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Is Whole Foods Losing Its Sustainable Luster?

Lost in the ear-splitting uproar over Whole Foods CEO John Mackey's
controversial venture into the health care debate, is a bigger, though
less subtle story.

It's a story about how a small, well-intentioned sustainable food
company lost its way. It's a story of how that company went from a
single natural foods store in Austin, Texas to industry juggernaut,
with every intention of dominating the natural foods retail category,
in the nearly-identical way its conventional competitors came to
dominate their sectors, i.e., achieving massive scale through
acquisitions, new stores and eliminating smaller competitors.

Along the way, that company, Whole Foods, traded in any sense of
purpose it had regarding regional food systems to pursue increasingly
larger financial objectives, e.g., $12.0 billion in sales by 2010, up
from $8.0 billion in FY08 sales and maintaining its 30% CAGR in sales
since '91 IPO. Today, Whole Foods, which publicly trades on the NASDAQ
exchange (symbol: WFMI),
owns the natural foods retail category, providing solid annual
financial returns to its shareholders. Significant accomplishments
considering Whole Foods' humble beginnings.

But alongside this growth, a company with great potential to
fundamentally change sustainable food lost its luster. Although
shareholders, who have earned handsome returns over the years -- 15% CAGR in stock price since IPO -- cannot complain, sustainable food advocates can. Here's why.

After acquiring
19 regional chains since 1991, beginning with New Orleans-based Whole
Food Company and ending with its recent $565 million acquisition of
Wild Oats (#2 national chain with 110 stores, compared to Whole Foods'
191 stores), the resulting natural foods landscape now resembles the
highly concentrated, conventional food retail space more than it does
the regional food systems that sustainable food advocates identify as
key to improving the food we eat.

The problem with Whole Foods isn't necessarily its management or
financial performance; it's that the company has morphed into what
amounts to a "sustainable" version of Wal-Mart and Kroger and every other
multi-billion dollar supermarket chain. As evidence, the original Whole
Foods Market opened in 1980 at 10,500 square feet, quite large compared
to other natural foods stores at that time. By 2008, its 276 stores
averaged 36,000 square feet, and it plans to open 70 new stores
through fiscal year 2013 at an average size of 47,300 square feet,
slightly above the conventional food supermarket median average of 46,755 square feet.
Taken together, these stores will occupy over 13 million square feet of
retail space, stocked with tens of thousands of packaged, processed and
perishable items, purchased almost entirely through large national
distributors, much like any other large supermarket.

There's every indication that these massive Whole Foods "natural
foods" stores will continue popping up in more regions, including
smaller markets, e.g., Burlington, Vermont,
a city of less than 40,000 citizens in a county barely breaking 150,000
people. Burlington is home to one of the more vibrant sustainable food
communities in the country. There are no Whole Foods Markets or Trader
Joes in this town. Instead, residents frequent food cooperatives,
farmers markets and community supported agriculture (CSA) farms,
purchasing above-average quantities of food from local farms and
processors.

Whole Foods entering markets like Burlington begins the systematic
weakening of the fabric of such vibrant regional food economies.
Unintentional or not, Whole Foods' very presence in these markets
undermines established relationships between regional food retailers
and suppliers, including farmers, processors and related service
providers.

When you consider Whole Foods in this light, you see yet another
national, multi-billion dollar corporate giant entering regional
markets, amassing market share through lower prices (leveraging
economies of scale from its large-scale distribution partner, United
Naturals Food Inc.), chronically injuring or killing off local and
regional businesses, and exporting massive financial value out of each
region. Do they care that regional farmers and food processors are
stuck having to find new channels to market or entirely new markets?
Difficult to say, but smaller suppliers don't work well within Whole
Foods' centralized distribution system, which clearly favors
large-scale sustainable food suppliers, many of which are now owned by
the world's largest food processors, e.g., Stonyfield Yogurt, Kashi, Muir Glen (more).

