So. I wasn’t actually planning on posting the second or third articles I wrote for The Economist, but in light of Whole Foods’ swift and unceremonious rejection of my application for employment, I no longer have any qualms about discussing the company online for the consideration of my two to five readers! The third article I wrote is on Mexico’s #yosoy132 movement, but I don’t think I’ll post it because I’m not sure that I agree with my own conclusions–surely the mark of a mildly schizophrenic personality.
Researching this article helped me to understand my former employer’s epic descent from profitability into bankruptcy. I really had no idea what was happening at the time–all I knew was that Darren Krissie (POM’s former CFO) sure was buying a lot of pies. And eating them all in one sitting, he assured me. In fact, that man told me a lot of weird stuff that I can never un-know, try as I may. Here’s to you, Darren–I promise to never reveal your favorite movie!
After a dramatic tumble in 2008, the organic food industry is showing strong growth again, both in sales of organic products at traditional grocery stores as well as at specialty retailers. The organic industry’s largest retailer, Whole Foods, has experienced growth in revenues of at least 1B USD per year since 2010. The firm has expanded largely through mergers and acquisitions of smaller companies, and has successfully infiltrated the Canadian and UK markets from its base in the US. It opens stores at an astonishing rate—22 in 2012—and is eyeing more EU markets.
Though Whole Foods claims to have learned a lesson from the recession in 2008, when share prices hit a low of 8.19USD and sales plummeted, it would be well-advised to heed the cautionary tale of one of its competitors to the north. Planet Organic Market, a company founded in Edmonton, Canada, employed a strategy similar to that of Whole Foods, buying up smaller retailers and aggressively expanding throughout Canada and the United States, until it defaulted on 40 million dollars of debt in 2009. The company is now run by its creditor.
While Planet Organic Market financed much of its expansion through debt, a practice that Whole Foods has avoided, its story nonetheless highlights the merits of cautious expansion, as well as the fact that the organics industry is not recession-proof.
The market for organics has since recovered, and optimism for its growth continues to swell, as evidenced in Whole Foods’ share price hitting an all-time high of 101.19USD in October of last year. However, Whole Foods faces stiff competition from chains such as Wal-Mart and Costco, which are eager to cash in on organics’ wide profit margins. This could eventually drive prices down to a level that would make Whole Foods’ business model insufficiently profitable.
On the other hand, customers choose Whole Foods because they do not want to shop at Wal-Mart—both for ethical reasons and because Whole Foods has cultivated a sophisticated and relaxing experience. The décor, staff, and atmosphere of Whole Foods stores are just as important as the product, and Wal-Mart, with its neon lights and blue-vested staff, simply cannot compete.
Less comforting for Whole Foods are the various scandals plaguing the organic farming industry; the most recent has been termed “organic Watergate.” A 2012 report from industry watchdog the Cornucopia Institute blames the “cozy relationship between the USDA and agribusiness lobbyists” for a number of regulations that threaten to undermine the integrity of the Certified Organic label. However, the average consumer still associates the label with higher quality and safety, despite mounting evidence to the contrary.
A more recent development is the endorsement of genetically modified foods by one of their most vocal detractors. In a speech at Oxford University’s annual farming conference in January 2013, perennial food activist Mark Lynas proclaimed, “the GM debate is over. Three trillion meals eaten and there has never been a single substantiated case of harm.” Some argue that GMOs are the only feasible method of feeding the world’s exploding population.
These debates don’t yet seem to be affecting sales, which grew 9.5% in 2011 and should continue to rise. Nor has the controversy sparked by Whole Foods founder Peter Mackey’s bizarre diatribes against Obamacare hurt business. However, in an industry where public perception is inextricably linked to sales, Mr. Mackey would do well to take steps to mitigate the fallout from these PR follies, lest he find himself in the unenviable position of having dug wells from which no one wants to drink.