Whole Foods Markets Unique

Work Culture and Practices

Case study
Reference no 406-084-1

This case was written by Shirisha Regani, under the direction of Saji Sam George,
ICFAI Center for Management Research. It is intended to be used as the basis for
class discussion rather than to illustrate either effective or ineffective handling of
a management situation. The case was compiled from published sources.
2006, ICFAI Center for Management Research (ICMR).
No part of this publication may be copied, stored, transmitted, reproduced
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406-084-1

WHOLE FOODS MARKETS UNIQUE WORK CULTURE AND

PRACTICES
Whole Foods is a social system. Its not a hierarchy. We dont have lots of rules handed down
from headquarters in Austin. We have lots of self-examination going on. Peer pressure
substitutes for bureaucracy. Peer pressure enlists loyalty in ways that bureaucracy doesnt.1
- John Mackey, cofounder, Chairman and CEO of Whole Foods Market, in 1996.
Customers experience the food and the space, but what they really experience is the work
culture. The true hidden secret of the company is the work culture. That's what delivers the stores
to the customers.2
- Chris Hitt, former President of Whole Foods Market, in 2004.

WHOLE FOODS WALKS THE TALK

In January 2006, Fortune, a prominent business magazine, published its annual list of the 100
Best Companies to Work For in the United States (US). Whole Foods Market (WFM) featured at
number 15 in the overall ranking, and at number three among large companies, on this list.
It was the ninth consecutive time that Fortune had ranked WFM as one of the best companies to
work for, (WFM was also one of the few companies to have featured on the list every year since
Fortune started publishing it in 1998) (Refer to Exhibit I for WFMs ranks on the list since
1998).
WFM was the worlds largest natural foods retailer, and also carried several products that were
certified as organic.3 Natural and organic food was thought to be the fastest growing segment in
the US retail industry in the early 2000s (Refer to Exhibit II for a note on organic food). WFM
was among the fastest growing retailers in the US, and was known for its high growth rate in an
industry characterized by zero to negative same store sales growth4.
WFM was well known for its employee-oriented work culture and team-based operations, which
were thought to be the main drivers of the companys success. One of our core values at Whole
Foods Market is Team Member happiness and excellence, and we believe our innovative and
egalitarian work environment is a major factor in our success as a company, said Walter Robb,
co-president and COO of WFM.5

Charles Fishman, Whole Foods is all Teams, Fast Company, April 1996.

Charles Fishman, The Anarchists Cookbook, Fast Company, July 2004.

Natural food and organic food are produced without the fundamental nature of the product being altered.
In other words, the food, whether it is raw or processed, contains no artificial additives. However, for food
to be called organic, it needs to be certified by a government approved agency. Therefore, all natural
food is not necessarily organic.

Same stores sales growth rate is an important retail industry metric that measures the sales growth from
only those stores that have been operating for at least one year. In the early 2000s, most of the major retail
chains were experiencing low, and sometimes negative same store sales growth.
5

Fortune Names Whole Foods Market #15 on 100 Best Companies to Work For List,
www.wholefoodsmarket.com, January 9, 2006.

406-084-1
WFM has been called a radical experiment in democratic capitalism6. According to analysts,
several companies talked about teamwork, autonomy, and empowerment, but very few actually
put these ideals into practice. WFM was considered by some to be one of those rare companies
that not only had a clear vision, but also the commitment to pursue it.

BACKGROUND
The history of WFM goes back to 1978, when John Mackey (Mackey), a college dropout from
Texas, and his friend Renee Lawson Hardy (Hardy), started an organic foods store in Austin,
Texas. The store was called Safer Way Natural Foods (after Safeway Inc.7), and the partners
opened it with a capital of $45,0008 borrowed from their friends and families.
Safer Way was a 3,000 square foot store, which primarily sold organic food and groceries. The
store also contained a small restaurant. The store and the restaurant were strictly vegetarian, and
the partners sourced their supplies from local communities. It wasnt long before Safer Way
found a loyal clientele, but Mackey and his partner had had no business training, and found it
difficult to run the business. By the end of the first year, the store had lost $23,000.
In the 1970s, there were only a handful of organic food stores in the US. These stores were
usually small and did not offer much variety in terms of merchandise. None of them offered a full
range of products. (Some specialized in vegetables, others in meat, and so on. There was no place
where people could get a complete range of organic products under one roof). Because of this,
people who were committed to organic food had to put up with the inconvenience of having to
visit several different stores to do their shopping. The products were also thought to be too
expensive, considering the poor ambience of the stores and the inconvenience to shoppers.
Because of this, there were few takers for organic or natural foods at that time.
Mackey believed that organic food would be more successful if there was a store that was a onestop shop for all organic and natural products. If the store were to be designed as an organic
foods supermarket with the produce being laid out attractively, people would be able to shop for
all their organic needs at one place.
In 1980, Mackey and Hardy approached Craig Weller (Weller) and Mark Skiles (Skiles), owners
of Clarksville Natural Grocery, another health and natural foods store in Austin, with the
proposal of a merger between their two businesses. Weller and Skiles agreed with Mackeys
reasoning that a larger store format would expand the market for organic food, and the four of
them opened their new superstore, called Whole Foods Market. The first WFM was spread over
10,000 square feet of space, and sold a wide variety of natural and organic products. The store
operated with 19 employees.
WFM was much larger than the other natural food stores operating at that time, and offered a
greater variety of merchandise. It differed from Safer Way in that it sold non-vegetarian food,
and carried products like wine and coffee, which Mackey had avoided stocking in his first store.
Mackey and his partners ensured that the produce was laid out attractively, and that the store had
a welcoming ambience. The salespeople were also well trained to answer any queries customers
may have regarding natural foods. Sales picked up, and WFM looked set for success. However,
in 1981, disaster struck. A sudden flood destroyed a large section of the store.
6

Charles Fishman, Whole Foods is all Teams, Fast Company, April 1996.

Safeway Inc. was a major food and drugs retailer in the US. As of December 31, 2005, the company
operated 1,775 stores in the United States and Canada, and had revenues of $38.4 billion.

Dollars ($) refers to US dollars in this case study.

