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Whole Foods Market Inc
Robb takes Leslie Patton and Bryan Gruley on a tour of his Austin (Tex.) store, with its three types of kale and devoted foodie clientele.
What did you learn from the recent recession about selling groceries?
It was a lot of humble pie, because our sales experienced a drop that I have never seen in 32 years of retail. Customers left us in droves. We also learned that there were some very loyal customers who loved Whole Foods (WFM), people who said, “I like what you stand for. I like coming here. I like this experience.” That was very affirming. I think the realization was that we’ve got some customers, and we need to make sure we know who they are. So instead of chasing every customer out there, we started doing customer discussion groups. We were growing for growth’s sake, which is not a good strategy. We were chasing the rainbow. We cut the growth in half overnight and said, “All right, slow down. Let’s make sure we’re doing this better and more thoroughly and more thoughtfully.” This company is a mission-based company. This company started to change the world by bringing healthier food to the world. It’s not about the money, it’s about the impact, and this company is back on track as a result of those experiences.
The nickname you’ve gotten in some places is “Whole Paycheck.” How do you counter that?
We realized in January or February of 2008 that we were too expensive, as people perceived it. The price-value thing was not where we needed to be, and we started losing business. Then you get to a question about what quality is worth to you. We have the highest quality standards in the supermarket industry, bar none. They are transparent. They are up there on the website. They’re years of work. There is a cost to food that’s produced in that manner. If it’s worth it to you, great. If it’s not, we understand. We are not all things to all people. You can buy cheap pink slime if you want and you’ll pay less, but you’re going to get what you get. So often people reduce the conversation to the simple price, when in fact it’s a more complex, multidimensional conversation about price and quality. We’ve brought prices down. And people are telling us at the checkout stand. They notice the effort, and they appreciate it, and they’re rewarding us with their business.
Why don’t you talk a little bit about your plans to expand into Detroit?
This project is personal for me. The store will open in May of 2013. Where we’ve kind of stopped, I think, in our mission to bring healthier natural foods to the marketplace is with underserved communities that don’t have access to fresh food or have access to it in different ways. We’re building a 21,000-square-foot store, which is on the smaller side for us. When you look at the demographics and psychographics, it’s a groundbreaker for Whole Foods in terms of this particular location. It’s an effort to stretch ourselves in service of our mission, which is to bring healthier foods to the world in a broader, newer direction. It’s generated a lot of interest from mayors around the country.
Is Whole Foods going to be entering new markets with smaller stores?
John [Mackey, co-CEO] and I set a goal of 1,000 stores in the U.S. We now have 332 stores [globally]. And we said 25 this year, 28 to 32 next year, and 33 to 38 stores in 2014. That will take us up to 8 percent or 9 percent square-footage growth in 2014. We’re saying, “We’re betting that this healthy eating thing is bigger than the cyclical situation in the economy right now.” We’re ultimately talking about people’s vitality, so we’re accelerating growth. That’s going to take us places that we have not been, Detroit being a particular example. More importantly, we’re going to continue to grow in the markets that we’re in. We’re nowhere near saturated in Chicago or Boston or L.A. or San Francisco or anywhere. Compared to a Safeway (SWY) or a Kroger (KR) or a Jewel-Osco, we have nowhere near the penetration that those sorts of companies do.
Where do people go instead of Whole Foods?
There is really nobody in the country that does exactly what we do. But there are some great grocers out there. Certainly, H-E-B and Wegmans are two fine regional companies with good leadership. They do a very nice job. They don’t do the standards exactly the same way, but they’re excellent grocers. You look at Trader Joe’s—they have more stores than we do. They’re not particularly transparent about what they’re selling, but that’s their thing. There are also a lot of ordinary grocers out there. Post-World War II, it was all about suburbanization and mass and more, and I think that has run its course. What you have now is this new generation of grocers serving a customer who is much more interested in food and where it comes from and the story, particularly as they feed their kids.
How do you see people shopping 10 years from now?
My mother shopped at this place called Petrini’s, and she knew Tony who ran the produce department. She had her list, and that’s where she went. That just isn’t the case anymore. You have people shopping in multiple channels and also online. You’re going to see more and more connection between the producers and the customers in various forms—CSAs [community-supported agriculture], farmers’ markets. You have a customer who is much more educated, so I think you’re going to see a lot more integration of technology with the food shopping experience, particularly among the millennial generation. Someone will scan a tag and expect to get the story and expect to compare features or attributes. The grocer will have to be able to provide that sort of information and transparency. I suppose there will always be a market for the cheapest possible food, but issues around water quality, farmworkers, all that stuff, keep surfacing. There will be no place to hide in terms of what your practices are and what you’re doing. I would say 80 percent of business is still going to be done in physical stores.
What did you learn from the financial meltdown, the housing crisis, the Wall Street scandals, the failure of the regulators, about the purpose of doing business in a capitalist economy?
John and I are capitalists. We are free-market people. I think the power of business is the greatest possible change agent in the world. But there are limits. There are people who are giving business a bad name. There are stories every day, the insider trading, there’s this Libor thing, for crying out loud. Where is the ethical compass? It’s just stunning to me. If you happen to believe, like I do, that business is the way that we’re going to grow and create jobs and create more prosperity in this country, business has a responsibility to do that, and to begin to take a wider circle of responsibility around employment and taking care of folks. The money comes because you are on a mission. You are doing what you are here to do, and the money comes as a result of the way that you do it. I think [the crisis] exposed the limits of free-market capitalism, that there have got to be some boundaries and some rule-making.
What’s your favorite thing in the store?
I love broccoli and I love bok choy. Another favorite is fresh kale. It turns out it’s a nutritional powerhouse. I like to take it, cut off the stems, and then just chop it and steam it with maybe a little bit of tamari or a little bit of lemon, serve that with a baked yam and with brown rice and some lentils, and you’ve got a nice meal. This is so easy to fix—a little water in the pan, steam it up, and there you go. It’s so healthy. Ultimately, if you want to be healthy, you’re going to have to cook. You can’t do takeout every night.
You’ve said that your employees are just as important as your shareholders. What does that mean?
It’s everything to Whole Foods. There was a produce team leader in Chicago who once said, “Without our people, we’re just four walls and food.” We have 68,000 team members now. Our third core value is team member happiness and excellence. That’s something we believe in our hearts. That’s something that’s guiding our actions every day as a company. I think people feel like we’re trying to do this in a way that’s inclusive, and that people are sharing in the benefits of the company. It’s a simple thing. If we’re taking care of one another, the customers are going to feel that.
There’s a cap on how much you can earn vs. how much store employees earn, correct?
That salary cap, which is 19 times the average worker pay every year, is a hard cap. We’ve had that for years. Long before the Wall Street meltdown. It’s a governance standard that helps us keep faith with one another. Why should John or myself or anybody else on the executive team make 400 times more than the people working in the store? We don’t have company cars; we don’t have company planes; we all live by the same rules.
How does your role differ from John Mackey’s?
John’s the founder and a tremendous visionary. We’ve been working together as part of a five-person executive team for the last 11 years. We all pay ourselves the same. But what happens is, we push off each other. We don’t always agree. But there’s a safe place to push, push, push. And hopefully come out in a better place for Whole Foods.
What’s your favorite guilty pleasure?