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October 16, 2005

The Winning Ways of Whole Foods Market

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An article in the October 24th issue of BusinessWeek takes a somewhat critical look at Whole Foods Market (WFM). It questions whether or not the company can sustain its sales gains, ambitious new store growth plans, and its cachet with customers. One of the business areas the article questions is WFM’s decentralized infrastructure.

”As Whole Foods gets scale, its ability to efficiently manage distribution becomes a greater issue, too. It has 11 geographic divisions, each boasting its own president and handling its own store network. That's fine for a regional player, but a company that aspires to have $10 billion in annual sales within the next few years requires a more centralized strategy. Right now, everything from transportation to product sourcing is local. "They don't have a professional supply chain," says one consultant familiar with the company. Whole Foods is working on these logistical issues, but faces less pressure to be efficient because of premium prices.” MORE


Having spent time as WFM’s Director of National Marketing, I experienced first-hand how the company’s decentralized infrastructure fosters bottom-up innovation (not top-down direction) to drive sales and build the brand. To give you a better insight into the unique business and marketing culture of Whole Foods Market, I’ve outlined 10 core philosophies the company follows.


10_winning_ways_2
1 | Maximum Freedom. Minimum Governance.
WFM operates under the belief stores should have the freedom to meet the needs of its unique customers and team members. The only governing rule all stores must dogmatically adhere to is all food sold at WFM must be free from artificial preservatives, colors, flavors, sweeteners, and hydrogenated oils.

However, unwritten social rules do govern stores. These unwritten social rules come in the form of ‘best practices’ which its stores and regions openly share.


2 | Small Pieces Loosely Joined
WFM is comprised of entirely teams. Every corporate/regional department is a team. Every store is a team. Every department in every store is a team. And every employee is a team member. The success of the company team is dependent upon the collective success of all the teams.

WFM believes in self-directed teams and its success is dependent upon the shared fate of all team members working together on every team. Every small piece is loosely joined and requires interdependence to reach store level and company level team goals.


3 | Getting Bigger by Acting Smaller
WFM decentralizes nearly every business function. The regions are charged with procurement of product, training of store team members (store employees), PR/marketing activities, and making business critical decisions.

As WFM gets bigger, it actually gets smaller.

In 2002, WFM operated 140 stores with 9 regions. Today, WFM operates 176 locations with 11 regions. By decentralizing decision-making to the increasing number of regions, WFM is able to reduce corporate bureaucracy.

WFM seeks to make as many decisions as possible at the regional level, a level closer to understanding the local shopper than a centralized corporate entity ever could understand.


4 | Food as Theater
A trip to a conventional grocery store is a shopping chore. While a trip to Whole Foods Market is a place to explore.

WFM emotionalizes the shopping experience by appealing to the five senses. Its stores are spotless and the merchandising displays are beautiful to the eyes. Shoppers are encouraged to taste and to touch everything in the store. WFM is a muzack-free zone and thus doesn’t sound like a traditional grocery store. And the smell of bread, coffee, smoked meats, and fruits waft throughout every WFM. WFM celebrates food like it is a theatrical production.


5 | Shoppers as “Brand” Ambassadors
Through extraordinary customer service and exceptional customer experiences, WFM believes it can turn its shoppers into brand ambassadors who will voluntarily extol the virtues of WFM to their friends and family. So instead of using traditional advertising vehicles, WFM uses the influential power of customers as the advertising vehicle.
6 | Education Leads to Appreciation
WFM appreciates and celebrates the role natural/organic foods can play in helping people live a happier, healthier, and more rewarding life. The company believes it can cultivate loyalty beyond reason with its shoppers by educating them on the natural/organic difference as it relates to better tasting food, healthier living, and the positive impact on the environment. At every opportunity, WFM communicates good food feels good.
7 | Everything Matters
WFM’s well-defined quality standards force the company to always question everything about every product it sells. WFM will NEVER compromise its quality standards. To become certified as the first national “Organic” grocer, WFM had to go to extreme lengths to prove to Quality Assurance International (QAI) they maintain the organic integrity of every product they sell. There is not another grocer the size of WFM that has also been certified “Organic.”
8 | Price to Value
WFM has no intentions to ever compete on low prices. WFM prices the products it sells to the value its customers have for the products. Shoppers value WFM’s values of pure, authentic, and flavorful foods so much so they will gladly pay more.
9 | Profit is a Good Competitive Game
WFM is a relentless competitor. The company has very little quit in them and will work extremely hard to overcome any deficiencies in its game.