406-084-1
The store was not insured, and for a while it looked like it was the end of the road for WFM. But
help came from unexpected quarters. When word went around that WFM might shut down
because of a lack of funds for undertaking repair work, many of the stores customers
spontaneously came forward to help with the repairs. Later, Mackey said that it was on that day,
when he saw customers working with buckets and tools to put the store back into operation, that
he realized that WFM was a success. With a little assistance from their bank, the partners were
able to reopen the store within a month of the flood.
The customers involvement in the store repairs made Mackey realize the potential of WFM
(Mackey was the most active of the four partners in WFM, and was closely involved with the day
to day running of the business). By the end of 1981, the second WFM store was opened in
Austin. Over the 1980s and 1990s, the company expanded rapidly across the US. Growth came
from a mix of new store openings and acquisitions.
By the early 1990s, WFM had stores in the cities of Houston and Dallas in Texas and in
Louisiana, Northern California, and North Carolina. In 1992, WFM launched an Initial Public
Offering (IPO) and was listed on the NASDAQ. At that time, the company had 12 stores and
sales of $92 million. The $23 million raised through the IPO was used to fund the companys
expansion. It was also during this time that the companys culture began to take shape. Soon after
the IPO, when the company was poised for rapid expansion, Mackey announced: Were creating
an organization based on love instead of fear.9
WFM went on to open stores in Washington DC, Boston, and the rest of California in the 1990s.
The company also made several key acquisitions during this period. Some of WFMs acquisitions
in the 1990s were Wellspring in North Carolina (two stores); Bread & Circus in New England
(six stores); Mrs. Goochs in California (seven stores); and Fresh Fields on the East Coast (22
stores). By the end of the 1990s, the company had stores in 25 major metropolitan markets across
the US (Refer to Exhibit III for a list of WFMs acquisitions and subsidiaries as of mid2006).
In 1998, WFM made its debut on Fortunes 100 Best Companies to Work for in the US. The
company embarked on its international expansion in the early 2000s, opening its first store
outside the US in Toronto, Canada, in 2002. In 2003, Mackey was chosen as the Entrepreneur of
the Year by Ernst & Young, a major consulting firm. In 2004, the company entered the UK with
its acquisition of Fresh & Wild, a seven-store chain.
In 2005, WFM made its debut on the Fortune 500 list, where it was ranked at #479. As of the end
of 2005, WFM employed nearly 38,000 people and had sales of $4.7 billion (Refer to Exhibit
IV for WFMs income statement). As of mid-2006, the company operated 184 stores spread
across the US, Canada, and the UK. Mackey declared that his target was to reach revenues of $12
billion by 2010, and $30 billion by 2020. Everything we envisioned has come true, he said.10

CULTURE AND PRACTICES

WFM was one of the most profitable grocery retailers in the US. It was also one of the rare
retailers that had a double-digit growth rate in a rapidly saturating industry. The company had a
compounded annual growth rate of around 32 percent between 1991 and 2005. In 2005, WFM
had same store sales growth of 12.8 percent, and an overall revenue growth of almost 22 percent
over 2004. WFMs nearest competitor Wild Oats Market, experienced same store sales growth of
around 3.8 percent and an overall revenue growth of around 7.25 percent in the same period,
9

An Organization Based on Love Instead of Fear, www.crainc.com, July 21, 2004.

10

Seth Lubove, Food Porn, Forbes, February 14, 2005.

406-084-1
while traditional grocers like Safeway had a same store sales growth of around 2-3 percent.
(Refer to Exhibit V for a snapshot of WFMs competitors). It was widely believed that
WFMs growth was due, in large part, to its strong work culture and decentralized operations.
WFM defined its vision as Whole Foods Whole People Whole Planet (Refer to Exhibit VI). In
Guiding Growth: How Vision Keeps Companies on Course, a book by Mark Lipton,11 WFM is
quoted as follows: Our vision statement reflects the hope and intentions of many people. We do
not believe it always accurately portrays the way things currently are at Whole Foods Market so
much as the way we would like things to be. It is our dissatisfaction with the current reality, when
compared with what is possible, that spurs us toward excellence and toward creating a better
company and world.12
In the late 1970s, when WFM was set up, Japanese principles of management13 were in vogue in
the US. Mackey and his partners were also influenced by these principles, and some of these
ideas found a place in WFMs culture.
WFM had a culture where employees at all levels were empowered to take decisions and had a
voice in the companys policies. The companys core philosophy was that empowered and
satisfied employees were the foundation of a successful company. Team member happiness was
an integral part of the culture at WFM, and formed the basis of the companys Core Values as
well as its Declaration of Interdependence (Refer to Exhibit VII for WFMs Core Values and
Declaration of Interdependence).
GRASSROOTS MANAGEMENT
Teams were the focal point of the operations of WFM, and they formed the core of the
companys culture. The entire WFM system was divided into teams, up to the highest level in the
hierarchy. Each store was an autonomous profit center comprised of teams.
At the lowest level, within each store, there were usually around 10 self-managed teams. In
general, stores employed between 30 and 300 people (depending on the location and size of the
store), and every employee belonged to his/her departmental team. Each team was responsible for
one aspect of the stores operations, like grocery; meat, poultry and seafood; prepared foods;
bakery goods; beer/wine/cheese; nutrition products (nutritional supplements, herbs and body
care), etc. All stores also had a customer service team and a front-end team of cashiers.
Each individual team had a team leader elected from within the team. Within the store, all the
team leaders formed a second-tier team. This team again had a team leader, who, in effect, was
the store manager or the store leader as he or she was known at WFM.
All the store leaders in a particular region formed a regional team. The leader of this team was
the regional head. All the regional heads WFM had 11 regions as of mid-2006 made up
another team. This team, along with the employees at headquarters, was the highest-level team in
the WFM structure, and was headed by Mackey (Refer to Exhibit VIII for a list of WFMs
regions).
11

Mark Lipton was a management professor and the founder of an eponymous consulting firm.

12

www.amazon.com

13

The main ideas of the Japanese approach to management were Kaizen or continuous improvement,
teamwork, Just in Time production, and lifetime employment. Mackey was influenced by the ideas of
teamwork and continuous improvement. Worker empowerment was also an important element of WFMs
culture, just as workers in some companies in Japan were allowed to stop the production line at any time
and work together to solve problems, without evoking any disciplinary action.

