Walk into a Whole Foods supermarket and it’s obvious: this is not your mother’s grocery store. The produce is gleaming, stacked head high, perfectly arranged, each apple stem and celery stalk facing in the same direction. The prepared foods are mouth-watering. The freshly baked breads are irresistible. The youthful staff is cheerful, knowledgeable, eager to answer questions and offer samples. There are no plastic mountains of Coca-Cola, no coupon dispensers for Tide or Crest. There are fact sheets about wheatgrass juice and residue-free beef, and posters celebrating the virtues of sustainable agriculture.
What you won’t find on the shelves, however, are the most important items in the store: the business principles by which it operates. Whole Foods Market, Inc. is the largest natural-foods grocer in the United States. It is also one of the business world’s most radical experiments in democratic capitalism. Plenty of companies talk the talk of empowerment, autonomy, and teamwork. This company has spent 16 years turning those (often empty) slogans into a powerful – and highly profitable – business model.
It’s a strategy that’s conquering new markets and clobbering the competition. Over the last few years, Whole Foods has been on a mission of rapid-fire growth. It opened its first store in 1980. As recently as 1991, it had barely a dozen stores in three states. Today it has the clout of a nationwide chain: 43 stores in ten states from California to New England, revenues of $500 million, net profits double the industry average, publicly traded shares, a goal of 100 stores and billion-dollar revenues by the end of the decade.
All this prosperity comes with a purpose. The Whole Foods culture is insistently counter-cultural, its values rooted in the funky corner health-food store in Austin, Texas where everything began. Whole Foods stores don’t stock products with artificial colors, flavors, or preservatives; offer as much organic produce as possible; only sell meat and seafood that are free of chemicals and hormones. The company’s “Declaration of Interdependence” proclaims an unwavering commitment to diversity, community, and saving the planet. A salary cap limits executive pay to no more than eight times the average wage.
In short, Whole Foods Market is an upscale retailer with a hip twist — a marketing formula that’s worked miracles for “lifestyle” companies such as Ben & Jerry’s, Starbucks, and The Body Shop. But how the company positions itself is not nearly as compelling — or instructive — as how it manages its operations. Its values are soft-hearted; its competitive logic is hard-headed.
“There’s this notion that you can’t be touchy-feely and serious,” says cofounder and CEO John Mackey. “We don’t fit the stereotypes. There’s plenty of managerial edge in this company — the culture creates it.”
The Whole Foods culture is premised on decentralized teamwork. “The team,” not the hierarchy, is the defining unit of activity. Each of the 43 stores is an autonomous profit center composed of an average of 10 self-managed teams — produce, grocery, prepared foods, and so on — with designated leaders and clear performance targets. The team leaders in each store are a team; store leaders in each region are a team; the company’s six regional presidents are a team.
Whole Foods supports teamwork with a wide-open financial system. It collects and distributes information to an extent that would be unimaginable almost anywhere else. Sensitive figures on store sales, team sales, profit margins, even salaries, are available to every person in every location. In fact, the company shares so much information so widely that the SEC has designated all 6,500 employees “insiders” for stock-trading purposes.
But teamwork and information-sharing aren’t just about cooperation. They are also about competition — both with other companies and within Whole Foods. Teams, stores, and regions compete vigorously to outdo each other in quality, service, profitability — and the results of those competitions translate directly into bonuses, recognition, and promotions. Recently, internal competition got so intense that company leaders asked the stores to tone it down.
“Whole Foods is a social system,” Mackey, 42, explains. “It’s not a hierarchy. We don’t 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 doesn’t.”
Democracy & Discipline
The 65-year-old supermarket industry is the last place to look for radical ideas about work and management. It’s a stumbling giant with shrinking sales, razor-thin margins, and chronic labor troubles. Too often, the shopping experience is synonymous with bruised produce, bad lighting, long lines, and surly cashiers. Supermarkets are about brawn not brains — it’s a business where every penny counts and double coupons qualify as a profound strategic innovation. John Mackey and his colleagues play by different rules — rules that offer powerful lessons for companies in all kinds of industries. The Whole Foods strategy combines democracy with discipline. The Whole Foods culture braids a strong sense of community with a fierce commitment to productivity. It’s a virtuous circle: rank-and-file participation reinforces individual attention to performance and profits; solid financial results give people more freedom to innovate. Three principles define how the company operates:
1. All work is teamwork. Everyone who joins Whole Foods quickly grasps the primacy of teamwork. That’s because teams — and only teams — have the power to approve new hires for full-time jobs. Store leaders screen candidates and recommend them for a job on a specific team. But it takes a two-thirds vote of the team, after what is usually a 30-day trial period, for the candidate to become a full-time employee.