Deep inside, WFM is infatuated with profit because everyone profits from profits. Team members profit by having more job opportunities because profits enable WFM to grow. Customers profit by being able to enjoy the in-store theater made possible from profits. And the company profits by increasing shareholder wealth.


10 | Team Members Make the Difference
WFM views its team members as being the company’s true competitive advantage. Competitors can replicate its products and programs, but they will never be able to replicate its people.

WFM does not take for granted the power of a knowledgeable, caring, and passionate workforce in creating highly satisfied customers. WFM has created a company culture which connects with their team members and they pass that connection onto WFM shoppers.

If one were to take the WFM team member out from its business, Whole Foods Market would not be the successful company it is today.


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Listed below are links to weblogs that reference The Winning Ways of Whole Foods Market:

» Brand Autopsy's take on Whole Foods Market from Leading Questions
Read John Moore's 10 point description of Whole Food Markets. He is reacting to an article in Business Week.Here's the list:1 | Maximum Freedom. Minimum Governance. 2 | Small Pieces Loosely Joined 3 | Getting Bigger by Acting Smaller 4 [Read More]

» Whole FoodsAgain from Business Ethics & Social Enterprise
John Moore at Brand Autopsy is blogging about Whole Foods again and I couldnt be happier. I used the content of this blog post, as well as the content from the Business Week article he references, in a presentation I gave in my Organizational B... [Read More]

» The Winning Ways of Whole Foods from scotthodge.org
Because it's one of my favorite grocery stores, I'm always interested in hearing about what Whole Foods is up to. John Moore from Brand Autopsy had a great post the other day entitled, The Winning Ways of Whole Foods. Based [Read More]

Comments

As with many area grocers, I think Sprouts is going to give them a run for their money. They are planning to open (I believe) 30 Dallas/Fort Worth area locations. Their initial entry into the Dallas area has caused quite a stir.

WFM isn't a bad grocery store, however they're going to have a tougher time justifying their outlandishly high prices for many of their offerings.

(Example: $2 for a small bottle of regular old Heinz ketchup.)

Ethan, thanks for clueing us into Sprouts. Being a born and bred Dallas guy who makes frequents trips to Dallas from Austin, I haven't caught the stir you've caught about Sprouts. So tell us ... why do you think Sprouts will give WFM a run for its money? What will Sprouts do better than say Wild Oats has tried to do? Or what Phil's Natural Eats tried years ago in Dallas?

From my perspective, I'm not sure WFM wants to sell customers regular old Heinz ketchup. Profits aren't there in selling such a commodity. However, there are profits in selling prepapared meals, organic/natural perishables, and natural beef/poultry. And that's the stuff WFM sells most.

I'm not sure WFM wants to sell customers regular old Heinz ketchup.

Which begs the question: Why offer it? (Sorry, had to toss that out there.)

Sprouts seems to be hitting WFM (and others, locally) right where it hurts, like you said: Prepared meals (I can attract an instant crowd by sticking their prepared lasagna into the company microwave), natural meats (their meat, fish, and chicken has been consistently outstanding, for less), and produce (this area has been flaky, but overall, it is drawing raves).

That's the mantra I'm both saying as a customer, and hearing as a disinterested third party*. Everyone has been crowing about the massive savings on incredible meats, produce, and prepared foods. WFM and Central Market obviously offer more to the hardcore "foodie", but Sprouts has picked their battles, and well.

I recommend stopping in there on one of your next visits to DFW.

* I am in no way associated with Sprouts. I'm one of those "customer evangelists". :-)

By the way, this is a Chicago thing and I don't expect anyone else to understand, but Sprouts is hereby immortal for using Gonnella bread in their on-site bakery.

Great breakdown of the WFM process. Thanks for sharing it!

Business Week (and their "ilk") seem to always enjoy writing about the reasons a company can't continue its growth. They focus on big corporate initiatives like a national supply chain as drivers of growth. Nonsense. Putting the company focus on driving costs down usually serves to drive the soul/purpose right out of the business. It turns a passionate business into a giant accounting department that just happens to sell ________.

If WFM sticks to the plan you outlined, growth will take care of itself with its soul and purpose intact.

Thanks Howard for adding your insight. And yeah ... WFM has benefitted from glowing press coverage so it is only fitting the company receive a critical eye. Much of what the BW article says regarding the difficulty of scaling of such a large decentralized business has salience.

