Introduction and Company Background
In 1978, John Mckey and Rene Lawson borrowed $45,000 from their family and friends to start a natural foods store called Saferway in Austin, Texas (Marquis, Beshariv and Thomason, 2011). Two years later, they merged the company with Clarksville Natural Grocery and named the new company as Whole Foods Market in September 1980. This was a very big health food store compared to some of the stores of that time. During 1990s, the company started expanding rapidly by purchasing natural food stores all across America (Marquis, Beshariv and Thomason, 2011). In 2003, the US government certified Whole Foods Market as the first ‘organic grocer’ of USA. In 2007, apart from mainland USA, Whole Foods market also expanded to Hawaii. Whole Foods also penetrated the UK market by acquiring seven Fresh & Wild stores. In 2007, Whole Foods Market and Wild Oats Markets Inc. merger was challenged by the Federal Trade Commission (FTC) (Marquis, Beshariv and Thomason, 2011). FTC argued that the merger would eliminate substantial competition in the fresh and organic foods market in USA. In this case analysis we will discuss about how social responsibility always has been the core of Whole Food’s business and how in its recent growth spree the company’s core value of social responsibility is slowly getting diluted.
How Has Whole Foods Created Value?
In order to understand how Whole Foods has created value, we need to understand the stakeholders of the company. Whole Foods in its early days used to collaborate with the local farmers for procuring fresh organic and vegetables. The major suppliers in almost all the regions in which it operated had suppliers, who were local. Organic food is produced using no pesticide, and so it is more perishable than normal food and vegetables. Therefore, inorganic food can be sourced from outside, but it is difficult to procure and source organic food from remote places because of its small shelf life. Whole Foods used to source from local farmers. It is beneficial for the local farmers as they used to get a good bargain from a local organic supermarket like Whole Foods (Parrish, 2013). The company used to get benefit out of sourcing the organic food from local community by getting the goods at lower price. Probably they were paying the local farmers the same price they would have given to the larger and established organic distributors from other regions, but then they had to pay the transportation cost, which is often included as a large percentage of the price of a product. Thus, Whole Foods was making more money. The local community of farmers was getting benefitted in many ways. First, Whole Foods used to contribute 5% of its after tax profit to the local community (Marquis, Beshariv and Thomason, 2011). With the growth of Whole Foods, the local area in which the company was operating was getting benefitted by the inflow of this money. The company was injecting money back to the society. Secondly, Whole Foods has a culture of 5 days “community work” for its employees (Marquis, Beshariv and Thomason, 2011). It encouraged its employees to work for the local community for few days with pay. This also created value for the society. Finally, Whole Foods, in most of the cases, used local farmers for its products, and so the local community was aware that they were helping the local farmers and local society by shopping at Whole Foods outlets. This way Whole Foods created value for the local community and society, and that translated into business results.
How Has Whole Foods Grown?
As soon as Whole Foods started growing, there were many other operational issues that started cropping up. For example, while Whole Foods was a niche player in Texas, it was easy for the company to only collaborate with local distributors and farmers for sourcing its products, and it was also easy to keep a high quality standard for the same. The company started growing organically and inorganically from the 1990s (Marquis, Beshariv and Thomason, 2011). When a company begins to grow inorganically, it becomes a problem to implement the existing culture of the company to the newly acquired companies. In fact, in some cases the culture of newly acquired companies influences the parent company (Parrish, 2013). This may cause a change in the core values of the company. Whole Foods, which had a core value of providing high quality organic foods and also do business in a socially responsible manner, started facing this challenge when it began acquiring companies for expansion. It employed mainly two methods to stay true to its values and social mission. Firstly, whenever it acquired a new organic food joint, it implemented its quality standard to the organic food joint meticulously so that the customers did not suffer. However, Mackey, the CEO of the company, was also open to the idea that the quality standards of Whole Foods were not the best in the market. Whenever the company saw that an acquired company had better quality standards for sourcing and selling organic products, it adopted that. For example, initially Whole Foods was selling only dry organic products as it was easy to source them and maintain a quality standard (Marquis, Beshariv and Thomason, 2011). However, upon acquiring Bread & Circus, it found that Bread & Circus had a great quality of organic products even though they sold fresh produce, meat and sea food. Whole Foods quickly adopted the high quality practices from Bread & Circus (Marquis, Beshariv and Thomason, 2011). This process actually helped the company remain true to its social commitment to offer only high quality organic products through its stores. This practice not only increased the followers of Whole Foods but also increased the profitability, because some of the new businesses started by the company were more profitable than its original dry organic foods offerings. Secondly, to maintain a socially responsible corporate culture within the company, Whole Foods always made sure that the employees of the acquired companies were properly trained on the existing culture of the company. The employees of the acquired companies were often paired with the experienced employees from other Whole Foods stores. This way the culture and the philosophy were passed on to the new employees. The company was open to adopt quality standards and product lines that were better than the existing Whole Foods standards, and it was conscious about teaching the new employees about the social responsibility of the company. By employing these two tactics, Whole Foods was able to maintain its social commitment and expand the business in a successful way.
