COVER STORY: Doing what comes naturally

When Whole Foods Market became the first grocer in the country to have its retail operations certified organic, the achievement marked the fulfillment of what would be a tall order for almost any supermarket company. But Austin, Texas-based Whole Foods was just doing what comes naturally.

The certification, awarded in June, is simply the culmination of the company's persistent drive to deliver the best food in the best way possible to its customers. Like everything else Whole Foods does, it's just another way of serving shoppers. "The retail certification is something we wanted to do to assure our customers that the organic integrity is being maintained," says Margaret Wittenberg, v.p. of marketing and public affairs. "In fact, we maintain organic integrity far beyond what the National Organic Standards actually require."

To gain retail certification, a grocer must, among other things, verify current organic certification status of products, maintain extensive records that demonstrate the audit trail of organic product is intact, ensure organic products are protected from commingling with conventional products and from contamination by prohibited materials, thoroughly train employees in the handling practices of organic products, and open facilities to on-site inspections. So far, Whole Foods is the only one that's been able to do all that.

With revenues nearly doubling since 1998 to $2.7 billion for fiscal 2002 during a time when consumers are flocking to dollar stores and price clubs, Whole Foods is doing something right. Although things have slowed down a bit during the past year—with year-over-year comparable store sales growth of 7 percent for the fiscal year ended last September, compared with 10.1 percent for the same period last year—that wasn't unexpected.

Chief executive John Mackey predicted it in his 2002 annual report. "We do not expect to sustain the excellent 10 percent comps we saw this year," he said in his letter to stakeholders. "The Harry's stores [acquired in August 2001] will have a negative impact as they enter our comp base at the beginning of the year, and we will be up against very tough comparisons."

But there's wide agreement the company has a strong future. According to the The Natural Food Merchandiser's 22nd Annual Market Overview, published in its June issue, American shoppers spent approximately $36.4 billion on natural and organic products in 2002. "As more data and educational resources become available on organic products, the industry will continue to gain credibility," says Ellen Holton, director of marketing for Quality Assurance International, the San Diego, Calif. independent third-party certifier of organic food systems. Quality Assurance, whose certification is federally recognized, has seen retailer interest jump since it certified Whole Foods. "There has also been an increase in the number of suppliers that are looking to be certified."

Add to this the influence of consumer demographic trends such as the aging of baby boomers and the increasing senior population, and the trend toward fitness and well-being—and yoga and pilates—and there is a strong foundation for Whole Foods to build on.

And Whole Foods has addressed this market well. "It's a lifestyle brand. People go there because they're interested in living healthy," says Carole Buyers, an analyst with RBC Capital Markets.

And they're willing to pay more for that lifestyle. Organic foods typically carry heftier price tags than the conventional versions. Healthy living and eating well are more important to Whole Foods customers than cost. Because this market is mostly concentrated in metropolitan areas, that's where the company operates its stores. More than 95 percent of them are in the top 50 metropolitan markets. With 20 of those markets still untapped, there's a lot of room for growth. Whole Foods expects to grow the company to 200 stores and $4 billion in sales by 2004. The current store count is 145.

What makes the company so successful in a time when most grocers are struggling is difficult to pinpoint, as it comes from many sources. Yes, there are the unique store formats, the huge selection of produce, the meat departments featuring prime cuts of aged beef, the impeccably clean aisles, the big push toward sustainable resources, and top-notch customer service. Yet it's all of these working together that creates the all-around pleasing atmosphere in which to shop for food, according to Wittenberg.

Indeed, this is a case where the whole is greater than the sum of its parts.

The Whole Foods philosophy is summed up in its vision statement, aptly titled Whole Foods Declaration of Interdependence:

"Our motto—Whole Foods, Whole People, Whole Planet—emphasizes that our vision reaches far beyond just being a food retailer. Our success in fulfilling our vision is measured by customer satisfaction, Team Member excellence and happiness, return on capital investment, improvement in the state of the environment, and local and larger community support."

It's this principle that serves as a guide for every product the company sells and every strategy it employs.

Whole Foods

Whole Foods Market is almost synonymous with "organic." As the first national food retailer invited to join the Agriculture Department's advisory board and a key member of the Organic Trade Association, the company played an integral role in the development of standards and hosted the announcement of the National Organic Standards in Washington.

Needless to say, organic products permeate its stores. Whole Foods believes that food in its purest state is the best-tasting as well as the most nutritious available, and whether by sourcing product nationally or locally, or preparing it in one of seven regional bake houses, four commissaries, or its own seafood processing facility, the chain goes out of its way to make sure that such foods are on hand.