The unfortunate part of all this is that most people associate Whole
Foods with organic and sustainable food, which is deserved for the good
work the company has done over the years, but less so when you consider
the overall sustainability of the large-scale, nationally-controlled
food system that Whole Foods is now part of. In my book, Whole Foods is
only slightly better than Wal-Mart or Krogers, respectively the 1st and 2ndlargest supermarkets in America, which is what the debate should really be focused on.

Perhaps there are reasons to "boycott" Whole Foods. One could
protest its decision long ago to turn over its long-term objectives to
shareholders, rather than considering all stakeholders, especially
regional farmers and food processors; but that isn't going to change
Whole Foods, since it can't undo what is done without certain financial
ruin.

Rather than boycott, why not leverage Whole Foods' evolution into a
Kroger, Safeway or Albertsons-style supermarket in more sustainable
clothing? Tell your friends, family and coworkers that they can get
anything they are accustomed to buying at conventional supermarkets at
a Whole Foods instead. Tell them doing so is more sustainable than
those alternatives, which is generally true.

Then, knowing that your personal defection from Whole Foods will
have little impact, start shopping at a local food store or regional
chain offering produce, meats and other regionally-produced foods. Your
challenge will be finding such businesses since they were likely
acquired or put out of business by Whole Foods years ago.

In time, a new generation of Pro Food ventures will show up to fill this void, region by region. Until then, you might want to start a garden.

Our work is licensed under Creative Commons (CC BY-NC-ND 3.0). Feel free to republish and share widely.

Lost in the ear-splitting uproar over Whole Foods CEO John Mackey's
controversial venture into the health care debate, is a bigger, though
less subtle story.

It's a story about how a small, well-intentioned sustainable food
company lost its way. It's a story of how that company went from a
single natural foods store in Austin, Texas to industry juggernaut,
with every intention of dominating the natural foods retail category,
in the nearly-identical way its conventional competitors came to
dominate their sectors, i.e., achieving massive scale through
acquisitions, new stores and eliminating smaller competitors.

Along the way, that company, Whole Foods, traded in any sense of
purpose it had regarding regional food systems to pursue increasingly
larger financial objectives, e.g., $12.0 billion in sales by 2010, up
from $8.0 billion in FY08 sales and maintaining its 30% CAGR in sales
since '91 IPO. Today, Whole Foods, which publicly trades on the NASDAQ
exchange (symbol: WFMI),
owns the natural foods retail category, providing solid annual
financial returns to its shareholders. Significant accomplishments
considering Whole Foods' humble beginnings.

But alongside this growth, a company with great potential to
fundamentally change sustainable food lost its luster. Although
shareholders, who have earned handsome returns over the years -- 15% CAGR in stock price since IPO -- cannot complain, sustainable food advocates can. Here's why.

After acquiring
19 regional chains since 1991, beginning with New Orleans-based Whole
Food Company and ending with its recent $565 million acquisition of
Wild Oats (#2 national chain with 110 stores, compared to Whole Foods'
191 stores), the resulting natural foods landscape now resembles the
highly concentrated, conventional food retail space more than it does
the regional food systems that sustainable food advocates identify as
key to improving the food we eat.

The problem with Whole Foods isn't necessarily its management or
financial performance; it's that the company has morphed into what
amounts to a "sustainable" version of Wal-Mart and Kroger and every other
multi-billion dollar supermarket chain. As evidence, the original Whole
Foods Market opened in 1980 at 10,500 square feet, quite large compared
to other natural foods stores at that time. By 2008, its 276 stores
averaged 36,000 square feet, and it plans to open 70 new stores
through fiscal year 2013 at an average size of 47,300 square feet,
slightly above the conventional food supermarket median average of 46,755 square feet.
Taken together, these stores will occupy over 13 million square feet of
retail space, stocked with tens of thousands of packaged, processed and
perishable items, purchased almost entirely through large national
distributors, much like any other large supermarket.