406-084-1
All teams were interdependent, and worked together to achieve goals. For instance, at an
employee level, each employee was a member of a departmental team, but was also a part of the
store team and had a say in the decisions that affected the store. Similarly, they were also
considered to be a part of the regional team for inter-regional comparison, as each region
competed with the others within the WFM system.
Each departmental team met at least once a month to discuss issues related to their department,
and to arrive at solutions to problems. It was a democratic system and all team members had a
say in the final decisions. For instance, the bakery team in a store would discuss issues related to
how many perishable items they ordered, how many nonfat items to carry, what products could
be dropped, and so on. In addition, each store also met as a team (with all the store employees)
once a month. Occasionally regional meetings were also held, led by the regional head, but at the
region-level, meetings were usually attended only by the store leaders.
Reportedly, team meetings were looked forward to within WFM and often had the air of rallies.
During store level meetings, people from across the store came together to exchange stories and
information, and to help each other solve problems. Store leaders were also encouraged to
benchmark their practices against each other during regional meetings. Meetings were thought to
increase the cohesiveness of the teams at WFM.
Cohesiveness among team members was of utmost importance at WFM, as all the performance
targets at the company were team-based. Each department within a store had performance targets,
which were broken down from the store-level, region-level, and company-level targets. The
success of the company was, therefore, entirely dependent on the success of each individual
team, down to the lowest level. The team as a whole was accountable for the achievement of the
targets. Therefore, there was a strong sense of shared fate among team members. This sense of
shared fate was further strengthened by what was known at the company as the hiring vote.
The Hiring Vote
A unique practice at WFM was that all recruitment for full time employees was done at the team
level. The powers of the store leaders were restricted to screening candidates and recommending
them for the job. The candidates were then hired provisionally for a period of 30 days. At the
end of the trial period, the team to which the candidate had been recruited voted on making
him/her a regular employee. Every candidate needed at least a two-thirds majority of votes from
the team to become a regular employee.
The hiring vote was believed to have an impact on the behavior of all the people involved, as it
was a great responsibility. Store leaders took care to see that they did not recommend people
whom their team members were unlikely to approve of. Team members were also careful about
whom they allowed on their team, because hiring a poor performer could affect their productivity
as a team and show them up in a bad light during the reviews.
Sometimes candidates who did not fit in with the companys culture were rejected even before
the 30-day trial period. Aimee Morgida (Morgida), store manager of a Bread & Circus store in
Massachusetts, once fired a candidate before the 30-day trial was over. Apparently, the candidate
routinely lounged about, and leaned on the counters in front of customers. Though several team
members had spoken to the person about this, their advice was not heeded. Eventually the team
voted to fire the candidate even before the trial-period was over. Reportedly, the candidate was

406-084-1
shocked when told about the teams decision. Apparently the person had not realized that such
behavior would be viewed so seriously.14
Mackey believed that working as a team in choosing candidates made the employees more
effective. He said that it gave them a sense of ownership to take decisions for their teams and to
justify these decisions. Theyre saying, This person isnt good enough to be on our team.
Theyre standing up to the leader, taking ownership of their team, said Mackey.15
Mackey also believed that this recruitment system worked well for WFM as working at the
company was not for everyone. Unlike other retail chains where customer service was the main
performance criterion, WFM looked for people who not only had a knack of pleasing customers,
but also had a passion for food, and the ability to work in a democratic set-up where candid
give and take was an inherent part of the system. Mackey thought that these qualities could not
be gauged in a traditional interview, and became apparent only when people worked alongside
others for a while. Reportedly, this hiring process was quite successful.
The store managers also felt that this system had several advantages. Ron Megahan, a store
manager at Massachusetts, said, There are people who are really good about working when the
manager is on the floor. But as soon as the manager disappears, they lose control.16 At WFM
however, somebody was always monitoring the candidates behavior, which made it easy to spot
slackers.
At the other end of the spectrum, there were also cases of store managers not being impressed
with certain candidates, but being encouraged by the team to retain them. Morgida recalled an
instance where the bakery team at her store encouraged her to increase the hours of Hadja, a parttimer, although Morgida herself was skeptical about Hadjas spotty English (the candidate was an
Asian immigrant, and could not speak English very well). The team members told Morgida that
although Hadjas English was not very good, she had the knack of communicating with
customers and keeping them happy. They also felt that the girl was a good person to have around,
as she was quite helpful. Morgida eventually increased Hadjas hours. 17
Autonomy and Empowerment
It was particularly important to choose people who shared the same values as the other team
members, and had the ability to work cohesively in a team, because of the decentralized nature of
operations at WFM.
The teams were given a great deal of autonomy and were empowered to make all the decisions
that impacted their departments. Individual team leaders made all the decisions for the teams in
consultation with their team members and the store leaders. For instance, team leaders could
decide what products to carry in their departments and in what quantities, and also from where to
source them.
All WFM stores were encouraged to localize their operations, and many of them carried food and
other products that were grown locally. The headquarters placed no restrictions on what the
various departments carried, as long as the products met WFMs stringent quality standards, and
were completely free of additives and pesticides. Even the prepared foods departments localized
14

Charles Fishman, Whole Foods is all Teams, Fast Company, April 1996.

15

Charles Fishman, Whole Foods is all Teams, Fast Company, April 1996.

16

Charles Fishman, Whole Foods is all Teams, Fast Company, April 1996.

17

Charles Fishman, The Whole Foods Recipe for Teamwork, Fast Company, April 1996.

