Whole-istic Strategy

Response to the SmartMoney Magazine article “Whole Foods: Too Pricey to Thrive in a Recession”
Author: Janet Paskin
Issue Date: January 16, 2009


By: Julie Terry

The article referenced above talks to Whole Foods’ ability to survive in the recession, and the strategies they have undertaken prior to and since the recent economical crisis. Rather than comment on the obvious, the correlation between Whole Foods prices and cuts in consumers’ discretionary spending in these uncertain times, I would like to comment on Whole Foods’ prior strategic decisions.
Every other sentence in the article highlights Whole Foods’ RVP. Whole Foods offers an experience and a wide selection of grocery products. One would be hard pressed to argue against this, but Mackey goes so far to say their prices are competitive, forcing me to question their RVP. It seems as though he is defending the shocking bills customers run up at his store, as opposed to what distinguishes Whole Foods from its competitors. When it comes down to it, Whole Foods brings luxury and quality to a grocery store. In my opinion, experience is number one in their RVP because as Mackey puts it, “Food is this incredible, sensual, pleasurable thing, and our idea is to create stores that enhance that experience.” It’s pretty obvious that selection is the other, and not price. Mackey contradicts himself in this one article by saying, ““Our mission isn’t to sell the cheapest food, it’s to sell the highest quality food”—that’s what sets Whole Foods apart”, and then soon after, “And at Whole Foods, if you shop with a list and look for the least expensive items, your bill will be reasonable too. The problem is, while you were shopping, you didn’t buy all the least expensive stuff. You gave in to temptation.” Right here is where I saw the difference – Mackey isn’t trying to change Whole Foods RVP, he’s enforcing their original RVP. It is theoretically possible for customers to leave with a reasonable bill, but because the experience and selection is so great, they do not.
The latter quote illustrates more of Whole Foods’ strategy. Similarly to the Home Depot case that looked at a store layout decision for placement of their EcoOption products, Whole Foods made an explicit decision on their store layout. Mackey gives it away when he refers to customers’ inability to restrain themselves from the multitude of ‘tempting’ options that Whole Foods offers. It’s obvious here, that Whole Foods chose to place all items of the same product category in one area. I was not surprised by this decision, as any grocery shopper can see that all stores place cereals beside each other and all types of peanut butter in one section of one isle. However, the trick up Whole Foods’ sleeve is that they offer few inexpensive options, and multiple organic, nut-free, kosher, preservative-free (or however else they can increase the price) options. Now, can you really blame a Whole Foods customer for the bills they end up with? Mackey is putting people who think food is ‘sensual’ and ‘pleasurable’ in a world where senses are heightened and one’s shopping experience is filled with pleasure. Essentially, he’s offering candy to kids.
It seems like I have put a lot of blame on Mackey. However, as the CEO and founder I reserve all responsibility for him, and so does Paskin, “When the CEO is also the company’s founder, “he’s not going be the guy who says, ‘let’s take a breather,’”.” Paskin is blaming Mackey for the over-ambitious growth he pursued early in Whole Foods’ career. However, I disagree with the negative tone taken here. I think Mackey’s ambition is what upheld and drove the growth of Whole Foods, and is exactly what the store needs to survive. In the Sunripe case, we discussed the possibility of succession if the owner were to fall ill. I see a similar situation with Whole Foods, as he founded, and retains control and management of the store. Aside from the obvious difference in size and scale of Whole Foods compared to Sunripe, I think there is one other difference that sets them apart. Mackey made smart a smart decision of selling a 17% stake of the company to Leonard Green Partners 1. That is not significant control, but if Mackey were to fall ill, the connections Leonard Green maintains and corporate idols they have worked with would be useful in determining a successor.
Overall, Whole Foods may be threatened by the fall in consumers’ wealth, but they are prepared to confront this obstacle head on. They have made tactical decisions that, although arguably bold and abrasive, have dug them a niche in a highly competitive, normally low-margin, industry.

1 A Private Equity firm with a successful history of acquisitions

Source: http://www.smartmoney.com/investing/stocks/is-whole-foods-too-pricey-to-thrive-in-a-recession/