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Whole Foods Market is an organic food grocery company currently operating in the USA, Canada and the UK, which achieved a total turnover of $17bn in 2021. Founded in 1980 in Austin, Texas, the company has consistently grown both organically and externally, by the opening of stores and acquisitions of regional players, allowing a geographical expansion, learning and implementing new processes, and entering new product category markets. The company has been purchased by Amazon in 2017, after having posted a total revenue the previous year of $16bn in 2016, for a total value of $13,7bn, the largest external acquisition operation ever made by Amazon at the time, with a 27% premium on the share price.

In a post-pandemic world, crafting an inclusive culture able at the same time to bond together employees and act as an element of motivation and pride is more important than ever, especially now that retail companies start to feel the pinch when it comes to attracting new talents. The IADS had the privilege to listen to Walter Robb, the former Co-CEO of Whole Foods Market, during the World Retail Congress in April 2022, on the topic of “conscious capitalism” and how, when properly implemented, it could help fuel growth for the company by creating an adequate corporate culture. This is the reason why we invited him to share his thoughts and vision when it comes to leading with a purpose, as well as to share the lessons he learnt during his 26-years-long tenure within the company.

Introduction

Walter Robb, a graduate of Stanford University, is a connoisseur and ardent entrepreneur in the organic food business, an industry he joined in 1977. He is the founder of Stonewall Robb Advisors, which mentors and supports entrepreneurs, a Senior Executive Partner at S2G Ventures, and a member of the Board of various companies in food, health and hospitality. Prior to this, Walter Robb was the Co-CEO from 2010 to 2017 of Whole Foods Market, a company that he joined in 1991 as a local owner and operator before moving up the chain of command, until overviewing its acquisition by Amazon in 2017. Robb has been inducted into the World Retail Congress Hall of Fame in 2022 which honours retail’s most influential representatives whose ideas have shaped retailing through the businesses and brands they have created.

Interview

IADS – You started and operated your own grocery store for 15 years, prior to selling it to Whole Foods and joining the company in 1991. 31 years later, how would you say this experience influenced your career at Whole Foods? What would you do differently?

WR – I started my career from the ground up: I borrowed 2,000 dollars from my stepfather, bought 3,000 dollars of inventory and started a business. During my first day, I did 200 dollars of sales. We were in 1977, I was 17 years old and I was a retailer.

Would I do anything differently? Probably not: I am convinced that to be a good retailer you need to start from the ground. I made some mistakes (a bunch actually) but it was all about permanently learning. I learnt by watching the owner of a hardware store across the street, who was all about customer service and building relationships through interaction prior to any intent of selling anything. I integrated that approach and later on implemented it at Whole Foods, trying to create a business based on relations, not transactions. This is why in the stores whenever a customer was asking for a product, clerks were not simply pointing them out in the right direction but bringing them to the right location.

There is no replacement for learning by doing when it comes to understanding how a retail business operates.

IADS - The expansion of Whole Foods Market in the Northern Pacific Region in the 90s under your watch was meteoritic: what was the competitive advantage back then? Product, people, systems? Do you feel this could be the same today?

WR – I do not think the situation is the same today as we are in different times: there are many more organic food companies now and all retailers have included that segment in their offers: look at Walmart!

At the time, there was a great sense of purpose to bring natural food to the market: we were the first ones to do it, with all competitive advantages linked to being the first mover, and we had the wind in our back, even though we did not know exactly what we were building. So, definitely, the situation has changed.

I believe that our differentiating point was our philosophy, all about empowerment and based on the idea that every associate can, provided they get support from their leaders, make a difference in the way the business grows. We supported the idea of sharing the responsibilities to collectively make the best decisions possible. A few examples to show how it translated:

-    Store teams leaders had a yearly budget of $100,000 to invest, on their own decision, to improve their stores,

-    Team members had to vote when it came to accepting a new member to the team.

So looking back, it was a combination of right timing, having the wind in our back, and a strong sense of purpose, to give good reasons to people to come and work at Whole Foods Market.

IADS - You spoke at WRC in Rome about the importance of purpose and culture for a company. How did you drive purpose during your tenure at Whole Foods? How did it evolve? How did you make sure it matched business expectations?

WR – Let’s start by looking at the purpose: it is the reason why the business exists, the “why”. You do not exist to make money, but to serve your customer. Every company needs a purpose: this is the most powerful leverage we can have.

How to make the purpose actionable? First of all, you define one, you communicate it, you lead it, you make your decisions according to it, and you share it with your teams making sure that they can give their own form of the purpose. But what does this mean?  What is key is to see it as a living concept:

-    You have to constantly talk about your purpose to the teams,

-    Your actions need to be taken in order to reflect the purpose. For instance, Whole Foods Market was one of the first retailers to walk away from one specific fish species which was unsustainably exploited, in order to be true to our purpose. We were also the first to go to a fully recyclable paper bag. Each of these steps, however little they might seem, are noticed by teams who understand that you are true to your word, which is what matters in the end.