Whole Foods Market is best known for is its perishables, which account for more than 60 percent of sales. As the average store size grows, Whole Foods continues to place a growing emphasis this segment, particularly produce, bakery, and prepared foods. The importance of perishables became particularly evident when the company acquired three Harry's Farmers Market perishables superstores. Based in Atlanta, the Harry's stores provide a platform for geographical expansion as well as intellectual capital. The stores average more than 60,000 square feet, with 75 percent of sales in perishables, and the company is known for its expertise in product procurement and running large produce, bakery, and seafood departments.

As soon as customers walk into a Whole Foods store, they're hit with a beautiful display of hand-stacked fresh produce, arranged meticulously and with striking contrast.

Whole Foods sources its produce both nationally and locally, and the chain's three produce inspectors log more than 100,000 miles per year going out into the fields in search of choice harvests. Both conventional and organic produce are available. The company works closely with local farmers, viewing itself as a partner with family farm sources. "We support local farmers and source their produce whenever we can," says marketing team leader Meredith Petran. "If produce is coming from a farm 25 miles away, shoppers know it's fresh. Plus, people like to take care of their own."

Such produce is identified with "Locally Grown" signs, and in many cases a mini-biography of the farmer is displayed. "This gives the shopper a personal relationship with the farmer providing the produce they're going to eat," Petran says.

Some locations feature an "Exotic Wall," where varieties of produce not found elsewhere are displayed. "That's the place where you find the celebrity chefs shopping," Petran says. "We'll feature 12 varieties of mushrooms in this section, for example."

The bakery section offers fresh hearth-baked breads made from unbleached, unbromated flour, including sandwich breads, French baguettes, and a variety of Italian-style focaccias. Pastries, gluten-free baked goods, and cookies and cakes are featured, as well.

In Whole Foods' specialty departments, customers always know they'll find something new and interesting, whether it's a line of Gouda cheese from Holland, Kalamata olives in brine, or a variety of beer and wine—including Vida Orgánica wines, of which Whole Foods is the exclusive U.S. distributor. Some locations have an Allegro Coffee Bar built into their specialty departments, offering a wide variety of gourmet beans and brewed drinks from the chain's coffee subsidiary in Boulder, Colo. "Our coffee buyers search coffee farms all over the world to pick the best beans," Petran says. "In addition, we've set records with the premiums we pay for coffee. This ensures that the farmers are able to pay and retain the best workers, invest in their farm, and stay in business."

During lunch and dinner hours, the prepared foods section is filled with hungry shoppers looking for healthful dishes ready to take home or back to the office.

For its meat department, Whole Foods seeks out natural meats from animals raised on wholesome grains and well water, instead of byproducts, hormones, and steroids. Most of the animals are raised in a free-range setting.

Whole Foods Market even has its own seafood facility and processing plant, to provide the freshest fish to its stores. Located on the waterfront in Gloucester, Mass., Pigeon Cove Seafood works with independent fishermen running small family businesses, and, as Allegro Coffee does with farmers, pays fishers a fair price for their catches. Buying fish from day-trip and short-trip boats means the fish are as fresh as possible.

Capitalizing on the strength of its brand, Whole Foods' private label offering, which started in 1991, has grown to encompass more than 400 products, including chocolate bars imported from Switzerland, apple butter made from one of the few small cider mills in Pennsylvania, organic pastas, and even an organic microbrewed beer—Lamar Street Ale, made from certified organic ingredients and brewed locally. "Organic is something that goes way beyond produce," Wittenberg says. "I think consumers initially get into organic through produce, then learn that it can incorporate other areas."

In 1998 the chain launched Whole Kids Organic, the country's first organic food product line developed just for kids, to provide them with safe, healthy food choices after they've moved beyond baby food. "The Whole Kids Organic line underscores our commitment to organic," Wittenberg says. "It helps the families and kids understand that organic is something that can really be incorporated into one's life, beginning at a very early age."

Whole Kids Organic products include a hot chocolate mix, applesauce, string cheese, fruit spreads, breakfast cereals, macaroni & cheese, and peanut butter, and are approved by children's taste panels.

The 365 Every Day Value line, which was launched in 1997, consists of commodity-type products that are purchased in a large volume, so the same low price can be maintained year-round. "We want to offer our customers a variety of price points," Petran says. "When consumers hear organic, they think it'll be expensive. We want to give them alternatives."

