Ethical approach

Since it opened its first store in 1980, Whole Foods Market has grown tremendously – thanks, in part, to the acquisition of a number of natural foods chains. In a letter to stakeholders announcing fiscal 2012 results, John Mackey, cofounder and co-CEO, and Walter Robb, co-CEO, pointed to the retailers eleventh consecutive quarter of comparable-store sales growth of 7.8 percent or better. Whole Foods ended fiscal 2012 with $11.7 billion in sales.

"This was the best year in our companys 32-year history," Mackey and Robb wrote. "We delivered our strongest financial performance, breaking records on many levels."

But the retailers incredible growth story cannot be attributed solely to acquisitions. Whole Foods one-of-a-kind, ethical approach to grocery retailing – summed up in its "Whole Foods, Whole People, Whole Planet" motto – also deserves much of the credit. And as the Austin, Texas-based retailer notes in its "Declaration of Interdependence," its success in fulfilling its vision is measured in more than just dollar sales: "by customer satisfaction, team member happiness and excellence, return on capital investment, improvement in the state of the environment, and local and larger community support."

Another indicator of Whole Foods success on the ethical front is its inclusion this year, for the fifth time, on the Ethisphere Institutes "Worlds Most Ethical Companies" list. According to the international think tank, companies making the list go beyond making statements about doing business ethically by translating those words into action.

"The business practices of Whole Foods Market are based on our core values such as caring about our communities and our environment," Robb stated in a press release announcing the honor. "Were glad that this ranking reflects our conscious efforts to improve and sustain communities on both a local and global level."

Spotlight on 365

Whole Foods ethical approach is perhaps most visible in the products the retailer sells. They serve as concrete evidence of the retailers commitment to high-quality natural and organic ingredients, environmental stewardship and transparency from "farm to fork." Moreover, Whole Foods makes its core private brand – 365 Everyday Value – the star of the store.

"More so than any other grocery retailer, Whole Foods 365 [Everyday Value] and its related cousins completely support the mission of LOHAS (lifestyle of health and sustainability) Whole Foods has adopted," says Ben Ball, senior vice president, Dechert-Hampe, Northbrook, Ill. "It is treated as the primary brand of the store, not a second-string player to other branded items."

That means the 365 Everyday Value brand (both natural and organic versions) is totally integrated into Whole Foods overall natural and organic theme, he says. And the brands span multiple departments.

Whats more, Whole Foods continues to focus on expanding the 365 Everyday Value core brand, notes Carol Spieckerman, president of retail consultancy newmarketbuilders, "rather than creating a disjointed portfolio of sub-brands that might confuse its customers."

She adds that the retailer proactively modifies its own-brand formulations and labeling to stay ahead of consumer concerns, pointing to the retailers "early action and goal-setting" related to genetically modified organisms (GMOs) and ingredient transparency as one example. (Whole Foods announced earlier this year that by 2018, all of the products in its U.S. and Canadian stores will be labeled to indicate whether or not they contain GMOs.)

Whole Foods also takes an ethical approach to packaging. Case in point: Several years ago, the retailer implemented new responsible packaging guidelines for all of its 2,100-plus body care and supplement suppliers companywide. The guidelines mandate that suppliers reduce the use of plastic in product packaging, encourage the switch to glass when possible, limit acceptable packaging materials to those that are easily reused or recycled, and/or feature the highest percentage of post-consumer recycled (PCR) content.

Suppliers were given one year to transition to such packaging, Whole Foods said. To spearhead the change, the Austin, Texas-based retailer switched to post-consumer recycled (PCR) content bottles for several of its 365 Everyday Value brand supplements and body care products at the time.

These days, the core 365 Everyday Value brand also is proving to be critical in Whole Foods quest to improve its price image.

Although Whole Foods remains, relatively speaking, an expensive place to shop, the company as a whole is getting better at pricing, says Jim Wisner, president of Libertyville, Ill.-based Wisner Marketing Group. And its 365 Everyday Value products represent a "good deal" in comparison to many other retailers own-brand organic and natural products, he points out.

"These products provide shoppers with options that allow them to save money and stretch their grocery budgets at Whole Foods," adds Jon Hauptman, a partner with Barrington, Ill.-based retail consultancy Willard Bishop LLC.

Paula Rosenblum, managing partner with Miami-based Retail Systems Research, agrees, noting that the 365 Everyday Value brand "takes a lot of the sticker shock out of shopping at Whole Foods," which long has been burdened with the "Whole Paycheck" nickname. Shes particularly bullish on the 365 Everyday Value organics, believing them to represent the "biggest value quotient."

And Hauptman is impressed by Whole Foods abundance of lunchbox-type store brand products.

"From cereal bars to animal crackers, the 365 line is likely found in more sack lunches than ever before," he says.

Differentiation is a strength

But the 365 Everyday Value brand isnt the only tool in Whole Foods impressive private brand toolbox. Wisner points to the retailers premium Whole Foods Market brand, as well as its exclusive products, as differentiating strengths. He calls the Whole Foods Market brand a destination-type private label because it covers one-of-a-kind premium products. And although Whole Foods exclusive products are technically not store brand items, they, too, give shoppers a reason to return to the store.

"I think they also support kind of the overall sense of what shopping is like at Whole Foods," he says. "Its kind of an adventure. You see a lot of cool and interesting things."