-    On their side, your teams need to have the opportunity to act at their level through an empowered culture, to give the purpose its own expression through their own actions. We as leaders need to set up a culture where teams have room to make decisions. Giving them authority and power, you help bring the purpose alive throughout the organisation.

Now, a note about what I mean by “culture”. The Whole Foods philosophy, that I call “conscious capitalism”, is based on 4 pillars:

-    A sense of purpose, which is “why” the company exists,

-    Empowerment and leadership,

-    Values,

-    Culture, a mix of the purpose and values in a living form: how people feel shopping or working with you.

The culture is where we invested a lot of energy, time and money at Whole Foods Market.

IADS - When Amazon bought Whole Foods, the price strategy drastically changed: how did loyal customers react? What was the impact on WF culture and what did it take to remain true to the original promise?

WR – Amazon changed a lot of things for Whole Foods Market!

In terms of pricing, in 2016, the market had caught up with the organic food trend and our shares were down from the high 50s to the low 30s: the analysts were disappointed with our inability to adjust prices quickly enough. We had not realized that we had gone from a market where we were the only ones selling our products and setting our prices, to a market with fierce competition. The reason why we did not adjust the pricing and margins soon enough, was probably because the culture could not be adjusted even though we had already started some initiatives. But our freedom to test was limited, being a public company with the obligation to report every quarter. Amazon, being a private company, had the ability to go faster in the price lowering process, and they maximized the gross margin through a series of investments which showed results within a year. This was a great example of Amazon’s power and positive side. They also allowed us to invest in cybersecurity and e-commerce, for instance.

When it comes to the limitations of the partnership, I would probably say that the culture, which was so precious and particular at Whole Foods Market, could not be understood and maintained by Amazon. For instance, when we started discussing with Amazon, both teams were asked what they learnt from each other. The Whole Foods Market team answered that they learnt about data management, decision-making tools, and tech. The answer from the Amazon people was: “we learnt how to hug”, which is disappointing because they could not manage to understand our specificities. As a result, many of the Whole Foods Market teams left as the culture changed too much.

But on a broader note, I would say that the acquisition by Amazon has been a good thing for Whole Foods Market because it allowed the company to grow, including by making the pricing more adjusted to today’s competitive market.

IADS – You used to be Co-CEO at Whole Foods Market. What is a Co-CEO and how does this work?

WR - You have to remember that John (Mackey) and I were friends for 35 years and that before being appointed Co-CEO, I had already served as President and COO so it was not something coming out of the blue but a natural progression.

John is an extraordinary thinker but not so much interested in details, which is my case. We were really complementary to each other, without a strict division of actions even though in reality it came naturally (for instance I managed the relations with Wall Street). It was a specific set-up of 2 people doing something together in which they believed very much.

I would say that the clear benefit was to have 2 perspectives and points of view, both wanting to win together, and the downside is that we had to take the time to work it through with each other.

For instance, one time we were trying to decide to raise some product prices, I woke up in the middle of the night and I realised that we needed to act and I wrote John a note, he wrote back straight away at 4 am thinking the same thing. There were also times when we disagreed, for example on investments and tech. This is where it became a challenge because we ended up agreeing on compromises, turning out not to allocate enough capital to the projects.

When it came to the teams, of course, they were probably playing the mom and dad game, but I had most of the direct reports, so most of the organisation ran through me, which made things simpler.

At the end of the day, even though analysts were criticizing our set-up, it was working well for both of us, and it lasted 8 years!  Keep in mind that we had been friends for 35 years before. It was a unique arrangement, specific to our company and our history. I would not rule it out for other organisations, but it was quite unique and specific based on our personalities and situation.

IADS – How do you see the role of the CEO now and how did it evolve?

WR – The most important quality for a CEO is that they set the vision, and use the strategic chops they have access to, to understand the market and figure out how to proceed.

Beyond that, for me, as a CEO you have to be authentic and empathetic, all the more that you have to work with multiple generations of employees. In the US, we had social situations forcing CEOs to talk, without playbooks as this was an entirely new situation. A lot of CEOs told me that they found these situations strenuous. We are all different, there will never be a playbook on how to be meaningful and empathetic, especially given the fact that a lot more is expected from CEOs today compared to in the past.

Another set of qualities is agility and curiosity: now CEOs have to be willing to move, discover and act quickly, especially when it comes to technology.

All in all, there has been a crack in the idea that CEOs are all powerful and that teams are working for them: the work from home trend, among others, has changed the way organisations are led.