This hiring referendum affects the behavior of everyone involved in the process: the job candidate, the team, the store team leader. Store leaders take great care not to recommend people they don’t think the team will approve. Recently, for example, Aimee Morgida dismissed a team candidate before the 30-day trial period was over. Morgida, a typical Whole Foods manager, is 34, college-educated, and running her third supermarket, a Bread & Circus (one of several regional names under which the company’s stores operate) in Cambridge, Massachusetts. Her store is not only the highest revenue supermarket in the Whole Foods chain, it’s also the biggest natural-foods grocery in the country.
The candidate “was shocked” by the dismissal, Morgida says. “I said, ‘Three people had to talk to you about having your hands in your pockets and leaning against counters in front of customers.’ This person said, ‘I didn’t realize it was that serious.’ That [reaction] just reinforces the decision we made.”
Teams themselves routinely reject candidates. According to CEO Mackey, teams don’t become effective until they’ve rejected someone. “They’re saying, ‘This person isn’t good enough to be on our team.’ They’re standing up to the leader, taking ownership of their team, saying, ‘Go back and try again.'”
Who succeeds at Whole Foods? People who are serious about food, have a knack for pleasing customers, and can tolerate the candid give-and-take that’s a necessary part of democracy — all qualities that are hard to judge without working alongside someone for a while.
Ron Megahan, 25, runs the Bread & Circus store in Wellesley, Massachusetts. It’s a small, frumpy store that’s begun to show its age. But Megahan is a bundle of energy and ideas, a strong-willed leader who prowls the selling floor in a green apron. He’s also a fan of the hiring system — even when teams reject candidates he proposes.
“There are people who are really good about working when the manager is on the floor,” Megahan says, “but as soon as the manager disappears, they lose control.” At Whole Foods, “I’m not the one you need to impress. It’s your fellow team members. And they will be as tough as they can be, because ultimately [the hiring decision] will be a reflection on them.”
Team members are tough on new hires for another reason: money. The company’s “gainsharing” program ties bonuses directly to team performance — specifically, sales per labor hour, the most important productivity measurement at Whole Foods. Democracy reinforces discipline: vote for someone who doesn’t perform, and your bonuses may go down within months.
The first prerequisite of effective teamwork is trust. At Whole Foods, building trust starts with the hiring vote. Another element involves salaries. How better to promote trust (both among team members and between members and leaders) than to eliminate a major source of distrust — misinformed conjecture about who makes what? So every Whole Foods store has a book that lists the previous year’s salary and bonus for all 6,500 employees –by name.
The open-salary policy is undeniably radical. But its trust-building payoff is substantial. CEO Mackey initiated the policy in 1986: “I kept hearing from people who thought I was making so much money. Finally, I just said, ‘Here’s what I’m making; here’s what [cofounder] Craig Weller is making — heck, here’s what everybody’s making.'”
By most accounts, rank-and-file team members don’t spend much time consulting the salary book. Once the novelty wears off, and people discover that the cashier in the next aisle (or city) makes roughly what they make, they focus on team goals and job satisfaction. That’s not always the case at higher levels. According to Morgida, store leaders “tend to be more interested” in the salary book, “looking at their earnings potential if they go to this store or take that job.”
Mackey leads a team composed of headquarters employees and regional presidents. He says the open-salary policy does spark disagreements — but disagreements with a purpose. “I’m challenged [on salaries] all the time,” he says. “‘How come you are paying this regional president this much, and I’m making this much?’ I have to say, ‘Because that person is more valuable. If you accomplish what this person has accomplished, I’ll pay you that too.’ It leads to deeper conversations than you’d have otherwise.”
2. Anything worth doing is worth measuring. It’s one of the most popular aphorisms in business: what gets measured gets done. Whole Foods takes that simple proposition to remarkable extremes — and then shares what it measures with everyone in the company. Mackey calls it a “no-secrets” management philosophy. “In most companies,” he says, “management controls information and therefore controls people. By sharing information, we stay aligned to the vision of shared fate.”
The curious team member at any level of the company has access to nearly as much operating and financial data as anyone in Austin. In Ron Megahan’s Bread & Circus, for example, a sheet posted next to the time clock lists the previous day’s sales broken down by team. Another sheet lists the sales numbers for the same day last year. Once a week, Megahan’s store posts a fax that lists the sales of every store in the New England region broken down by team, with comparisons to the same week last year, as well as year-to-date totals. Another weekly fax gives sales information for every store in the company, although it doesn’t break down sales by team.
There’s more. Once a month, stores get detailed information on profitability. The report analyzes sales, product costs, wages and salaries, and operating profits for all 43 stores. Because the data is so sensitive, it is not posted publicly. But it is freely available to anyone who wants to see it. And store managers routinely review it with their team leaders. Since individual teams make decisions about labor spending, ordering, pricing — the factors that determine profitability — the reports are indispensable.
It’s hard to overstate how devoted Whole Foods is to measurements. Once a year, for example, it conducts a morale survey to probe employee attitudes. This is a no-holds-barred exercise. The company asks questions about rank-and-file confidence in team leaders, store leaders, and regional leaders. It asks about fears and frustrations. It asks where the company seems to be straying from its values.
