Rocky Mountain News, CO
07-21-06
As organic food debate rages, Whole Foods defends values
By Joe Nocera
A few weeks ago, I was alerted to a fascinating online exchange involving two
people who care passionately about organic food.
In one corner sat Michael Pollan, the well-known author who, in April, published
The Omnivore's Dilemma. In the other sat John P. Mackey, the co-founder and
chief executive of Whole Foods Market, which, with more than 180 stores and
$5.7 billion in sales, is by far the most successful purveyor of organic products in
the country.
In his book, Pollan spends considerable space exploring the business of growing
and selling organic food. He discovers that organics have become an $11 billion
business and that most organic goods are now produced on very large farms,
like Cascadian Farm in Washington state.
Although the farms adhere to the organic standards established by the federal
government - among other things, the land has to be pesticide-free for at least
three years - they aren't exactly the kind of small, local farms many people think
they are supporting when they buy organic. The farms ship produce over long
distances, prepackage their food, operate through large distribution networks and
in other ways mimic the nonorganic food supply. Indeed, since 1999, Cascadian
Farm has been a subsidiary of General Mills.
In writing about the organic food industry, Pollan poked gentle fun at Whole
Foods for what he saw as the company's willingness to promote to its customers
"the pastoral ideals upon which the industry has been built," even though at least
some of those -ideals now struck him as illusory.
"I think there is a disconnect between what people think organic is and what it
really is," Pollan told me a few days ago.
Given that organic is the fastest- growing sector of the food business, it seems
likely that this "industrialization" of organic food will continue, and it has caused
Pollan to wonder whether this seemingly inevitable process "will cost organic its
soul." Implicitly, at least, he seemed to be asking whether the same was true of
Whole Foods.
Mackey was not amused. He asked for a meeting with Pollan, which took place
in late May, and afterward wrote a long, anguished defense of Whole Foods in
the form of an open letter to the author.
His essential point was that Whole Foods was a company deeply committed to
the set of values associated with organic farming, including sustainability and the
environmental benefits of decreasing the use of pesticides. He defended the
company's reliance on its regional distribution centers as an important means of
meeting customer demand. Indeed, he pointed out, the increased demand for
organic food was in large part due to the efforts of Whole Foods. He listed some
of the things the company did that proved Whole Foods was not just another
rapacious corporation - for example, its animal compassion program.
"Whole Foods Market," he concluded, "is one of the 'good guys' in this story
about the 'industrialization of agriculture.' "
Like most people in my demographic group, I greatly enjoy shopping at Whole
Foods. But until I'd read the exchange, I'd never really thought much about
organic food as a business. After a little investigation, though, I think I now
understand why Whole Foods is such an appealing store for so many people and why it's so important for Mackey to have his company viewed as one of the
good guys.
As corporations go, Whole Foods is the most interesting of beasts. On the one
hand, it is a classic Wall Street darling, with rapid expansion, double-digit growth
and a business model that no competitor seems able to touch. In presentations
to investors, its executives speak of the importance of return on invested capital
and how they plan to double annual sales to $12 billion by 2010.
Its stock has returned more than 2,700 percent since it went public in 1992.
Indeed, the Wall Street analysts I spoke to couldn't say enough good things
about Whole Foods.
"It is one of the best businesses in retail today," said John Heinbockel of
Goldman Sachs.
On the other hand, Mackey and his executive team make no bones about the
fact that shareholders rank low on their list of priorities. They speak instead about
the importance of keeping customers happy and employees engaged - and
sticking to the company's core values.
"We are a mission-driven company," Walter Robb, the company's co-president
and chief operating officer, told me.
Last year, in an article in Reason magazine, Mackey argued that making
customers happy was far more important than maximizing profits. He also added
a far more radical note: He believed in a form of capitalism, he said, "that more
consciously works for the common good instead of depending solely on the
'invisible hand' to generate positive results for society."
A values-driven capitalism, in other words. Although Mackey declined to be
interviewed - and although I should point out that he is virulently anti-union - I
have no doubt that he and the rest of the management team believe deeply in
what they're saying. But I couldn't help notice that such an approach also
happens to mesh very nicely with the business Whole Foods is in.
"This is a values-driven market," said Frederick L. Kirschenmann, a
distinguished fellow at the Leopold Center for Sustainable Agriculture at
Iowa State University. Studies show that two-thirds of American consumers
want to buy food that is consistent with their values, he told me. "They want
superior products in terms of health, taste and nutrition."
And Whole Foods' well-heeled customers are willing to pay for that food, which is
one reason the company can command a premium on all its products, not just its
organic fare.
"The appeal of Whole Foods is that it is a place where food is celebrated, food is
romanced, food is presented in a fashion that is in opposition to how it is sold in
the vast majority of supermarkets," said Bill Bishop, the president of Willard
Bishop Consulting, a food retail consultant.
Organic goods are a crucial component of that "differentiation," he added,
because the very term has acquired a kind of magical aura - a halo effect, in
which the customer feels virtuous just by walking into the store.
What, for instance, is the biggest selling organic product? Milk. Why? Because
mothers want to do everything they can to ensure their children are healthy - and
they believe that organic milk is healthier than ordinary milk. Many other people
gravitate to organic food because they are environmentalists. Others believe
strongly in sustainable farming, or the humane treatment of animals. Still others
simply care about food that is fresher and tastier. That's a virtue, too. All of these
are values Whole Foods conveys to its customers.
So is it any wonder that Mackey got his back up when he read The Omnivore's
Dilemma, with its suggestion that by doing so much of its business with large
farms, Whole Foods was diluting the virtues of organic food? (Among his other
points, Pollan writes that when, say, asparagus is shipped to Whole Foods from
New Zealand, that is neither an example of sustainable agriculture nor fresh
produce - nor is it even particularly environmental, given the fuel involved in
getting it to the other side of the world.) Clearly, if your customers are coming into
your store because they want to buy products consistent with their values, then
being viewed as a good guy is absolutely crucial to your business. Whole Foods
doesn't just sell food, it sells virtue.
"It is aspirational retailing," Robb told me, and he's right.
The minute people start viewing it as just another supermarket, the halo effect
will disappear, and they'll gravitate to some other store that is more in tune with
their aspirations. And hence, Whole Foods' difficulty in conceding that as it has
grown up - and with it, the entire organic food industry - it has had to accept
some compromises along the way.
"Are there trade-offs?" Robb asked. "I suppose there are."
But he quickly added that the company had already begun examining its
practices and was working to improve them.
"We are constantly raising the bar," he said.
For instance, he pointed out, Whole Foods had recently stopped selling lobster
because it didn't think the way they were treated was in sync with its views on
animal compassion.
Which brings me back to Mackey's exchange with Pollan. Pollan responded to
Mackey's letter with a post of his own, in which he emphasized that the company
had largely turned its back on local organic farmers. Mackey, in turn, wrote
another lengthy letter in which he defended the company's record in dealing with
local farmers - but he also vowed to do better.
And sure enough, he has. The company is now allowing its store managers to do
business directly with more local farmers and is also putting aside $10 million,
which will be used to make small loans to local farmers. Will it be more expensive
to work directly with farmers instead of routing everything through the regional
distribution center? Of course it will.
But for Whole Foods, no money will ever be better spent.