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Cracking the Whole Foods code

Whole Foods attracts more than mere shoppers; it earns devotees. How has the grocer built its cult following? And what makes it so unique?

wholefoods-code

WHAT DO HOLLYWOOD CELEBRITIES Katie Holmes, Rachel McAdams and Ryan Phillippe have in common? They’re on the long list of stars spotted perusing produce at Whole Foods in Toronto’s trendy Yorkville neighbourhood.

The upscale grocer, known for its hip decor and abundance of free-from offerings, has a hardcore following. Over Easter weekend, one woman navigated the crowds of an Oakville, Ont., location with a toddler in tow to grind her own nut butter; and a half-dozen customers in the bakery department touted Whole Foods–branded insulated messenger bags, waiting as staff assured a shopper his vegan bread didn’t contain eggs. While many grocers let the products take centre stage, few deliver the exclusivity felt when walking through the entrance of Whole Foods.

Whole Foods opened its first store, in Austin, Texas, in 1980. It eventually expanded to Canada, in 2002, with its Yorkville location. It currently operates 414 stores, including 10 in Canada (in Ontario and British Columbia). There are more in development: three in British Columbia, two in Ontario and two in Alberta. And this past November, co-CEO Walter Robb said he expects 30 to 40 more Whole Foods to open in Canada. Although he didn’t provide a timeline, if the expansion goes as planned, he expects to win more than $1 billion in annual grocery sales in Canada.

Its focus on growing here makes sense. Whole Foods’ international business, which consists of stores in Canada and the U.K., has grown faster than its U.S. sales. Canadian and British sales for 2010 to 2014 rose at a compound annual growth rate of nearly 15%, while CAGR sales in the U.S. during the same period were up about 12%. In its Q1 2015 earnings, Whole Foods reported total sales of US$4.7 billion.

A raft of competitors carry organic goods in Canada. American chain Mrs. Green’s Natural Market opened its first Canadian location in Calgary in fall 2013, and is set to announce plans for its Canadian expansion later this year. Newer independents, such as Vancouver’s Pomme Natural Market and Ontario’s Organic Garage, have also built their businesses around organic offerings. But Whole Foods co-CEOs John Mackey and Robb don’t seem worried about the competition. “In the entire history of our company, we’ve never had a store that we opened ever fail,” said Mackey at a recent investor conference. “We are still batting 1,000. We’re still perfect in that sense.”

It seems that confidence is justified. While some may joke you need to spend your “whole paycheque” to shop Whole Foods, the company nails merchandising, partnerships and attitude.

THE WHOLE HMR PACKAGE

While some grocers struggle to tackle the line between retail and food service, Whole Foods was a “grocerant” trailblazer. Depending on the size and location of the store, its prepared food department might include a deli, ethnic restaurant, burger joint, fresh sushi, made-to-order tacos and a sandwich bar. Its Ottawa location boasts restaurant-quality offerings with a $9.99 all-you-can-eat weekend brunch, and you can phone in a pizza order for pickup at the Oakville store. Locations are built with generous seating areas to accommodate roughly 90 diners, as well as separate coffee shops. The Yorkville store, located in the basement of Hazelton Lanes shopping centre, provides two separate seating spaces as well as its Whole Hearth Café, which sells lunch and coffee. All ingredients used at the café are natural or organic.

Whole Foods’ salad and hot food bars sell more volume than any other grocery staple in its locations, EVP of operations, David Lannon, told analysts in February. “It’s our bread and butter,” he said. The retailer’s most recent 10-K form states more than 19% of store sales came from prepared foods and bakery.

“They get you to buy more than you ever imagined because their stuff is so beautifully presented,” says retail expert Tony Chapman, referencing the options available at the olive, salad and soup bars. “You go to fill your container, and before you know it, you’ve got a $14 lunch.” Tom Henken, VP and director of design at store design firm api(+) in California, estimates while many grocers dedicate roughly one- quarter of their store to HMR, it’s closer to one-third at Whole Foods.

TECHNOLOGY TAKES ROOT

Whole Foods went from spending US$40 million a year on technology four years ago to US$100 million in 2014–to experiment with e-commerce, delivery and in- store digital screens. Stateside, Whole Foods has entered the e-commerce field by partnering with grocery delivery service Instacart. Some Whole Foods stores are seeing up to 5% of sales coming through grocery delivery. Plus, according to Karen Short, an analyst with Deutsche Bank Research, shoppers who use Instacart are buying baskets two-and-a-half times larger than the average Whole Foods shopper. Bridging the gap between delivery and payment, Whole Foods partnered with Apple Pay, a mobile payments service and digital wallet app, last fall. The payment option already accounts for 2% of sales, according to an investor conference in February, and is expected to grow with the Apple Watch launch as wearers look for ways to avoid checkout lines.