There's every indication that these massive Whole Foods "natural
foods" stores will continue popping up in more regions, including
smaller markets, e.g., Burlington, Vermont,
a city of less than 40,000 citizens in a county barely breaking 150,000
people. Burlington is home to one of the more vibrant sustainable food
communities in the country. There are no Whole Foods Markets or Trader
Joes in this town. Instead, residents frequent food cooperatives,
farmers markets and community supported agriculture (CSA) farms,
purchasing above-average quantities of food from local farms and
processors.

Whole Foods entering markets like Burlington begins the systematic
weakening of the fabric of such vibrant regional food economies.
Unintentional or not, Whole Foods' very presence in these markets
undermines established relationships between regional food retailers
and suppliers, including farmers, processors and related service
providers.

When you consider Whole Foods in this light, you see yet another
national, multi-billion dollar corporate giant entering regional
markets, amassing market share through lower prices (leveraging
economies of scale from its large-scale distribution partner, United
Naturals Food Inc.), chronically injuring or killing off local and
regional businesses, and exporting massive financial value out of each
region. Do they care that regional farmers and food processors are
stuck having to find new channels to market or entirely new markets?
Difficult to say, but smaller suppliers don't work well within Whole
Foods' centralized distribution system, which clearly favors
large-scale sustainable food suppliers, many of which are now owned by
the world's largest food processors, e.g., Stonyfield Yogurt, Kashi, Muir Glen (more).

The unfortunate part of all this is that most people associate Whole
Foods with organic and sustainable food, which is deserved for the good
work the company has done over the years, but less so when you consider
the overall sustainability of the large-scale, nationally-controlled
food system that Whole Foods is now part of. In my book, Whole Foods is
only slightly better than Wal-Mart or Krogers, respectively the 1st and 2ndlargest supermarkets in America, which is what the debate should really be focused on.

Perhaps there are reasons to "boycott" Whole Foods. One could
protest its decision long ago to turn over its long-term objectives to
shareholders, rather than considering all stakeholders, especially
regional farmers and food processors; but that isn't going to change
Whole Foods, since it can't undo what is done without certain financial
ruin.

Rather than boycott, why not leverage Whole Foods' evolution into a
Kroger, Safeway or Albertsons-style supermarket in more sustainable
clothing? Tell your friends, family and coworkers that they can get
anything they are accustomed to buying at conventional supermarkets at
a Whole Foods instead. Tell them doing so is more sustainable than
those alternatives, which is generally true.

Then, knowing that your personal defection from Whole Foods will
have little impact, start shopping at a local food store or regional
chain offering produce, meats and other regionally-produced foods. Your
challenge will be finding such businesses since they were likely
acquired or put out of business by Whole Foods years ago.

In time, a new generation of Pro Food ventures will show up to fill this void, region by region. Until then, you might want to start a garden.

Lost in the ear-splitting uproar over Whole Foods CEO John Mackey's
controversial venture into the health care debate, is a bigger, though
less subtle story.

It's a story about how a small, well-intentioned sustainable food
company lost its way. It's a story of how that company went from a
single natural foods store in Austin, Texas to industry juggernaut,
with every intention of dominating the natural foods retail category,
in the nearly-identical way its conventional competitors came to
dominate their sectors, i.e., achieving massive scale through
acquisitions, new stores and eliminating smaller competitors.

Along the way, that company, Whole Foods, traded in any sense of
purpose it had regarding regional food systems to pursue increasingly
larger financial objectives, e.g., $12.0 billion in sales by 2010, up
from $8.0 billion in FY08 sales and maintaining its 30% CAGR in sales
since '91 IPO. Today, Whole Foods, which publicly trades on the NASDAQ
exchange (symbol: WFMI),
owns the natural foods retail category, providing solid annual
financial returns to its shareholders. Significant accomplishments
considering Whole Foods' humble beginnings.

But alongside this growth, a company with great potential to
fundamentally change sustainable food lost its luster. Although
shareholders, who have earned handsome returns over the years -- 15% CAGR in stock price since IPO -- cannot complain, sustainable food advocates can. Here's why.