406-084-1
their dishes to a great extent, and chefs were encouraged to concoct their own recipes. (The
successful recipes were later shared between stores).
Because of decentralization, there were often wide variations in the product range available at
different WFM stores. Sometimes, even two stores in the same city carried different products.
Store design also frequently differed from store to store as store leaders were given considerable
leeway in store design decisions. The store leaders also set prices based on local standards, and
the stores could conduct their marketing and promotional activities at a local level.
WFM spent very little on advertising. The company gave each store a budget, and encouraged
employees to come up with ideas to attract customers within the budgeted cost. This reportedly
led to a lot of creative ideas. One employee at an Austin store, for instance, suggested that the
company open an ice skating rink on the store roof.
This decentralized approach was believed to be responsible for creating a strong entrepreneurial
culture at WFM. The authority to take decisions, and responsibility for their outcomes allowed
innovation and experimentation to occur at the store level. Store leaders were highly empowered,
and were encouraged to run the stores like their own small businesses. Employees were also
encouraged to share their ideas and opinions with their team leaders. Christine Westfall, a former
WFM employee, said that this was a great motivator. I had a sense of dignity. I felt my opinions
were heard, she said.18
WFMs motto was that it was Better to ask for forgiveness than for permission. Employees
were encouraged to try out new things to improve operations, and to find better ways to create
customer value. Eventually, successful practices and ideas were shared across the company and
adapted by different stores according to their requirements. Analysts said that WFMs approach
to decentralization played an important role in eliminating bureaucracy at the company.
Therefore, although WFM grew at a rapid pace, the company was not saddled with cumbersome
rules and procedures. Instead, checks and balances were incorporated into the system itself in the
form of peer reviews and competition between teams, stores, and regions.
The Benefits Vote
The extent of decentralization at WFM was demonstrated in 2003, when the company put the
entire benefits package, from medical plans to vacation time, up for a company-wide vote. The
employees themselves voted on what benefits they were to get (generally a corporate-level
decision) rather than have headquarters decide on the package.
The full-time employees (87 percent of the workforce at that time) voted for a health plan where
the company paid 100 percent of their health premium with a higher deductible. (Previously,
WFM had paid between 50 and 100 percent of the premium, depending on which of the three
health plans each employee was on.) WFM also issued personal wellness cards, which worked
like debit cards, with a $1,700 limit. Employees could use this card for their medical and dental
expenses.19
Employees also decided on the bouquet of benefits that they wanted the company to offer, and
voted on them. In this vote the employees opted for benefits like tuition reimbursement, full

18

Whole Paychecks? www.metroactive.com, September 3, 1998.

19

Michelle Breyer, Whole Food's Vote to Unionize Upsets Libertarian Founder, The Austin AmericanStatesman, http://portland.indymedia.org, June 6, 2003.

406-084-1
health insurance, and 401(k) contributions20 in the package, and voted down things like childcare
reimbursement. Mackey was reportedly surprised by the benefits that some employees wanted.
For example, some of them wanted pet bereavement assistance a proposal which found favor
with only 17 percent of the voters, and was eventually not included in the final package. WFM
also announced that it would put the employee benefits to vote every three years, so that people
could choose the benefits package that suited them at each life stage.
WFM decided on this move as it realized that employees cared a great deal about the kind of
benefits they received, and were in a better position than a corporate level committee to judge
what they wanted. The company was a firm believer in the adage that Happy team members
make happy customers, and there was no question that being allowed to choose the benefits that
best met their needs kept the employees happy.
Decision-Making
Company-wide voting was in keeping with WFMs decision-making philosophy that decisions
should be made as close as possible to the place where they would be implemented, and that they
should directly involve the people who would be affected by them.
As WFM grew, the number of decisions that needed to be taken increased considerably. Mackey
said that he became fed up with people constantly coming up and asking him about what to do in
any situation. He said When I would travel around and talk to the team members, theyre always
asking me, You know, John, can we have this? Can we have that? What about this? Can we do
this? And I realized why don't we let them decide for themselves what well have?21
According to Mackey, most of the decision-making at WFM was consultative or consensual.
Consultative decisions were those that the senior management or the store leaders took in wide
consultation with the group of people affected by the decision. At the store level, these typically
related to the store leaders or team leaders decisions regarding what products the store would
carry, where they would be sourced from, and so on. Team members were consulted, but the final
decision lay with the store leader.
Consensus decisions, on the other hand, were those that were taken by the team members
themselves. The most common consensus decision at WFM related to the hiring vote, where at
least two-thirds of the team members had to vote in favor for a person to be hired.
WFM had a National Leadership team consisting of Mackey and other members of the top
management. Mackey said that even at this level, most of the decisions were taken on the basis of
a consensus, and that he rarely, if ever, overruled the team members. Command and control
decisions, where Mackey or any other leader took a decision unilaterally, were avoided as much
as possible.
Decisions on employee promotions were also made on a consensus basis. At WFM, most of the
team leadership vacancies were filled through internal promotions, and it was very rare for
outsiders to be brought in as leaders at any level. All leadership positions were generally posted
throughout the company, and employees could apply for them. The applicants then went through
an interview with the team, and the best candidates were selected as leaders. In other words, the

20

The 401(k) plan is a type of employer-sponsored retirement plan named after a section of the United
States Internal Revenue Code. A 401(k) plan allows a worker to save for retirement while deferring income
taxes on the saved money or earnings until withdrawal.

21

John Mackey: Not Your Average Grocer, www.cbsnews.com, June 4, 2006.

406-084-1
best departmental team leaders became store leaders, and the best store leaders became regional
managers.
TRANSPARENCY
WFM voluntarily disclosed critical financial information to its employees. Every year, the
company released a vast amount of data giving the various operational metrics of the business.
However, unlike most other companies, this information was not targeted at the press or the
public, but at the employees.
WFM believed that providing employees with the necessary data would help them understand the
business better, and encourage them to improve their performance. The company released a lot of
sensitive information related to team sales, store sales, profit margins, etc. Because of the amount
of critical financial information accessible to employees, the US Securities and Exchange
Commission (SEC) even classified all the employees as insiders for stock trading purposes.
Mackey called this a no-secrets management philosophy. In most companies, management
controls information and therefore controls people. By sharing information, we stay aligned to
the vision of shared fate, he said.22
A significant component of this philosophy was the salary book. Every year, WFM published a
detailed document that listed the salaries and bonuses earned by each employee of the company.
This book was available at all the stores and every employee had free access to it. The company
believed that transparency about salaries eliminated a major source of mistrust at the company
about who made what, and promoted team spirit.
Mackey initiated the open salary book policy in 1986, when he realized that a lot of employees
spent their time speculating about how much the management was earning. He then decided that
disclosing the salaries of the top executives would put a stop to the rumors. Eventually he
realized that disclosing the salaries of all employees could have several benefits for the company.
Over the years, WFM observed that the rank and file employees consulted the salary book very
rarely, as they knew that the pay at their level was more or less standardized across the
organization. However, people in leadership positions (like store leaders) often kept track of the
earnings of their counterparts at other stores, as they were interested in knowing their earning
potential at the company.
Mackey said that regional presidents and people in the top management often challenged him
when they felt that they were being paid less than their counterparts. He disclosed that he often
used earnings comparisons like a carrot, to motivate his managers to perform better. (Refer to
Exhibit IX for the 2005 earnings of the top executives at WFM).
WFM also had a salary cap in place, where the CEO could make not more than 14 times the
annual average salary of full time employees at the company.23 This was a notable fact in a
business environment where CEOs were increasingly being criticized for huge pay packets,
which often bore little relation to performance. Another notable fact was that all the full-time
employees at WFM were eligible for stock options, and the company reported that on an average
more that 90 percent of the options issued went to non-executive employees.