A lot more is asked from CEOs today in terms of skill set and the qualities needed. I do not think that it is possible to be a CEO without being so on a 24/7 basis. It demands a lot from you as a person and requires a strong, and permanent, willingness to grow. One of the principles of conscious capitalism is that if as a leader you do not grow, you will not be able to make your organisation grow either.

IADS - In terms of Price / Quality / Experience, what works and does not according to you? How did you drive customers’ attention?

WR – The three components of retail are price, quality and service. You can have two of the three but usually not the three at the same time. We chose quality and service. We never aspired to be the cheapest but we wanted to provide the highest quality. Of course, this depends on companies and what they want to achieve.

We developed a set of quality standards that evolved with the years, laid out in full transparency with vendors and suppliers. Again, this relates to our culture, our goal was to motivate our store leaders by showing that we were true to our purpose. We were known to have the highest product standards on the market.

When it came to the service, we invested a lot in the workforce and how to constantly better serve the customer. Our model was based on interaction and we were known for the great customer experience when they were coming to the stores. We controlled that with mystery shoppers but that was almost superfluous given the strength of our culture at the time.

It is all about the role of the leadership: to take care of teams who in return can take care of customers.

IADS - With the current limitations (staffing, experience), what would be your view for department store food retailing: go with a partner or develop ourselves?

WR – I went to several department stores in Berlin and Amsterdam, and I loved the way they set up restaurants on the roof-top. Food is a great business to bring animation and traffic to department stores, but a very complex one too because fresh products have a very limited shelf life.

For that reason, I would say that having a partner would be probably easier, but, if I had the choice, I would rather go direct by recruiting someone from the food industry, leveraging his own contacts, as I truly believe that outsourcing leads to losing a part of the experience. Plus, you might make more money by going direct.

IADS - How did you deal with innovation at Whole Foods Market? By sequence? In parallel? How did you create a culture of innovation?

WR – This is getting us back to the power of culture, in our specific case the notion of individual empowerment: our team members were able to make their own decisions at their level. In our case, we expected our 500 or so stores to be all different from each other, so we did not centralize the store development function at the national level, but, at best, at the regional level. This allowed all store leaders to do their things, all the more that our culture included a right to do mistakes. In Denver for instance, a store displayed a full Mac & Cheese aisle. Nobody told him to do that, but he came up with the idea which was specific and differentiating. Another example is when for material reasons, a store started to over self-serve bakery whereas so far, we were serving ourselves bakery over the counter.

IADS - How do you deal with innovation-related investments within a company? And how can you mitigate risks?

WR – For the food industry, there is more innovation now than in the past, and this is only going to accelerate. It would be suicidal for any retailer to ignore this. There is no way to succeed by holding on to what you have in such a competitive market today.

In terms of my investments, everything starts by meeting an entrepreneur who at the same time has the ability to build a sustainable company, which shows his seriousness, and at the same time provides a truly different and differentiated offer which will fuel my unique value proposition in a new way.

***

Question – Going back to the notion of purpose: how did you deal with all stakeholders (board, team members, directors, shareholders…)?

WR – Purpose is a living thing. It is not like you say it and that’s it. You have to consciously invest in the process of reviewing your purpose and see how it can evolve, first because you are a bigger company now and you can do more things, and second because you are focusing on the right things.

We had a meeting every 5 years called ‘Future Search’ when we were gathering about 150 stakeholders, and we worked through a process where we looked at the past, present and future, including reviewing our purpose.

Also, remember: simpler is better than more complex, and this is true for purpose too.

Question – Going back to the notion of culture in Whole Foods Market, in department store companies, usually legacy companies, we need to move fast but at the same time also deal with company owners, usually members of a family. I am sure that you have gone through the same changes, but how to deal with the needed changes which might, at the same time, make them very nervous?

WR – Always remember that the culture of a company is a living thing, it is not set forever. We took some leadership principles from Amazon, for instance. Another example is that we opened a leadership academy as we realized that a lot of our store managers lost, with time, their ability to drive with purpose. It is all about growing an organic set of values and ideas.

In order to pilot this, we were asking our whole staff twice a year about our culture, where we had to invest, where we were strong, and what were their ideas too.

In the department store world, Nordstrom is a good example: they are all about serving the customers. And this is not going to change: even if the “how” changes, the “why” does not.

Now, when it comes to the reaction of owners and how to deal with this, this is an excellent question and I will ask Pete and Eric Nordstrom about that!

Question -  How do you inspire all teams with purpose and make sure they embrace it?

WR – Give the possibility to the teams to embrace the purpose and make it theirs, by granting them autonomy to test ideas (as long as they enter within the purpose framework of course). Give them the possibility to do so in full autonomy (for instance, we gave a budget of $100,000 to store leaders to spend on an annual basis on their store, they were accountable for the expenses but the decisions were theirs). And, most importantly, keep in mind, and remind them, that it is ok to fail.

Credits: IADS (Selvane Mohandas du Ménil)