when it comes to social media, Bishop says.
“Whole Foods is one of the few retailers that has made the commitment and successfully figured out how to do store-specific Facebook pages,” Bishop says. “That gives them a vehicle to localize their offer, communicate store-specific events, and to celebrate certain people and activities in the store. Hardly anybody else does that. It gives them a digital connectivity with shoppers.”
“Whole Foods can ultimately triple its size if it wants to during the next 10 years and probably double it again during the following decade,” says Flickinger. “New York State could easily support 30 stores, and New Jersey with almost a dozen stores could probably support twice as many,” he says, citing just two operating areas.
Then there are the international prospects. The company already operates eight stores in Canada and seven in the U.K. “The consistency of Whole Foods is certainly translatable to Australia, New Zealand, Asia and also continental Europe once the challenges in the economy there are corrected,” Flickinger says.
“I really don’t see too many headwinds for Whole Foods,” says Broad. “I think they can keep going. Other competitors are going public or merging, but Whole Foods at this point has set forth their brand and have the connection to the consumer.”
The Organic side of Sears
Craftsman, Kenmore and Kashi? That combination might not seem so odd now that Whole Foods has entered into a partnership of sorts with Sears Holdings to open supermarkets in some of the chain’s Sears, Roebuck & Co. stores.
Under the arrangement, Sears subleases some floor space on one side of its main floor to Whole Foods, and Whole Foods opens a store with a separate entrance. The symbiotic relationship allows both stores to feed off each other’s traffic.
Sears Holdings, based in Hoffman Estates, Ill., has publicly stated that it is looking to sublease space in its Sears and Kmart stores. It has even established a website, www.SHCRealty.com to shop its locations.
The first store opened in Colorado and based on its success a second 34,000- square foot location opened in April 2012 at the Sears in the Friendly Center in Greensboro, N.C., that city’s premiere shopping center. The second Whole Foods in the Triad Region, the store is literally yards away from Harris Teeter’s flagship store, also located in the Friendly Center.
“We worked really hard with [Sears] to say, ‘How can we make this happen?’ ‘How can we get the experience of Whole Foods to be Whole Foods separate from Sears,’” Scott Allshouse, Whole Foods’ South region president, told The Business Journal in February 2012.
Whole Foods has since announced plans to open stores in Sears’ buildings at the Colonie Center Mall, just outside Albany, N.Y., and the Westfield Countryside Mall in Clearwater, Fla. While Friendly Center is an outdoor “power center” shopping plaza, Colonie Center and Countryside are traditional enclosed regional malls, marking a new venue for consumers to stock up on organic groceries and perishables.
Both stores are expected to open in 2014.
Sushi and the inner city
With a reputation for premium prices charged for its organic and natural groceries Whole Foods is not so fondly referred to by many shoppers as Whole Paycheck. That premise has been a key reason why the Austin, Texas-based chain has been largely absent from lower-income inner-city neighborhoods—until now.
On June 5, Whole Foods opened a 21,056 square-foot store in Midtown Detroit. The neighborhood is where most of the Motor City’s medical centers are concentrated, but one still struggling with deep poverty and unemployment. The median household income is just under $14,000 a year. Built from the ground up, the store features less square footage, fewer staffers and more frozen and prewrapped foods than a traditional Whole Foods in an effort to offer lower prices and attract a broader range of shoppers, according to published reports.
“The opening of the first Whole Foods Market in Detroit is a game changer,” says Detroit mayor Dave Bing. “Not only does it offer central-city residents more choices and convenience for grocery shopping, it also proves that Detroit is an attractive destination for national retailers. I appreciate that Whole Foods Market involved the entire community in the planning of this development. This is a true community partnership and we’re proud to welcome Whole Foods Market to Detroit.”
The store promises to stock an array of fresh, healthy and affordable locally-produced products, including Taste Love Cupcakes, Slow Jams, Good People Popcorn, Avalon baked goods, Garden Fresh salsa, McClure’s pickles, Great Lakes Coffee and Bhakti Chai Tea.
To pay homage to the Motor City the store features local and green design elements including using wood and salvaged brick from Reclaimed Detroit, tables made from old car and truck hoods, murals by local artists and Motown records adorning the register lights.
“We’ve worked toward this day for nearly five years, constantly inspired by the positive energy and growth in urban farming, food artisans and local producers in Detroit,” says Walter Robb, co-CEO of Whole Foods Market. “We are so proud to be part of the mix.”
Similar stores are planned to open over the next year in New Orleans and the South Side of Chicago.