To build on Ethan's comments ... it might be too soon to say Sprouts is hitting WFM where it hurts as WFM ain't hurting with double-digit comp sales. I'm interested in experiencing Sprouts and will definitely drop by when I am in Dallas again.

If Sprouts isn't hurting WFM ... then who is? How ‘bout Trader Joe's. Trader Joe’s offers magical low-price deals for the over-educated and under-employed consumer. And, as WFM goes for bigger and more opulent stores ... Trader Joe's keeps opening up smaller and ever-groovy locations.

For a GREAT PRIMER on Trader Joe's ... I recommend you read THE TRADER JOE'S ADVENTURE (Len Lewis).

John - Great post. It actually got me thinking and I posted some thoughts on my blog. Keep up the great work.

Bravo!

Finally, a company that 'gets it'.

Great post!

Great post!

I'm somewhat ashamed to say it, but when I visit a city with a Whole Foods, I try to make it over there to shop for provisions and quick meals. I've done this in Las Vegas, Boulder, and Vienna, Virginia. I'm a Wild Oats shopper here, but next year, there will be a Whole Foods opening almost next door to the main Nashville Wild Oats and I'm curious to see how I'll respond. The WO here is one of the biggest and busiest in the chain, but it's hard to beat the experience in a WFM, as you explain, so it will be hard-pressed to stay at its current sales level. I'm not sure the market can support both really well, but the shoppers will certainly be the big winners.

Good analysis John.

Wow. I just thought it was a cool place to work all those years ago, something to support my 'creative habits'. I never tried to break this stuff down. Didn't need to because I knew it was a good thing all the way around.

From my perspective, WFM is a company that strives to innovate and has really changed the way people perceive food. WFM has turned the dull task of going to a supermarket and turned it into an exciting and fun thing to do. WFM also cares about the food that customers will eventually put in their bodies. Try that at Albertson's and you might be going home in a body bag (not really). Happy eating!

If WFM cares about foold that customers put into their bodies, why are they building a large store and food prep location on the Gowanus Canal in Brooklyn?

The site sits next to a city sewer overflow point that dumps millions of gallons of untreated sewage comming from the millions living in Park Slope. NY City water reports show this location to have fical coliform levels WAY beyond acceptable--with the highest readings in the ny area! Sounds like a grat place for cooking and eating food, doesn't it?

Sure makes me want to trust that WFM offers clean healthy products!

As a shopper of WFM for nearly 20 years in the SF Bay Area, I've very recently (over the past year) seen the 10 Winning Ways of Whole Foods slipping away. Each week I return hoping to see a "rebirth" of the previously inspired staff, but no such luck. I always loved the personal service and didn't mind paying more for that and the quality. But with shelf after shelf being stuffed with product that no one seems to be caring for, it's losing it's appeal.

Who needs to shop at WFM - you PAY dearly for that experience.
Sprouts WFM Cent. Mar
/#

Yogurt Pretzels 2.99 5.99 ?
Raw Almonds 7.99 9.99 7.99
Texas Peaches 1.69 1.99

I live very close to WFM and am tired of their prices. Great store but why pay extra for organic, a shinnier red pepper and other specialties when you can get farm fresh at a fraction of the WFM cost.

Still Sprouts and Central Market are the better deals.

Great post.
This list is a great study in general of the winning ways for Generation Y marketing.
These are all determining factors in being successful with the millenial generation, and I think it's great to see such a succinct marketing success story.
Will Whole Foods be able to keep up their nouveau biz model? Well, that's another story, but the marketing is perfection for targeting the 15-30 demographic.
Respecognize.

I think Whole Foods is great. While it is a known fact of those, "upper middle class", Gen Y'ers, ect, whom choose to frequent WFM, and willingly pay a premium for some of the products, it all works out. It's obviously win-win for all parties involved, from the WFM company down to us the customers. The WFM concept "works" it's evident by the companies profit. The Whole Foods Market experience, is one I have grown to love. In fact in my region (Annapolis, Md) A new WFM opened up complete with coffee bar, hot/cold food bar, seafood bar, Freshly made to order brick oven backed pizza, and much more. The quality of WFM products cannot be beat. So for those who choose to critize WFM or "hate" on WFM as the Gen Y'ers would say, then don't shop there. Plain and simple.
Proud shopper at the WFM empire..

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