22

Whole Foods A Disciplined Democracy, www.freibergs.com.

23

Declaration of Interdependence, www.wholefoodsmarket.com

10

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A METRICS-BASED CULTURE
Everything that was done at WFM was measured. This measurement was not confined just to the
corporate level. At several individual stores, the previous days sales, broken down by team, were
posted at a prominent spot in the store for all employees to refer to. Some of the stores even listed
the sales they had had on the same day the previous year, to encourage comparisons by
employees. Store sales broken down by team were also shared periodically across the entire
WFM system.
In addition, there were monthly profitability reports. The profitability report analyzed the
profitability of each store by taking into account its operating costs (wages and salaries, product
costs, etc) and the sales. This report was not circulated publicly, but was freely available to
anyone who wanted to see it. The profitability report was a significant source of information for
team leaders and store managers when they had to make staffing and product ordering decisions.
WFM also conducted an annual employee morale survey across the organization, the results of
which were made available to all the employees. This survey was usually a comprehensive
exercise, which questioned frontline employees about their confidence in their team leaders, store
managers, and the top management. It also asked questions about employees fears and
frustrations at the company, and whether they thought the company seemed to be straying from
its values.
Although some people questioned the wisdom of disclosing critical information to employees,
Mackey said that he was not worried about the disclosures, as WFM was in the process of
creating a high trust organization.
COMPETITIVENESS AND GAINSHARING
WFMs culture of teamwork and transparency promoted intense competition between its
different teams, stores, and regions, with each trying to outdo the other in service, quality, and
profitability. The company encouraged comparisons of performance and competitiveness among
the employees, and leveraged on competition to create a culture of excellence. It did this by
linking bonuses, rewards, and promotions directly to the performance of the team or the store.
Competition existed across the entire WFM system. Teams competed against themselves in terms
of their own goals of sales, growth, and productivity. They competed with other teams in the
same store, and also with similar teams in other stores and regions. Stores also competed against
each other, and regional competition too was common.
WFMs sharing of financial information played an important role in promoting competition at the
company, as people knew exactly how they were performing vis--vis others in the system. All
stores competed against each other regardless of size. For instance, even if a small store could not
match a larger stores sales numbers, it could try to beat it on dimensions like growth rate,
customer service, or employee morale.
WFM said competition created a greater sense of accountability among the employees than
would have been possible if targets and goals had been imposed on them from headquarters.
Teams set ambitious targets, and worked toward achieving them. The company said that pressure
for performance, which came from peers rather than from headquarters, was an effective
motivator for the employees.

11

406-084-1
WFM had a system of peer reviews, which was used to promote competition within the company.
Through peer reviews, teams benchmarked their performance against that of other teams. One
important peer review activity was the Store Tour. Periodically each WFM store was toured by
a group of employees from another region. The visiting groups were usually quite large (between
35-40 people) and comprised regional leaders, store leaders, as well as team leaders from
operational departments within stores (like produce or bakery). The visits generally lasted two
days, and consisted of intensive rounds of reviews, performance audits, and feedback sessions
with the leaders of the store being reviewed.
The results of these reviews carried so much weight within WFM that employees started going
out of their way to spruce up their stores before a visit was due. Reportedly, employees
sometimes came in during the early hours of the morning to clean the stores and prepare special
souvenirs for the visitors. The management eventually realized that this was getting too
exhausting for the staff, and asked the employees to tone things down.
Another important review tool was the The Customer Snapshot, known as the TCS review
within the company. Unlike the Store Tour, TCS was a surprise inspection of stores. Each store
was toured by a regional leader or someone from headquarters every few months, and rated on
various dimensions including cleanliness, layout, customer service, and ambience. The TCS
review generally lasted a full day, and these ratings too were important.
The intensity of competition was one of the reasons why team members were tough on new hires,
and only voted in favor of people who, they thought, would improve the teams productivity. All
team members had a vested interest in the performance of the entire team because of WFMs
gainsharing program. Because of this program, efficient workers meant monetary benefits for
the entire team. This was a major motivator for employees to perform better and also to ensure
that their colleagues too performed well.
WFMs gainsharing program tied team bonuses to sales per labor hour, which was the most
important measure of productivity at WFM. Under the program, every department was given
performance targets and a monthly labor budget within which to achieve them. If a team met its
goals without spending its entire budget, a part of the surplus was divided among the members of
the team. The idea was to encourage employees to work more efficiently to increase their
earnings. Therefore, in effect, the employees had a stake in the profitability of the company.

MACKEYS INFLUENCE ON WFMS CULTURE

Like other companies whose cultures have been shaped by their founders, WFM was also
significantly influenced by Mackey and his leadership style. Mackey, by his own admission, was
a maverick who took a variety of courses mainly in philosophy and religion at college, but
failed to get a degree. He dropped out of two different colleges to search for the meaning of life.
After dropping out of college he lived in a commune and became a hippie. This was when he
learned about vegetarianism and natural living. Mackey said that he was a libertarian24, and
always voted for the libertarian candidate in the US elections.

24

Libertarianism is a political philosophy advocating that individuals should be free to do whatever they
wish with their person or property, as long as they do not infringe on the liberty of others. Libertarians hold
as a fundamental maxim that all human interaction should be voluntary and consensual. They maintain that
the initiation (or threat) of physical force against another person or his property, or the commission of
fraud, is a violation of that principle.