Although he notes that Whole Foods still trails Trader Joes in terms of "in-and-out" innovation, Neil Stern, senior partner with McMillanDoolittle LLP, Chicago, says the retailer really has stepped up efforts on the premium private label side of late.

Whats more, Whole Foods understands how to frame both the value and premium store brand offerings in the selected categories in which they offer both, Hauptman believes.

"For example, in one frozen case door, you can find 365 Everyday Value frozen shrimp and Whole Catch (the retailers seafood premium store brand) signature shrimp items featuring value-added exotic flavors such as Coconut Shrimp," he says. "And I think Whole Foods has a great opportunity to expand their premium solutions to offer both value and premium options in more categories."

The retailer also is a draw for its extensive selection of hot and cold prepared foods – considered to be part of its private brand program overall, Wisner says. He sees Whole Foods as a retail leader here.

David Livingston, principal of DJL Research, Milwaukee, agrees.

"Whole Foods is becoming known as a great place to go to eat," he says.

And an emphasis on local marketing and sourcing, helped along by a regional office structure, is yet another strength, Wisner points out.

"Whole Foods has always done a terrific job of ensuring that individual stores resonate with the communities in which they reside," Spieckerman adds. "Going forward, increasing its private brands will play an important role in that strategy. ... And they will become even more valuable as Whole Foods pursues its value-oriented pilot store launches in Detroit, Chicago and New Orleans."

Not without challenges

Although its hard to find fault with Whole Foods ethics-driven mission and its high-quality assortment of private brands, the retailer does have a few challenges to overcome. One weakness is the fact that its core store brand products no longer are highly differentiated in the marketplace, Hauptman asserts.

"Many competitors offer store brand natural and organic items," he points out. "Another vulnerability is that Whole Foods signature/premium store brand offering is still light compared to their assortment of 365 Everyday Value options."

Rosenblum believes that Whole Foods is "only just finding its sea legs" when it comes to private brand offerings.

"As the chain continues to expand, providing quality private label products at more reasonable prices is critical to its success," she says.

Understanding exactly how to price competitively overall is an issue, too, Rosenblum suggests.

"Its fine to charge a bit more on unique items, but when you see something on a shelf that you just saw in a regular grocer for one-third more, it reduces credibility for the whole enterprise," she maintains. "I would strongly recommend Whole Foods to invest in price optimization and price intelligence tools to help it stay closer competitively on highly recognizable products."

And the retailers niche status as a grocer is its greatest strength, but also its greatest weakness, Ball notes – particularly as more traditional retailers ramp up in terms of offerings geared to the LOHAS consumer.

"Whole Foods is the only store for many shoppers," he says, but "it will never be the store for most shoppers."

But Spieckerman does note that Whole Foods has been able to maintain its differentiated positioning even as many other retailers have entered the market or increased their focus on the natural and organic space.

"Whole Foods has competitors on every side because it addresses the gourmet, natural/organic and health-oriented customer simultaneously," she says.

Still, Spieckerman does recognize potential threats to Whole Foods status.

"As value-oriented competitors such as Sprouts Farmers Market attempt to do the same, Whole Foods will be challenged to defend its value proposition," she says. "Whole Foods launched under premises that turned out to be prescient, even though they initially resonated only with a highly discerning subset of shoppers. As the course that Whole Foods sets becomes mainstream, it will be more difficult to differentiate."

Positioned for growth

But the positives still far outnumber the negatives where Whole Foods is concerned – and the retailer seems to be positioned to continue its growth wave in the years to come.

Going beyond just the store brand space, Hauptman notes, the retailers strengths include the ability to engage shoppers without a loyalty card program via their website and social media platforms, as well as refreshed stores that make them "more appealing and relevant" to a greater range of consumers.

For her part, Rosenblum views Mackeys involvement in the Conscious Capitalism movement as another positive.

"I think its where retail has to be headed," she stresses. "We can no longer divorce what is delivered from the communities we deliver to and the people that help deliver it."

Stern also has high praise for Whole Foods.

"Overall, they are one of the finest retailers in the world – period," he says. "In any category. Great and committed people, fantastic merchandise and visual merchandising, unique and innovative store design, deep ties to the community, and a passion to make the world a better place."

From roof to fork

This spring, Whole Foods Market announced a partnership with New York-based produce supplier Gotham Greens to build Americas first commercial-scale greenhouse farm within a retail grocery space. Scheduled to open this fall, the 20,000-square-foot farm is located on the roof of the new Gowanus, Brooklyn, Whole Foods Market store and will include reduced-energy technologies such as irrigation systems that require considerably less water than that needed for conventional farming.

Gotham Greens will grow pesticide-free produce year-round in the greenhouse for both the Gowanus location and other Whole Foods locations in New York. Because the farm is situated close to the other Whole Foods locations, long-distance food transport and its associated emissions will be eliminated for the area, the retailer said, and product freshness, quality and nutrition will be ensured for area customers. Whole Foods also plans to offer educational opportunities for area students and local schools to learn about greenhouses, farming and other environmental initiatives.

"Gotham Greens has been a valued local supplier of high-quality flavorful and fresh produce to Whole Foods Market since early 2011, making this greenhouse project a natural and extremely exciting next step in our relationship," said Christina Minardi, Northeast regional president for Whole Foods, in a press release announcing the project partnership. "Were particularly excited to partner with a local organization with roots right here in Brooklyn and a mission in line with our own, in that we both care deeply about providing local, fresh and sustainably produced food."