Recent Growth and Social Ideology
In recent years, Whole Foods has grown significantly. In fact, it has almost doubled in size between 2005 and 2008 by acquiring Wild Oats (Marquis, Beshariv and Thomason, 2011). When a company grows fast, it becomes almost impossible to maintain the social ideology of the company. In its initial days, Whole Foods was supporting small scale organic firms and farmers. However, as the company started growing slowly, it started shifting towards the model of development and partnership with large scale organic firms. This helped improve a long term stable relationship between the suppliers and Whole Foods. It also helped the company in giving support to the targeted organic farming community, which were its main suppliers. More importantly, it helped Whole foods reduce the cost of sourcing its products significantly. However, with this phenomenal growth, the company was unable to sustain its local sourcing model. The original model of sourcing from the local community helped the local farmers, local community, customers as well as Whole Foods, but this new large scale organic firming model did not help the local farmers (Parrish, 2013). In fact, in some cases small organic farmers went out of business when Whole Foods collaborated with larger organic firms. This was probably in contradiction to its mission of social responsibility. However, viewed purely from business perspective, the company was doing very well by entering into partnership with larger organic firms, and the profitability went up. The profitability of Whole Foods, in 2008, was one of the highest in the retail industry, and the growth of the company also was one of the highest in the retail business (Marquis, Beshariv and Thomason, 2011). It seemed that Whole Foods was slowly deviating from its original social ideology, but it was not actually the case. The company still maintained its culture of 5 days of community work and 5% after tax donation to the community. Also, large scale farming practices gave the suppliers access to more than one Whole Foods outlets, which helped improve the bottom line of the suppliers. Whole Foods also helped the large scale organic farming community by giving donations, creating long term relationship and helping develop better farming practices to stay ahead of the competition. This process not only helped Whole Foods but also helped the sourcing partners and the people associated with them. This way the company continued to contribute to the social cause.
Mackey’s Conscious Capitalism
Mackey’s model of “Conscious Capitalism” states that it is important to take into account the priorities of each stakeholder of business and deliver accordingly to maximize their expectation. The main stakeholders of the Whole Foods supply chain were suppliers, employees, customers, society and investors. Sales and Profitability growth were the main values expected by an investor (Marquis, Beshariv and Thomason, 2011). Community and society wanted the company to behave in a way that it gives back a part of its profit to the society. Increased job satisfaction and motivation were the main values for employees as per the conscious capitalism model, and high quality products and good value were the core values for customers. Mackey’s model said that Whole Foods should try to optimize the overall value. However, in practice, more focus was laid on the profitability and the expansion of business while less value was provided to other factors (Laura, 2012). Mackey never allowed its employees to create unions, which prevented them from collective bargaining. Also, the quality standards of Whole Foods started diluting with its high growth rate. This shows that although the mission of the company was to remain a socially responsible citizen, the recent acts of its management indicated that it was more interested in the expansion of business than fulfilling its social responsibility (Laura, 2012).
Mackey Strategy for the Future
Organic food is a sector where the customer is very sensitive to the quality of food as they pay a premium for those foods. Even in many cases, organic foods customers are better informed about the products than the normal average customers. So it is very important for Whole Foods to keep its quality standard high (Laura, 2012). The company, well-known for providing high quality organic food, should not compromise on its quality standard as it grows into a larger organization through acquisitions and organic expansion. It is also important for the company to keep its sourcing cost low through the development of large scale organic farming and long term partnerships (Laura, 2012). This will help reduce the input cost and make the company remain more profitable than its competitors. Finally, Whole Foods should not lose touch with its local base after it grows into a large corporation. As many organic food buyers buy foods only from the outlets sourcing from the local community, it is important that Whole Foods retains some of its local suppliers. This way even if it becomes a national retail chain, the local buyers will continue to shop from Whole Foods.
Whole Foods is one of the most successful organic retail chains in the world. In fact, it is the grocery chain that popularized the concept of organic and fresh food in the US market. From the very early days of its inception, Whole foods remained a socially responsible corporate citizen. It has given back money to the society from its profit. It also has helped develop the local communities wherever it has operated. However, after a spree of acquisition through 1990s and 2000s, the company has grown significantly. It is no longer a small boutique organic local grocer. It is now an internal retail chain. With the fast expansion, some of its social responsibility goals have diluted. It seems that the conscious capitalism theory of the company CEO Mackey tries to balance between social responsibility and the growth of the company, but actually the focus is more on business than on social goals. In recent years, the quality standards of its products have gone down, and some of its social activities also have reduced. To remain successful in the future with a strong brand image as socially responsible corporate, the company must keep its quality standards high and review its social ideology to give more back to the society directly or indirectly.
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