12

406-084-1
Mackeys unorthodox leadership style was believed to be responsible for transforming WFM into
one of the most highly valued companies in the extremely competitive retail industry. (At the end
of 2005, WFM was valued at around $9 billion).
Although he did not receive any formal business training, and initially found it difficult to cope
with the demands of business, Mackey seemed to have innate business sense and a way with
people. This was apparent even in the early years of his business career. When Mackey decided
that he would do better to merge Safer Way with Clarksville Natural Grocery, he reportedly went
up to Weller and Skiles and said, Were gonna open a 10,000-square-foot store about a mile
from here. Wouldnt it be a lot more fun to join forces together? Rather than compete? When our
stores gonna be four times bigger than yours?25 This apparently convinced Weller and Skiles to
join with Mackey.
Mackeys approach to running WFM was quite informal. Reportedly, he regularly wore shorts
and hiking boots to work, sometimes even to business meetings, and often signed his companywide emails Love, John, according to a posting on a blog.26
In contrast to the archetypical CEO, Mackey eschewed most of the trappings of his position. He
traveled in the cheapest rented cars and flew on commercial flights. A.C. Gallo and Walter Robb,
co-presidents of WFM, regularly stayed at Mackeys house when they went to Austin on business
trips, sometimes even helping with the domestic chores. According to some company insiders,
Mackey was not a manager in the traditional sense. Hes an anarchist, said one former WFM
employee who had reported to Mackey when he worked at the company.27 Mackey was also a
keen observer, and frequently visited WFM stores at different locations to get the pulse of the
business.
This casual attitude and sense of informality pervaded the entire WFM system. Many employees
sported tattoos, body piercings, and spiked hair. All of them also shared a passion for food,
especially organic products, and were always ready to answer any queries customers had about
natural and organic foods.
WFMs culture was nurtured by Mackey as well as the companys employees. It was said that all
the business meetings at the company ended with a round of appreciations, where each
participant said something complimentary about the others at the meeting.
WFM also took care to see that the strength of the companys culture was not attenuated as the
company grew. Whenever the company opened a new store it ensured that at least one-third of
the employees in the new store came from existing stores. Old employees were already familiar
with the companys culture, and in Mackeys words, provided the starter culture at the new
stores. It was an effective way of transferring the companys values, according to analysts.

THE CRITICISM
Although WFM was widely praised for its strong culture and positive work environment, the
company also came in for some severe criticism on its anti-union stand. Mackey believed that
unions were the bane of business, and that they created more problems for the workers than
they solved.

25

John Mackey: Not Your Average Grocer, www.cbsnews.com, June 4, 2006.

26

www.kottle.org

27

Charles Fishman, The Anarchists Cookbook, Fast Company, July 2004.

13

406-084-1
Based on this belief, WFM discouraged unionization at its stores. This earned Mackey a lot of
flak from unions as well as other activists, who thought that he was somehow serving his own
ends by preventing workers from getting a voice at the company. Mackey countered this
allegation saying that there was already a high level of empowerment at WFM, and he did not
think that WFM employees needed the support of unions to make their opinions and needs
known to the management. Were not anti-union. Were beyond union, he said.28
However, some people felt that WFMs talk about empowered employees, when it actually did
not allow employees a voice, was hypocritical. They said that the concept of empowerment at
WFM seemed to mean that the company would only listen to employees who said what it wanted
to hear. Apparently, union supporters felt a strong need for a union at WFM, because of the
companys lower than average wages at some locations, and the absence of a legally binding
grievance procedure, among other things.
It was alleged that WFM prevented unionization by systematically firing all the people who
showed signs of wanting to form a union. Workers at several WFM locations alleged that the
moment the management spotted signs of unionization, it either warned employees of drastic
consequences, or fired them on some trivial charge or the other. WFM, however, denied these
allegations.
Union supporters alleged that whenever WFM acquired a new company, it replaced all union
workers with non-union employees. In 1997, when the company bought two Westward Ho stores
in Los Angeles, it was alleged to have fired 70 unionized employees and replaced them with new
recruits.29
In July 2002, when employees at the Madison WFM voted to become the first unionized store in
the WFM system, the management refused to recognize the vote. After the union vote was
passed, the companys lawyers reportedly postponed a meeting between the union officials and
the management for several months, saying that the top management was too busy to pencil in a
meeting.30
When the meeting finally happened, the management rejected all of the workers proposals
outright and did not bring any alternative proposals to the table. Managers at other stores
portrayed the arrival of the union as a tragedy engineered by outside organizers. This made
some observers question the companys claims of democracy and empowerment. Supporters of
WFM however argued that the company was only against unions, and that it empowered workers
in every other way.
Labors right to organize was a right protected by federal law in the US, and WFM said that its
employees were free to join a union if they chose. However, it added that unions did not fit in
with WFMs ethos. If our team members ever felt that they needed to pay a third party to
represent their interests with the leadership of Whole Foods, then we have fallen grossly short in
upholding a core value of the company, said president Peter Roy.31

28

Wendy Zellner, Whole Foods Market: Moving Tofu into the Mainstream, BusinessWeek, May 25,
1992.

29

Beyond Unions? www.metroactive.com, September 3, 1998.

30

Mark T. Harris, Welcome to Whole-Mart: Rotten Apples in the Social Responsibility Industry,
Dissent, Winter 2006.

31

Whole Paychecks? www.metroactive.com, September 3, 1998.

14

406-084-1
WFMs gainsharing program also met with some criticism. Detractors of the program said that
gainsharing was a sham, and that it took undue advantage of employees. At WFM, small
departments with profitable products (like meat and vitamins) fared better than departments with
unprofitable or slow-moving products. Small departments with lower workloads were able to
achieve their targets with fewer employees. However, teams like cashiers and kitchen staff were
always under pressure because of the hectic nature of their jobs. Because of the gainsharing
program, even the busy departments tried to manage with fewer employers (to lower their labor
cost), and eventually ended up over-taxing existing employees.