All of these offerings are not just arbitrarily thrown on the shelves, however. Whole Foods keeps close tabs on its customers through various means of in-store communication, which flows in both directions.

Each store has an ideas and requests bulletin board on which customers can post their comments. Requests are answered by phone, or posted on the board if the answer would benefit other shoppers, such as information that a product has become available. Because each supermarket is empowered to handle such requests, the result is a chain of stores with offerings and services unique to their locations. "Everything in a Whole Foods store is a reflection of the market around it," Wittenberg says.

Throughout the stores, customers will find pamphlets with information about all aspects of Whole Foods and its products and services. Topics run the gamut from "Irradiation and your food" to "How to use a drip coffee maker."

"These are the types of things that build a rapport between Whole Foods and its customers," Petran says. "It reinforces the view of us as a destination for our shoppers and makes their shopping a fun experience."

Whole People

Adding to this experience are the Whole Foods employees. The company has placed on Fortune magazine's 100 Best Places to Work list every year since the list's inception six years ago, and it's one of only 25 companies to do so. This year Whole Foods received its highest ranking, 32nd. It's the only national grocer on the list.

It's easy to see why Whole Foods made the list once again. One simply has to see the smiles on its employees' faces, or ask what their titles are. Regardless of which department they work in, they're all team members—customer service team member, front end team leader, store team leader. And if they're asked why they like working at Whole Foods so much, among the most common answers is that they are accepted for themselves. "We attract people with passion," Petran says. "It's a very creative, open atmosphere, where they can express themselves and be themselves."

Stores are organized into as many as 11 teams, each headed by a team leader. Each team is responsible for a different product category or aspect of store operations. Along with Whole Foods' regional framework, a decentralized approach to store operations is promoted, in which many of the merchandising and operating decisions are made by teams at the individual store level. "The team members feel they have a voice in the company," Petran says. "There's an open-door policy, and many leadership programs are available for team members looking to grow internally."

Still, the company is united under the Whole Foods philosophy and core values. "We have eight regions, but we're all tied together as far as who Whole Foods is and what we do," Wittenberg points out. "Each region is in a different part of the country. There are some things that work for one region and not another, but we have our core values and every region adheres to that."

Whole Planet

These communities include local neighborhoods and organizations, but they extend to the entire planet. The company gives a minimum of 5 percent of its profit each year to a variety of community and nonprofit organizations. "Each store is allotted a certain amount of money to use for donations," Petran says. "By supporting issues relevant to the community, the store builds a strong connection with people in the area."

Additionally, each full-time team member receives 20 hours per year in paid time off to work with qualified community service organizations. "This allows employees to choose something close to their hearts," Petran says. "On many occasions, however, team members join together to work on specific projects.

To help keep Mother Earth happy and healthy, Whole Foods maintains strict environmental practices, such as recycling, reusing, and reducing its waste and sustainable agriculture is strongly encouraged.

Whole Foods has taken action toward sustainable seafood, as well. Sustainable seafood comes from fishing practices that allow a depleted or threatened fish population to recover to healthy levels, and it prevents healthy fish populations from being depleted.

Recently, the company announced that it would fund the Marine Stewardship Council's (MSC) new initiative aimed at increasing the number of certified sustainable fisheries in the United States and throughout the Americas. Funded by a $225,000 grant over three years, the Whole Foods Market Americas Fisheries Initiative helped create a position to identify and certify more fisheries. The position of fisheries manager, Americas, was filled by Alaskan Kate Troll, who started work July 28. "Fisheries need someone dedicated to work with when they're trying to be certified," says MSC U.S. communications director Karen Tarica. "She'll be our point person with governments, research organizations, and environmental groups involved in the various projects."

"MSC has a terrific program that rewards fishermen who fish with the environment in mind, and the longevity and sustainability of the fish in mind," Wittenberg says.

Currently, seven fisheries have been certified under MSC's international program. Wild Alaska salmon was the first North American seafood species to earn the seal of approval from MSC, promoted by Whole Foods in its "Fish for our Future" coalition, which was formed last year The coalition is composed of the Alaska Seafood Marketing Institute, Chefs Collaborative, MSC, and World Wildlife Fund.

One can say that the "Whole" in Whole Foods, in addition to meaning wholesome, also refers to all parts of the business—and people, products, and planet—working together in unison. Part of its company description states: "We believe in a virtuous circle entwining the food chain, human beings, and Mother Earth: Each is reliant upon the others through a beautiful and delicate symbiosis."

Viewed in this light, it seems the future health of the company will depend not so much on the economy as on the health of the consumers who are part of it.
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