To help foster internal collaboration, Whole Foods is working with Foko, a B2B photo-sharing app from Ottawa. The app is similar to Instagram and lets staff share photos with each other. Marc Gingras, Foko’s CEO, says the app helps retailers share merchandising and marketing ideas across a company. Within the first 90 days of adoption across Whole Foods last June, more than 1,000 employees across 12 locations were actively posting using the app. Gingras says these numbers have more than tripled since then.

EATING LIKE AN IDEALIST

If the grocery industry were a high school, Whole Foods would sit at the cool kids’ table; it’s the healthy eating trendsetter. “A lot of retailers are moving into the organic and natural space,” says Stewart Samuel, an analyst with global grocery firm IGD. “But rather than moving toward the market, Whole Foods was already there.”

Staying ahead of current trends has helped Whole Foods turn one-time shoppers into loyal customers. For example, after recognizing the popularity of fresh juice bars, Whole Foods partnered with Vega, a plant-based food manufacturer in Vancouver, to open a juice and smoothie bar inside its Cambie location in that city last November. “[It’s] becoming a daily ritual for a lot of customers to come in and get their juice after a run or a yoga class,” says Lannon.

Creating daily habits helps make Whole Foods much more than a shopping des- tination. It’s a community hub. In-store cafés feature long “community tables” and free Wi-Fi, encouraging customers to linger longer. “You feel like you’re part of a club,” says Bruce Winder, a senior advisor at Toronto’s J.C. Williams. “Just by being in the store, you’re subscribing to the Whole Foods lifestyle.”

Each store features its own community board to promote in-store events. These events range from cooking classes to a customer feedback evening called What’s Brewing. In March, Toronto’s Yonge and Sheppard location held a private movie screening in the store’s café to raise money for its charity, the Whole Planet Foundation. “It’s not a one-size-fits-all formula,” says Chapman. “They personalize each store based on the neighbourhood.” That’s a strong differentiator. “We’ve seen a lot of Whole Foods copycats, but none have the same culture and innovation,” says Short. Loblaw launched its answer to Whole Foods, a banner called Nutshell Live Life Well, in 2013. But the first store never opened and the format was shelved last year. Chris MacDonald, a Ryerson University professor in Toronto who specializes in business ethics, says while competitors might be able to increase their offering of organic and natural product, they simply aren’t able to recreate the community atmosphere found at Whole Foods.

“They’re not selling a product, they’re selling an experience,” says MacDonald.

CONSUMERS WITH A CONSCIENCE

Loblaw made headlines last November by achieving its pledge to remove all artifi- cial colours and flavours from President’s Choice products. Old news for Whole Foods. It banned artificial sweeteners almost 20 years ago. “They set the standards, and are really first to the game,” says Samuel.

In 2011, Whole Foods adopted animal welfare standards for meat. The colour-coded ratings system uses five tiers, with the first indicating the animal was not caged or crowded, and the fifth indicating the animal was born and raised on one farm. In October, it launched a Responsibly Grown rating system for its vegetable, fruit and floral departments. Products are labelled “Good,” “Better” or “Best” based on the quality of the supplier’s farming practices. In its latest initiative, Whole Foods has committed to labeling all products that contain GMOs by 2018.

No stone is left unturned when it comes to educating consumers about its sourcing methods. The meat packaging used at Toronto’s Yonge and Sheppard location uses playful graphics of chickens with notes such as “space to flap my wings” and “no de-horning allowed.” J.C. Williams’ Winder praises Whole Foods for educating shoppers with extensive buyers’ guides. “It all comes together to drive you to make that healthy purchase,” he says.

“Aside from shiny apples and leafy lettuce, [Whole Foods’] marketing strategy takes on a certain vision of what it means to be socially responsible,” adds MacDonald. And customers are buying it.

DISTINCTIVE BY DESIGN

“We always say every store is a snowflake,” Ken Meyer, EVP of operations, has said of Whole Foods’ aesthetics. That involves working with the community to add local elements to each store. “I don’t think anyone can touch them in terms of their store design,” says Samuel, referencing the juice bar in Cambie and an on-site microbrewery in a California store.

Ken Nisch, chairman of Detroit-based retail design company JGA, says Whole Foods crowdsources graphics and art from the community to use in its stores. JGA worked with the company to design its award-winning Detroit location, which featured murals from local graffiti artists. A sign in the Oakville location lets customers know the retailer supports local artists by providing them with complimentary café wallspace to showcase their creations. At Toronto’s Yorkville location, a chalk- board sign in the bakery section encourages shoppers to support local vendors, including Toronto-based bakery Dufflett and gluten-free kitchen Molly B’s. A new location is scheduled to open its doors in Saanich, B.C., in fall 2016. Preliminary sketches of the store include a glass atrium where community art will be displayed and illuminated at night.

“They create a platform for their partners and community to tell their story, and they’re willing to take a seat in the back row and listen to it,” says Nisch

 

 

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