CONCLUSION
Despite the criticisms against its stand on unions, WFM was acknowledged to be one of the most
successful businesses in the US retail sector. At a time when retail giants were facing low
margins and almost zero same store growth rates, WFM stood out prominently as a success, said
analysts.
In the early 2000s, several mainstream grocers, encouraged by WFMs profit margins, started
adding organic and natural products to their product line. For example, as a part of its
restructuring program in the early 2000s, Safeway set up several Lifestyle stores across the US.
These stores differed from regular Safeway stores in ambience, and were thought to have been
modeled on the lines of WFM, where great emphasis was placed on food presentation. Many of
the Lifestyle stores carried a bigger range of natural and organic products than traditional
Safeway stores.
In early 2006, Wal-Mart Stores Inc.32 announced that it would increase the number of organic
products it carried in its stores by the end of the year. Around the same time, Publix Super
Markets33 also announced its plans to open new stores called Publix Greenwise Markets at some
locations in the US. These new stores were to focus on natural and organic foods. Analysts
however, said that WFM succeeded because it was more than a mere niche retailer the
companys unique culture played an equally important role in its success.
In the 2000s, the biggest challenge that WFM faced was its ability to sustain the unique elements
of its culture as it grew in size. According to analysts, at 184 stores, WFM was still a fledgling in
the retail industry. Therefore, it was too early to say whether or not the company would be able to
sustain its culture as it grew bigger. However, Mackey said, One of the keys to understanding
this company is that the people who started it did not know how they were supposed to do it. This
is the way our culture has developed.34

32

Wal-Mart was the largest retailer in the world. In fiscal year ended January 2006, the company had sales
of more than $315 billion and employed around 1.8 million people around the world.

33

Publix Supermarkets was a Florida-based privately owned chain of supermarkets.

34

12th Annual Business Ethics Awards, Business Ethics, November/December 2000 Volume 14 #6

15

406-084-1
EXHIBIT I
WHOLE FOODS RANKING IN FORTUNES LIST OF 100 BEST COMPANIES TO
WORK FOR
Year
2006
2005
2004
2003
2002
2001
2000
1999
1998

Rank
15
30
47
32
48
41
72
48
34

Source: www.wholefoodsmarket.com/company

EXHIBIT II
A NOTE ON ORGANIC FOOD
Organic food refers to food products that are grown without the use of synthetic fertilizers,
conventional chemical pesticides, and sewage sludge in the case of raw foods, and without the
use of chemical food additives, bioengineering, and ionizing radiation in the case of processed
foods. Organic meat products come from animals that are reared without the use of antibiotics
and growth hormones. Animals used for organic meat are supposedly reared in better conditions,
and have access to the outdoors.
For food to qualify as organic, it needs to be certified. Organic Certification is a certification
process for producers of organic food and other organic agricultural products. In general, any
business directly involved in food production can be certified, including seed suppliers, farmers,
food processors, retailers, and restaurants. Requirements vary from country to country, and
generally involve a set of production standards for growing, storage, processing, packaging, and
shipping.
In the US, organic food has to be certified by an USDA (United States Department of
Agriculture) accredited certifier. As of mid-2006, there were nearly 100 USDA accredited
certifiers. The accredited certifiers are allowed to administer an Organic Seal to products and
producers that meet the USDAs requirements.
There are different levels of organic certification:

100 percent organic products are those that are produced or processed in a completely
organic way.
Organic products allow for up to five percent non-organic ingredients. This mainly
involves materials used in processing packaged foods.
Products labeled as Made with organic ingredients cannot use the official USDA seal.
They are generally at least 70 percent organic.
Products that are less than 70 percent organic, but still contain some organic content, can
use the word organic to identify individual ingredients.

Initially, organic food was only available in small stores or farmers markets. But by the 1990s,
several national retailers in the US had started carrying organic products. Natural Food retail

16

406-084-1
chains like Whole Foods Market and Wild Oats Market generally carried a significant number of
organic products. In the early 2000s, it was estimated that the market for organic food was
growing at a rate of around 15 percent per annum on an average (Refer to Table). The market
for conventional food, although larger in size, was growing only at around 2 to 3 percent per
annum during the same period.
Table
US Sales of Products Labeled 100% Organic, Organic, and
Made with Organic Ingredients
Year
Sales in Billions of $
2002
8.6
2003
10.4
2004
12.5
2005
13.9
2006 (estimate)
15.8
Source: Organic Trade Association, U.S. Department of Agriculture, www.usda.gov

As of the early 2000s, the customer segment for organic food was made up of people who were
highly educated and well informed, belonged to the upper middle class, and were willing to pay a
premium price for health. Typically, organic food is sold at a premium of around 50 to 75 percent
over regular food.
Compiled from various sources.

EXHIBIT III
ACQUISITIONS AND SUBSIDIARIES OF WFM
Name
Whole Foods Company
Wellspring Grocery
Bread and Circus
Mrs. Goochs
Fresh Fields
Bread of Life
Merchant of Vino
Allegro Coffee
Natures Heartland
Food for Thought
Harrys Farmers Market
Fresh & Wild

Set up in
1974
1981
1975
1977
1991
1980
1974
1977
1996
1989
1987
1998

Acquired in
1988
1991
1992
1993
Mid 1990s
1997
1997
1997
1999
2000
2001
2004

Compiled from www.wholefoodsmarket.com

17

406-084-1

EXHIBIT IV
ANNUAL INCOME STATEMENT
(In millions of US dollars except share amounts)

September 05 September 04

September 03

Revenue

4,701.3

3,865.0

3,148.6

Cost of Goods Sold

2,918.4

2,409.7

1,970.0

Gross Profit

1,782.9

1,455.3

1,178.6

37.9%

37.7%

37.4%

1,419.4

1,114.0

905.3

Depreciation & Amortization

133.8

111.9

98.0

Operating Income

229.7

229.4

175.3

Operating Margin

4.9%

5.9%

5.6%

Nonoperating Income

9.6

6.5

5.6

Nonoperating Expenses

2.2

7.2

8.1

Income Before Taxes

237.1

228.7

172.8

Income Taxes

100.8

91.4

69.1

Net Income After Taxes

136.3

137.3

103.7

Continuing Operations

136.4

137.1

103.7

0.0

0.0

0.0

Total Operations

136.4

137.1

103.7

Total Net Income

136.4

137.1

103.7

Net Profit Margin

2.9%

3.5%

3.3%

Diluted EPS from Continuing Operations ($)

0.99

1.05

0.83

Diluted EPS from Discontinued Operations

($)

0.00

0.00

0.00

Diluted EPS from Total Operations ($)

0.99

1.05

0.83

Diluted EPS from Total Net Income ($)

0.99

1.05

0.83

Dividends per Share

0.42

0.23

0.00

Gross Profit Margin

SG&A Expense

Discontinued Operations

Source: www.hoovers.com

18

406-084-1
EXHIBIT V
A SNAPSHOT OF WFM AND ITS COMPETITORS
Company

Fiscal
Year end

Whole Foods
Market Inc.
Safeway Inc.

