Firstly, if you have not looked at last week's comments, it would be a good idea. Some really nice thoughts have been posted.
There is nothing more "pervasive" than relationships... Please share your thoughts after you read Michael Ray's chapter (in the reader, not the CIB book).
While Whole Foods has come upon tough times since the case was written, it still contains interesting ideas for us to consider. Strong culture, unique organization and special leadership.
Dig in and enjoy it.
Hal
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4 comments:
The 4 principles stated in the McKinsey article a CEO should follow during a transformation period are also very useful for many other changes throughout a business cycle . You can use them to implement a project, establish a change in general, in times of a merger or when you are in the process of a start-up. A leader (and this is what a CEO should be) has to make "CHANGE" meaningful, be the mirror of the company, has to build a dedicated and strong team and always ensure that the company's efforts make an impact.
Long before Apple created boutique computer stores that make customers drool, Whole Foods Market was opening grocery stores that made food shopping a mouth-watering adventure. Part of Whole Foods' success, part of its style, is to constantly up the bar in terms of the kinds of foods it offers, how it presents that food, and what it tells you about how the food got to the store. Sometimes that leadership transforms the world. Whole Foods managed to influence how consumers thought about their own health and well-being in relation to food quality. In addition to being a choice about personal health and the environment, growing or purchasing natural and organic food it has also became a form of political expression and a type of lifestyle.
Between 1997 and 2005 sales of organic food climbed from $3.5 to $13.8 billion, and organic penetration – or the share of organics in total food sales rose from 0.81 % to 2.48%. While organics still made up a small percentage of total food purchases, they offered substantially higher profit margins and attracted wealthier consumers.
Some quick analysis of Whole Foods' financial statements provides us with information that tells us that the company's fundamental business model is pretty clear: It finances growth in stores from the cash flow that it generates. During the last years, cumulative cash flow from operations has been $923 million. In the same time period, Whole Foods used $877 million to develop new stores, acquire other companies, and upgrade existing stores. The store count has increased enormously since 1999 from 87 to 146 in 2003, and square footage has more than doubled from 2.1 million to 4.6 million.
Of all the unconventional methods that Whole Foods’ CEO Mackey incorporated into his business, one of the most distinctive was his management style. Our leadership is decentralized, he says. Each store is divided into team, and team members are like people in a band with a tribe – they are empowered to do what needs to get done. They don’t waste time waiting for the chief back at the headquarters to give them orders. Convinced that the individual freedoms and positive reinforcement in his model guaranteed better faster innovation that the old-school competition. You have to continue to innovate, you have to continue to do a better job, or your customers are going to shop somewhere else.
Whole Foods is a Fortune 500 company that exhibit unique loyalty by their employees and have developed non-traditional methods for increasing employee motivation. They have achieved this success in part because of their ability to communicate with their employees. It is because of this communication that they are able to motivate employees through intrinsic rewards. Current employers and team members are for example playing an important role in the hiring process of new people. A candidate required two-thirds majority of department team members to be hired. Whole Foods is also known for giving its employers good benefits.
Whole Foods has also introduced an intricate internal concept called "Whole Trade," inspired by the fair trade movement, to certify that products it sells from developing nations are produced in economically and environmentally sustainable ways. And the company just announced that it will eliminate use of plastic bags at every one of its 265 stores.
In 2007, Whole Foods' first London store rolled out an experimental "animal welfare" rating system - every animal product for sale is rated from 1 to 5, based on how the animals were raised; the system will be rolled out across the company in 2008.
There are, of course, risks. Whole Foods will face competition as traditional supermarkets try to expand their natural and organic food offerings. There is going to be internal rivalry with many sellers in the market. Low-price retailers like Costco and Wal-Mart will lure grocery shoppers away from all supermarkets, including Whole Foods. At one point Costco wanted Whole Food’s prewashed spring mix, but they didn’t want organic. To them organic sent the wrong message: high price and low quality. Even if Costco’s philosophy differs dramatically from the one of Whole Foods’ it will still be a threat for Whole Foods. Costco is having significant economies of scale and is continually going to drive down the prices.
