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Why Whole Foods is Not a Sustainable Business

Raz Godelnik
| Friday March 9th, 2012 | 10 Comments

These are good days for Whole Foods Market. Business is good, sales and profits are up, the stock is rising and one article even called it a Buffett stock (i.e. it meets Buffett criteria for quality investment), and its CEO John Mackey hasn’t done anything eccentric or odd in a very long time. What’s the secret of Whole Foods?

An article on Motley Fool argued that these results are connected to the fact that Whole Foods’ mission is “making its business really matter, in far more ways than the traditional bottom line.”

In other words, Whole Foods has become an impressive example to the business case of sustainability. But is it true? I decided to check out if both parts of the equation are there: does Whole Foods stock provide better returns and is the company sustainable? The results were definitely interesting.

First, let’s look at the numbers. I have to admit until I checked the figures I had no idea how well Whole Foods’ stock (Nasdaq: WFM) is doing. So far this year the WFM is up by 17.7 percent and if you compare it to Wal-Mart, Tesco, Costco or Sainsbury’s, you find that Whole Foods outperforms all of them. It also outperforms the Nasdaq and S&P 500 indices. I thought this might be a coincidence so I looked for 1-year and 5-year performances. I was surprised to get the same result – Whole Foods’ stock outperformed all the other stocks and indices in both cases, generating 40 percent return in the last year and 80 percent return in the last five years.

The stock price is not the only evidence of Whole Foods’ strong performance. You can look at its sales, profits and ratios such as return on equity to see how well the company is doing. When it comes to its return on equity, for example, the company generated a return on equity of 13 percent, or 11 percent on average over the past five years. That’s not unheard of, but as Motley Fool explains, it’s fairly impressive for a grocer and for the fact that the company carries almost no debt.

Now let’s see if this strong performance can be connected to a strong sustainability framework. In other words, is Whole Foods a sustainable business? The Motley Fool’s article claimed that “its mission goes far beyond profits, straight into passion and purpose,” and that “relationships like the one Whole Foods has with EARTH University make it a different kind of retailer.“ But is it good enough to be considered a sustainable retailer?

The case of Whole Foods is not a simple one. On one hand the company has a green mission, impressive core values such as satisfying and delighting its customers or caring about its communities and environment, and a long list of examples to its efforts to “make green choices since we opened our first store.” It even has a very detailed page entitled ‘sustainability and our future’ on its website, where the company explains how it views this issue, which I believe can be summarized in this sentence: “At Whole Foods Market, we are starting to implement this new vision of the future by changing the way we think about the relationships between our food supply, the environment, and our bodies.”

Yet something is missing. Actually, couple of things. First, there are no goals. You have many statements like “we respect our environment and recycle, reuse, and reduce our waste wherever and whenever we can,” but I couldn’t find what the company’s goals are when it comes to recycling, reusing or reducing its waste. There is no sustainability report, so you don’t really know how well the company implements its values and don’t have any benchmarks or references. There is no climate change policy and actually I doubt if you can find the words ‘global warming’ or ‘climate change’ on Whole Foods’ website, which might not be that surprising given Mackey’s position on climate change.

To be fair, for the last three years, Whole Foods has been reporting on its carbon emissions to the Carbon Disclosure Project (its disclosure rating is 61).

Finally, it has no strategic sustainability plan, like M&S’ Plan A, Unilever’s sustainable living plan, or even Wal-Mart’s sustainability program. Nada.

I went further and looked at the Corporate Knights’ Global 100 list of the most sustainable companies in the world – Whole Foods is not there. On the other hand on Newsweek’s green rankings the company is ranked no. 106 on the list. Finally, if you look at CSRHub’s CSR ratings, you will see that Whole Foods receives average or a bit above average grades – its overall rating is 50, while the average rating for the companies in the CSRHub database is 48.

My conclusion is that in terms of sustainability, or to be accurate, strategic sustainability, Whole Foods is an average company at best. I think it would be actually fair to describe its current (strategic) sustainability stage as somewhere on the low-mid development level. It means that right now it doesn’t seem that Whole Foods is an example for the business case of sustainability. Yet, the good news for investors who do believe in the business value of sustainability is that there’s a lot of potential here if and when Whole Foods decides to move forward to the next level of sustainability.

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Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Department of Business Administration, CUNY and the New School, teaching courses in green business and new product development.


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  • sp12

    is there a case to be made that its sustainability can be found in the degree to which it has expanded, perhaps dramatically, the market for foods greener supply chains?  presumably at the expense of more destructive conventional food supply chains….   i suppose if thats the case they should figure out someway to quantify and report that. 

