Whole Foods: A Business Built on Conscious Capitalism

Whole Foods sees itself as much more than a retail grocery store and seeks to have positive relationships with all parties involved in its business. The motto of Whole Foods- “Whole Foods, Whole People, Whole Planet”- embodies the company’s practices that make it more than just a grocer. In addition to providing the highest quality food, the company strives to ensure the happiness of their employees and customers while contributing to the communities in which it operates. As an organic food supplier, Whole Foods also makes environmental stewardship a priority through its support of sustainable agriculture, waste reduction initiatives, and green-building projects. This model of business operations is governed by Whole Foods’ “Declaration of Interdependence” in which it identifies the various stakeholders of Whole Foods and acknowledges their importance to the company and to one another (“Declaration”).  Thus, in its motto and operational strategy, Whole Foods establishes itself as stakeholder-focused company that emphasizes sustainable and ethical business practices.

Conscious Capitalism: Doing Good and Doing Well

Whole Foods identifies its customers, not its shareholders, as its most important stakeholders (“Declaration”). The company goes to great lengths to ensure its customers are fully informed about their buying decisions and enjoy their shopping experience. In addition to meeting the labeling standards for food set by the USDA, the store goes above the requirements by noting when a product includes genetically modified foods. The company has created its own set of quality standards for Animal Welfare and labels its pork, poultry, and beef with a rating that indicates how the animals were raised. The grocer has similar standards for its fish products to inform consumers of the ways in which their food was produced.  The company prides itself on using suppliers that practice sustainable farming and want customers to know where their food comes from and why it’s important.  This extra consideration for customers is what differentiates Whole Foods as a “certified organic grocer” from other grocery stores that offer some organic foods.

In addition to its customers, Whole Foods takes the happiness of its employees very seriously. The company wants to foster a sense of unity in its employees and gives employees considerable say in their jobs. When potential employees interview, they are interviewed by a team of workers to possibly join that team. The team then votes on whether or not they will hire a certain person. Also, teams have some input on the products their section stocks. The company offers generous benefits, like health insurance, which is uncommon in the grocery industry. Of its 72,700 team members, 73% are full-time, benefits eligible employees. Voluntary turnover is less than 10%, which the company claims is very low for the industry (SEC 7).  Also, the salary of the highest paid person in the company is capped at 19 times the salary of the average employee. The management keeps an “open book” on the pay of all employees so everything is known (Marquis 8). Because of the company’s continued efforts to ensure the happiness of its employees, Whole Foods has made Fortunes list of “100 Best Companies to Work for” every year since 1998 (Marquis 9).

To truly show consideration for all their stakeholders, Whole Foods is committed to giving back to the communities in which they operate. To foster positive relationships with the community, the company gives employees up to twenty hours of paid time to volunteer per year. Each store could hold 5% days where they would donate 5% of the day’s profits to a local charity. The stores also donated 5% of yearly after tax profits to charity. Both charities were the choice of the local store (Marquis 9).  The Whole Kids Foundation is the company’s program that funds salad bars in schools, gives grants to schools to start gardens, and provides nutrition education to teachers. Through this, the company hopes to reduce childhood obesity by improving access to healthy foods and creating awareness of the importance of healthy eating.

To support the environment and community Whole Foods strives to build supportive relationships with its suppliers as well.  To promote local farmers, individual stores will hold farmers markets in their parking lot. Because the company realizes that many of their suppliers produce on a small scale, the stores employ “local foragers” to seek out new supplies of locally-grown or made goods.  These individuals travel through certain regions to find potential suppliers and to support the growth of those they create partnerships with. The company has given out over ten million dollars in loans to local producers. In Northern California, for example, an urban mushroom farmer was able to start as a supplier for Whole Foods selling amounts as little 3 pounds of mushrooms. With a $25,000 loan from Whole Foods, they were able to increase production and now supply thirty stores in the area with sales of 300 lbs. per week distributed among them (Baker).  As of September 30, 2012, Whole Foods has loaned 7.3 million of its pledged 10 million dollars to local farmers under its Local Producer Loan Program (SEC 3).  Through these programs, Whole Foods helps support the local economies of its stores’ communities and encourage the growth of sustainable, organic food production.

Through support of organic and sustainable agriculture, Whole Foods is also fostering the development of environmentally-friendly means of production.  The company has invested in alternative energy and has earned several awards from the EPA in the past few years. The company also invested in ways to reduce waste at individual stores and was the first grocer to use LEED buildings (Marquis 9).  Many stores have composting programs to reduce their waste and stores highly discourage the use of non-reusable shopping bags. Through these efforts, Whole Foods has demonstrated that it has a genuine concern for the environment’s well-being.