On the other hand, as the company's recent acquisition in the U.K. illustrates, international markets offer tremendous opportunity for growth. Whole Foods is also continuing to build its long-term competitive advantage. It has a strong and growing reputation as one of the best companies to work for in America, and it is taking steps to make its business model harder to copy. For example, in Nov. 2003, it announced the acquisition of its leading distributor of fresh seafood and the expansion of its operations in fresh seafood processing and distribution. By controlling the supply chain for fish, Whole Foods is ensuring its ability to provide the highest-quality, freshest seafood to its stores. And it is making it increasingly difficult for potential competitors to duplicate the model.
Mackey believes that his firm’s focus on particularly its customers is directly connected to its innovation and growth. “In the profit-centered business, customer happiness is merely a means to an end: maximizing profits. In the customer-centered business, customer happiness is an end in itself, and will be pursued with greater interest, passion and empathy than the profit-centered business is capable of.” But Whole Foods will still have to take action in order to stay competitive among its rivals. Whole Foods will need to customize its stores to local preferences and it would be very important for the company to build national brand equity. If possible it would be good for Whole Foods if it could extend already existing partner relationships into current markets but the company would also have to focus on building brand identity with organics. So when the consumers hear or think the word “organic” they think “Whole Foods”. Another thing that Whole Foods would have to think about is to raise their advertising budget and to start advertising more than they are doing right now.
-Johanna Alm
When I read the Whole Foods case study, a few questions came to my mind:
1. US Secretary of Agriculture in 1971 said if US were to go organic, 40% people (50 million) will starve. Well, my high school geography textbook (and that was about 20 years ago) told me that US produces about 160% of its own food crop demand. So this suggests 60% out of 160% is exported. Multiply 160% with 60% (100%-40%) you get 96%, so it seems it can still meet 96% of its own demand. So how is this 40% starvation figure calculated? Plus, with technological advances from China like hybrid rice crops, yields have about doubled in the last few decades. I guess what I want to say is, organic doesn't have to mean starvation.
2. The paper told us that John Mackey had difficulty in his first year of running the business (called Saferway back then), customers thought it was too expense, employees thought they were underpaid, etc. So how did he overcome those issues the second year and managed to make profit? The paper doesn't say how, and those problems just don't go away because your business is one year older.
3. The term "industrial organic" was deemed an oxymoron :) as mentioned in the paper, I guess similar to a hybrid SUV. What I find interesting is, all the cases against such practice is organic animal farming. There is no mentioning of organic vegetable/produce farming. My opinion is that, as long as it follows USDA organic rules, there seems to be no significant loopholes that industrial farms can exploit while mass producing vegetables or crops. There is no such equivalence as humane treatment in the cases of crops and vegetables. I guess my point is, mass production of organic crops and vegetables, if it is more economical, may not be a bad idea. Of course, transportation is an issue, so I would argue for a small carbon tax on fuels to reflect the true cost of distributing food. Another question I have is, doesn't USDA have specific rules on how the organic certification is obtained? Is it because there are too many loopholes in the standard in case of animal farming?
4. John Mackey suggests Americans should spend 15% disposable income on food, like Europeans. But Americans work a lot harder than Europeans (and earn somewhat higher salary), and enjoy much shorter vacations, etc., so it doesn't seem fair for Americans to worker harder, and yet still pay 15% on food. If John Mackey can give 1 month paid vacation and 2-hour lunch break to most Americans, then we can talk about that 15% :).
Sorry about a lot of questions. Still, I think Whole Foods is very successful company with a lot of good people and good culture. It would be great to see more companies follow Whole Foods' ideals.
-Wenyu
The Whole Foods Market case study was an interesting and fascinating reading. Their CEO John Mackey stand out as a great leader. He really is setting the bar and he is a role model for all his employees. I was impressed by how he reacted when he was attacked (2003) by an animal rights activist; Lauren Ornelas. He make a good deal of an attempt to understand Ornelas viewpoint and after his self study he agreed with her!
On the other hand I am not sure this is unique; On a comparasion, accordin gto their website, Safeway have had animal rights regulations since 2001. Albertson's emphasize environmental programs, such as CO2 reductions but I did not see any specisfic information about animal care.
Whole Food's decentralized culture is very intriguing and how the employees feel they are are part of the company and its mission. It would be interesting to see their employee turn over rate compare to their competitors'
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