  • http://www.healthynwealthy.org/2012/02/golden-rule.html Hazyek

    They have intrinsic sustainability in the fact that nutrition plays more of a role in health and disease than anyone, except perhaps evolutionary eaters, actually realizes. Their whole business is centered around making people healthier, and making the environment healthier. If you read their annual reports, they stress that they provide products and services that make people healthier. They want more money in order to make the business better; and they do not want to make the business better in order to make more money. In sticking to these values, people have come to trust whole foods. Think about it: if someone wants to buy healthy food, where do you tell them to go? That trust and loyalty aren’t going anywhere. That’s what makes the business sustainable. 

  • http://www.triplepundit.com Nick Aster

    Good analysis, but I’d be careful about being too harsh.  Whole Foods has revolutionized better food and health for a huge number of people – really they’ve been one of the key drivers in making organics mainstream.  Clearly they’re not perfect so good to keep the ball rolling, but in comparison to many mainstream supermarket chains, Whole Foods is far more “sustainable”!

  • http://twitter.com/MichaelOwensCMI Michael P. Owens

    Raz- I think the title here is very misleading. As a retailer, Whole Foods is a leader in a lot of areas. Energy Conservation, Waste, Renewables. And I agree with Nick and the other commenters that they have essentially brought organic and healthier foods to the masses…which should not be discounted.

    • jenboynton

      In fairness to Raz, his original title was “Why Whole Foods is Not the Business Case for Sustainability” and I changed it for simplicity. 

      However, the article is about why Raz doesn’t think Whole Foods is a model sustainable business. Headlines tell the story of what the article is about. The fact that many disagree with his conclusions doesn’t make the headline misleading :) 

  • DMD Johnston

    I disagree that publishing a sustainability report or setting waste reduction/energy conservation targets are items to be checked off a list in determining if a company is “sustainable.” A) Whole Foods is profitable. B) It was started as a values-base business. So unlike a company that needs to turn around it’s “bad” practices by setting targets for doing “less bad,” Whole Foods shouldn’t have to set such targets. And, C) The opportunities for market growth in the sustainable foods arena made possible by Whole Foods supply chain management are astounding. Who cares what Mackey’s position is on climate change? They’re reporting as part of the Carbon Disclosure Project. So, D) they’re transparent.

  • razgo

    Sustainability is not  a black/white issue, yet we have a growing number of analytical tools and rankings at our disposal that help us compare companies and see which ones are more  advanced in approach and implementation and which ones are legging behind. I think that while Whole Foods revolutionized its industry and has many green achievements to be proud of, it can do much better job in terms of setting goals, designing a comprehensive sustainability plan and reporting on its progress – and this is just the beginning. Implementation of course is the next phase.

    I’m quite sure that if you look at other companies that did similar green breakthroughs to Whole Foods in other industries, you will find that they already moved forward and have goals, plans, benchmarks, reporting tools and other indicators demonstrating a strategic sustainability approach.

    In all, I stand behind my conclusion that Whole Foods is in terms of sustainability an average company at best – if you don’t take my word for it, you can check CSRHub’s ratings or other rankings mentioned in the article.

    Raz

  • http://www.substance-marketing.com/ Geoff

    I think this is a well intentioned but potentially missing the mark post with regards to sustainability. I would guess that Whole Food’s effect on the environment (like Walmart’s) is in their supply chain. I would want to know more about what they are doing to bring local organic produce to the masses.

    Their carbon footprint (CDP) will probably be nill, most of the companies that are creating the CO2 are in the energy sector.

    Also agree with Nick that they are definitely doing a lot more than most people. Especially on the social side. They consistently listed as one of the top places to work. They treat their people well. (Unlike Walmart).

    Sustainability plans can be a bunch of BS. While Mackey may be a climate change denier, I think he pays himself $1, so from a governance perspective they are ok too (although that Wild Oats debacle was kind of shady).

  • Barat

    I wonder how you can take such a strong position, just because some “sustainable” and “global” words are missing in website!!.LOL! Basically, the business model is still largely in US, less than 400 stores, so they are just in progress to become a large retail chain. Their key as of now would be how they focus to cater this raise in demand, in an efficient way.

    However the you seems to be interested in having a better website with all the fancy terms on it!!. you are missing a key fact that business sustainability is primary task of C-team rather than global sustainability. of-course no one complains if C-team actually aims for latter but no one will forgive them if they miss their call on the former.

    Finally, I would even exempt whole foods from this “global sustainability” because they are actually improving and implementing better framing practices to grow foods naturally, which would definitely contribute to the “farming sustainability”. So, they are contributing to sustainability not on their own but through their suppliers.

  • Lott

    Whole foods had 10.1 billion in sales in 2011 and it’s net profit was $350,000. Is that profitable?