After acquiring
19 regional chains since 1991, beginning with New Orleans-based Whole
Food Company and ending with its recent $565 million acquisition of
Wild Oats (#2 national chain with 110 stores, compared to Whole Foods'
191 stores), the resulting natural foods landscape now resembles the
highly concentrated, conventional food retail space more than it does
the regional food systems that sustainable food advocates identify as
key to improving the food we eat.

The problem with Whole Foods isn't necessarily its management or
financial performance; it's that the company has morphed into what
amounts to a "sustainable" version of Wal-Mart and Kroger and every other
multi-billion dollar supermarket chain. As evidence, the original Whole
Foods Market opened in 1980 at 10,500 square feet, quite large compared
to other natural foods stores at that time. By 2008, its 276 stores
averaged 36,000 square feet, and it plans to open 70 new stores
through fiscal year 2013 at an average size of 47,300 square feet,
slightly above the conventional food supermarket median average of 46,755 square feet.
Taken together, these stores will occupy over 13 million square feet of
retail space, stocked with tens of thousands of packaged, processed and
perishable items, purchased almost entirely through large national
distributors, much like any other large supermarket.

There's every indication that these massive Whole Foods "natural
foods" stores will continue popping up in more regions, including
smaller markets, e.g., Burlington, Vermont,
a city of less than 40,000 citizens in a county barely breaking 150,000
people. Burlington is home to one of the more vibrant sustainable food
communities in the country. There are no Whole Foods Markets or Trader
Joes in this town. Instead, residents frequent food cooperatives,
farmers markets and community supported agriculture (CSA) farms,
purchasing above-average quantities of food from local farms and
processors.

Whole Foods entering markets like Burlington begins the systematic
weakening of the fabric of such vibrant regional food economies.
Unintentional or not, Whole Foods' very presence in these markets
undermines established relationships between regional food retailers
and suppliers, including farmers, processors and related service
providers.

When you consider Whole Foods in this light, you see yet another
national, multi-billion dollar corporate giant entering regional
markets, amassing market share through lower prices (leveraging
economies of scale from its large-scale distribution partner, United
Naturals Food Inc.), chronically injuring or killing off local and
regional businesses, and exporting massive financial value out of each
region. Do they care that regional farmers and food processors are
stuck having to find new channels to market or entirely new markets?
Difficult to say, but smaller suppliers don't work well within Whole
Foods' centralized distribution system, which clearly favors
large-scale sustainable food suppliers, many of which are now owned by
the world's largest food processors, e.g., Stonyfield Yogurt, Kashi, Muir Glen (more).

The unfortunate part of all this is that most people associate Whole
Foods with organic and sustainable food, which is deserved for the good
work the company has done over the years, but less so when you consider
the overall sustainability of the large-scale, nationally-controlled
food system that Whole Foods is now part of. In my book, Whole Foods is
only slightly better than Wal-Mart or Krogers, respectively the 1st and 2ndlargest supermarkets in America, which is what the debate should really be focused on.

Perhaps there are reasons to "boycott" Whole Foods. One could
protest its decision long ago to turn over its long-term objectives to
shareholders, rather than considering all stakeholders, especially
regional farmers and food processors; but that isn't going to change
Whole Foods, since it can't undo what is done without certain financial
ruin.

Rather than boycott, why not leverage Whole Foods' evolution into a
Kroger, Safeway or Albertsons-style supermarket in more sustainable
clothing? Tell your friends, family and coworkers that they can get
anything they are accustomed to buying at conventional supermarkets at
a Whole Foods instead. Tell them doing so is more sustainable than
those alternatives, which is generally true.

Then, knowing that your personal defection from Whole Foods will
have little impact, start shopping at a local food store or regional
chain offering produce, meats and other regionally-produced foods. Your
challenge will be finding such businesses since they were likely
acquired or put out of business by Whole Foods years ago.

In time, a new generation of Pro Food ventures will show up to fill this void, region by region. Until then, you might want to start a garden.