As a self-proclaimed stakeholder-focused company, Whole Foods recognizes the importance of its shareholders as stakeholders in the company. As the company sees it, profits are what enable it to grow the reach of its mission and support the organic and local food industries. By creating wealth for shareholders, the company is able to finance its support of healthy eating initiatives, local growers, and green building. The company has seen steady and well-above industry average financial growth in gross sales, same store sales, and profits. While the 2012 profit margin industry average for grocery retailers is 1.5%, Whole Foods came out with an impressive 3.98% (Yahoo! Finance). Its sales make it the 11th largest grocer in the United States and it currently operates 335 stores (SEC 1). Despite its emphasis on stakeholder welfare, Whole Foods has an enviable financial track record and is one of the strongest companies in its industry.

Whole Foods’ stock has seen strong growth over the last five years.

From an ethical standpoint, Whole Foods believes it operates with the highest standards of business conduct.  Because of the extra care Whole Foods takes to ensure the well-being of all those affected by its business practices, the company would be considered unethical by Milton Friedman’s standards. Because it is a business, Whole Foods is not capable of having “social responsibilities”. A CEO should conduct business in a way that conforms “to the basic rules of society, both those embodied in law and those embodied in ethical custom”.  When a company spends money on “social responsibility”, it is hurting its customers by “imposing taxes and spending the proceeds” (Friedman).  Known for its high prices, Whole Foods, Friedman would argue, is unfairly penalizing its customers with its excessive social spending.  While Whole Foods’ social agenda may contribute to its strong financial performance, Friedman would still admonish the company’s actions because their efforts to be sustainable are not purely motivated by profits and they pass the costs onto consumers.

Although Whole Foods would not be considered a “shareholder” firm by Friedman, his classification relies on several assumptions that do not fit the unique situation of Whole Foods.  Friedman states that the desire of business owners “will be to make as much money as possible” and that the CEO, as an employee of the owners, is responsible for acting in a way that is in accordance with the desires of the owners. It would be wrong, however, to assume that all of Whole Foods’ shareholders desire profit maximization above everything else. Many investors choose companies that align with their personal beliefs so that they can feel good about the companies they support. If the shareholders of Whole Foods wanted a CEO that only worked to maximize profits, they would not have chosen John Mackey, who founded the company and pioneered its social vision. Thus, the assumptions that underlie Friedman’s argument about the responsibilities of corporations do not necessarily apply to Whole Foods.

When a company acts in a way that could be deemed “socially responsible” Friedman asserts that the CEO is still fulfilling his duty if the motivation to do so was profit maximization.  From a Kantian perspective, motivation is also important in determining the nature of a firm’s action.  Kant argued that an action should be judged by the motivation behind it and not the ultimate outcome (Frederick 3). Kant’s ethics also stress that people should not be treated as a means to an end but as an end in themselves (Frederick 7). Whole Foods mirrors these characteristics of Kantian ethics because it chooses to treat its employees, suppliers, and customers well because it is the right thing to do rather than because they believe they can profit from it. While the motivations of a firm may never be fully known, the mission and values of Whole Foods are so intertwined with its business practices that it appears they go far beyond what would be necessary to look charitable.

Whole Foods has demonstrated that a company can create value for its stakeholders while also generating substantial returns for its stockholders.  While Freidman may not agree with the company’s spending on social initiatives, the business climate of today demands more than profits from companies. The “ethical custom” that Friedman refers to has developed into a societal expectation that companies actively engage in charitable endeavors.  In accordance with Freeman’s “Stakeholder Theory”, Whole Foods strives to create value for its stakeholders, and, given its financial performance, its stakeholders have helped create value for the firm.  Whole Foods operates according to its “Declaration of Interdependence” and shows in its treatment of workers, customer, and the environment that it truly esteems each of its stakeholders.

Works Cited

Baker, Liana B. “On the Hunt for the Next Bay Area Delicacy.” The Wall Street Journal. Dow                 Jones Company, 3 June 2010. Web. 19 Nov. 2012. <http://online.wsj.com/article/SB10001424052748704269204575271052617129766.html&gt;.

Frederick, Robert, ed. A Companion to Business Ethics. Vol. 17. Wiley-Blackwell, 2008.

Freeman, R. Edward. “Business Ethics at the Millennium.” Business Ethics Quarterly 10.1            (2000).  JSTOR. Philosophy Documentation Center. Web. 13 Sept. 2012. <jstor.org>.

Friedman, Milton. “The Social Responsibility of Business Is to Increase Its Profits.” The New York Times 13 Sept. 1970. Print.

Marquis, Christopher, Marya Besharov, and Bobbi Thomason. Whole Foods: Balancing Social Mission and Growth. N.p.: Harvard Business School, 2011. Print.

Whole Foods Market. “Declaration of Interdependence.” Whole Foods Market. Whole Foods Market, n.d. Web. 21 Nov. 2012. <http://www.wholefoodsmarket.com/mission-values/core-values/declaration-interdependence&gt;.

Whole Foods Market. (WFM) (2012). Company, Key Statistics. Yahoo! Finance. <http://finance.yahoo.com/q/ks?s=WFM+Key+Statistics&gt;.

Whole Foods Market. 2012 10K Report. Securities and Exchange Commission. Web. 20 Nov 2012.  <http://www.sec.gov/Archives/edgar/data/865436/000086543612000033/wfm10k2012.htm&gt;.


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