Brutally honest stuff — the results of which, like almost everything at Whole Foods, becomes public information. The company describes the results of the morale survey in its annual report to shareholders. According to the most recent annual report, team members in the northeast region are disgruntled with the company’s health insurance changes; employees in southern California worry that the Whole Foods gainsharing system “is increasing competition among teams and lowering overall store cooperation”; stores in Houston, Chicago, and west Los Angeles report low confidence in their leadership.
Does Mackey worry that Whole Foods distributes too much information to too many people across the company? Hardly. “If you’re trying to create a high-trust organization,” he says, “an organization where people are all-for-one and one-for-all, you can’t have secrets.”
3. Be your own toughest competitor. “All-for-one” doesn’t imply complacency. Whole Foods is serious about accountability — far more serious than lots of tough-talking companies with less humane values. Teams are expected to set ambitious targets and achieve them. But accountability does not imply bureaucratic oversight. At Whole Foods, pressure for performance comes from peers rather than from headquarters, and it comes in the form of internal competition.
Competition is ubiquitous at Whole Foods. Teams compete against their own goals for sales, growth, and productivity; they compete against different teams in their store and against similar teams in different stores and regions. This competition is a major reason why performance information is so available. It becomes the gauge by which every team can measure itself against every other team. Ron Megahan’s little supermarket in Wellesley won’t ever surpass Aimee Morgida’s store in total sales — but it can try to beat it in growth rates, employee morale, customer service, and other performance indicators.
The main vehicle for competition at Whole Foods is an elaborate system of peer reviews through which teams benchmark each other. The “Store Tour” is by far the most intense. On a periodic schedule, each Whole Foods store is toured by a group of as many as 40 visitors from another region. It’s not a casual visit. The touring group includes regional leaders, store team leaders and associate store team leaders, and leaders from two operating teams (say, grocery and nutrition) who work intensively with their colleagues in the store. The tour is a two-day mix of social interaction, reviews, performance audits, and structured feedback sessions.
Sometimes competition becomes excessive. About a year ago, senior executives began sensing that the hoopla and preparations surrounding store tours were getting out of hand, even becoming counter-productive. “People were over-buffing their stores to the point that the tours weren’t truly representative of what the store was like,” says Chris Hitt, 46, president of the northeast region for Whole Foods. Hitt has been with the company since it was just four stores and a warehouse. “People were coming in at two in the morning to get ready, making special T-shirts for the tour, putting together four-color booklets. They were exhausting the staff. It was hell week. People have toned it down since then.”
The TCS review (“The Customer Snapshot”) is another key exercise. Ten times a year, each store is toured by a headquarters official or regional leader and rated on 300 different items. Unlike store tours, the TCS is a surprise inspection. It lasts a full day, and the ratings carry great weight inside Whole Foods. Once a month, every store’s TCS results go to every other store. The ratings become yet another way for stores and teams to compete with each other.
“What this has built in the company,” says Whole Foods President Peter Roy, 39, “is a culture of incremental progress.”
Lateral learning — finding out what your colleagues are doing right and carrying those practices into your organization — has become a driving force at Whole Foods. Ron Megahan routinely examines printouts of the top-selling products in other stores and regions to find out what he can learn. “This isn’t rocket science,” he says. “I want to see the products that are moving in another region.”
John Mackey puts it another way: “If you don’t cross-pollinate, you become a hick.”
Whole foods market has spent 16 years refining its culture of democracy and discipline. That culture is about to be put to its most serious test. The company wants to jump from 43 stores to 100 stores by the year 2000, and at least to double sales to $1 billion. The question isn’t whether it can make the numbers, but whether it can become a billion-dollar company without losing its character.
One way to transfer a culture’s values is to transfer people who embody them. Today when Whole Foods opens a store, it looks for company veterans willing to accept major roles at the new location. In general, the company likes to recruit up to 30% of the new staff from its existing supermarkets. The recently opened Georgetown Bread & Circus in Washington, D.C. is typical. Its staff includes a produce team leader from a Providence, Rhode Island store; meat and seafood team leaders from its Austin stores; a grocery team leader from Boston; a beer/wine/cheese team leader from North Carolina; a front-end team leader from Ron Megahan’s store in Wellesley.
Peter Roy says sustainable growth has been a worry at Whole Foods from the beginning. But he’s philosophical about the challenges ahead: “When we went from one store to two, people said, ‘It’s not going to be the same feeling; you’re getting too big.’ When we opened the third store, people said that would push us over the edge. Now we’re opening store 43, and the company is definitely getting too big! But it’s not the size of the company that creates the feeling. It’s the core values. It’s like making yogurt or sourdough bread. You can’t dilute it too quickly.”
Charles Fishman (email@example.com) is a journalist based in Raleigh, North Carolina.
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