September
2005
December
2005
January
2006
December
2005
December
2004
December
2005
June 2006

Albertsons LLC.
Wild Oats
Markets Inc.
Publix Super
Markets Inc.
GNC
Corporation.
Trader Joes
Company Inc.
(Pvt. Co.)

Stores

181

Revenues
($ millions)

Net
Revenue
Employees
Income ($
growth (1
millions)
yr) %
4,701.3
136.4
21.6
38,000

1,775

38,416.0

561.1

7.2

201,000

2,500

40,358.0

446.0

1.2

234,000

110

1,124.0

3.2

7.25

8,233

875

18,686.4

819.4

10.3

128,000

4,500*

1,317.7

18.4

(2.0)

12,415

250

4,000

NA

NA

NA

*Stores were company owned as well as franchised.

NA: Not Available
Note: This list is not exhaustive
Compiled from company websites and www.hoovers.com

EXHIBIT VI
WFMS VISION WHOLE FOODS WHOLE PEOPLE WHOLE PLANET
Whole Foods
We obtain our products locally and from all over the world, often from small, uniquely dedicated
food artisans. We strive to offer the highest quality, least processed, most flavorful and naturally
preserved foods. Why? Because food in its purest state unadulterated by artificial additives,
sweeteners, colorings and preservatives is the best tasting and most nutritious food available.
Whole People
We recruit the best people we can to become part of our team. We empower them to make their
own decisions, creating a respectful workplace where people are treated fairly and are highly
motivated to succeed. We look for people who are passionate about food. Our team members are
also well-rounded human beings. They play a critical role in helping build the store into a
profitable and beneficial part of its community.
Whole Planet
We believe companies, like individuals, must assume their share of responsibility as tenants of
Planet Earth. On a global basis we actively support organic farming the best method for
promoting sustainable agriculture and protecting the environment and the farm workers. On a
local basis, we are actively involved in our communities by supporting food banks, sponsoring
neighborhood events, compensating our team members for community service work, and
contributing at least five percent of total net profits to not-for-profit organizations.
Source: www.wholefoodsmarket.com

19

406-084-1

EXHIBIT VII
WFMS CORE VALUES

Selling the highest quality natural and organic products available

Satisfying and delighting our customers
Team Member happiness and excellence
Creating wealth through profits and growth
Caring about our communities and our environment

Source: www.wholefoodsmarket.com

WFMS DECLARATION OF INTERDEPENDENCE

We support Team Member happiness and excellence. Our success is dependent upon their
collective energy and intelligence. We design and promote work environments where Team
Members can flourish and reach their highest potential, and we encourage their participation and
involvement at all levels of our business. Some of the ways we do this are:

Self-directed teams that meet regularly to discuss issues, solve problems, and
appreciate each other's contributions.
Increased communication through Team Member forums and Awareness groups and
open book, open door, and open people practices.
Labor Gainsharing and other Team Member incentive programs
Team Member Stock Options and Stock Purchase Plan
Commitment to make our jobs more fun by combining work and play and through
friendly competition to improve our stores.
Continuous learning opportunities about company values, food, nutrition, and job
skills.
Equal opportunity for employment, with promotion mostly from within company.

"Us versus them" thinking has no place in our company. While cultivating unity of vision about
the future of our organization, we also aim to build a strong sense of community and to recognize
and value the rich diversity and individual differences among Team Members.
Source: www.wholefoodsmarket.com

20

406-084-1
EXHIBIT VIII
THE 11 REGIONAL OFFICES OF WHOLE FOODS MARKET
Region
North Atlantic

Mid-Atlantic

North East

South

Midwest

Southwest
Rocky Mountain

Pacific Northwest

Southern Pacific

Locations
Connecticut (West Hartford)
Massachusetts
Rhode Island
United Kingdom (London)
Kentucky
Maryland
New Jersey (Marlton and Princeton
only)
Pennsylvania
Ohio
Virginia
Washington D.C.
Connecticut (Greenwich)
New Jersey (excluding Marlton and
Princeton)
New York
Georgia
North Carolina
South Carolina
Illinois
Michigan
Minnesota
Missouri
Nebraska
Wisconsin
Toronto, Ontario (Canada)
Louisiana
Texas
Colorado
Kansas
New Mexico
Oregon
Washington
British Columbia (Canada)
Southern California
Arizona
Nevada

Florida
Northern California
Adapted from www.wholefoodsmarket.com

21

406-084-1
EXHIBIT IX
COMPENSATION OF WFMS TOP EXECUTIVES
Name and Principal
Position

Year

Salary ($)

Bonus ($)

John P. Mackey
Chairman of the Board
and Chief Executive
Officer
Glenda Flanagan
Chamberlain
Executive Vice President
and Chief Financial
Officer
A.C. Gallo
Co-President and Chief
Operating Officer
Walter Robb
Co-President and Chief
Operating Officer
James P. Sud
Executive Vice President
of Growth and Business
Development
Lee Valkenar
Executive Vice President
of Global Support

2005
2004
2003

356,000
342,000
326,000

2005
2004
2003

126,000
118,000
114,000

Other
Compensation
($)
460,000
-

Stock
Options
Granted
17,000
13,750
8,000

299,000
277,000
264,000

170,000
128,000
94,000

17,000
11,500
8,000

2005
2004
2003
2005
2004
2003
2005
2004
2003

314,000
296,000
282,000
314,000
296,000
282,000
299,000
277,000
264,000

176,000
88,000
104,000
155,000
163,000
85,000
147,000
128,00
94,000

17,000
13,000
8,000
17,000
13,650
8,000
17,000
11,500
8,000

2005
2004
2003

299,000
268,000
255,000

128,000
97,000
106,000

17,000
19,250
6,000

Source: Annual Report 2005, www.wholefoodsmarket.com

22