As I’m sure you’ve heard, Amazon purchased Whole Foods Market last year. Don’t get me wrong; I love Amazon and Whole Foods. I’ve spent loads of money buying product from both. I also think Jeff Bezos, the CEO of Amazon, is a brilliant entrepreneur. However, changes in the organic industry have forced changes in the market that Bezos must now address to save the business. But, customer, employee and brand reaction to the changes he has implemented so far suggest he is going in the exact wrong direction, and fast. But if these are the wrong decisions, what are the right ones? What could save Whole Foods?
As a small food business owner and frequent Whole Foods shopper, I am concerned the Amazon changes could actually destroy one of the things that made Whole Foods so wonderful – their selection of local brands. This will actually be the main focus in part two of this series. Oh, and I’ll also cover how Whole Foods’ future could be cannabis banking – yes, I said that. And if that isn’t enough of a tease to read the next blog, I don’t know what is!
Before we head down that path, let’s first look at how a successful, truly revolutionary grocery store once incredibly popular with high income, food conscious shoppers was chased by declining profits into a deal with Amazon.
How Has Whole Foods Changed Since It Started?
When Whole foods started in 1980, they were light ages ahead of the game. Their two biggest advantages they had were “cleaner” food than the average grocery store, and they carried local, small brands that people loved and connected with emotionally. The in-store experience was fantastic because, in addition to the visual appeal of how the store was presented, you also could meet many of the owners of small brands when they came to do demos at the store. For that, we all paid up to a (gulp) 40% premium on our bag of groceries.
What Challenges Were Facing Whole Foods?
The company ran into several challenges. I’m certainly not on the inside at Whole Foods so I can’t speak to all of them, but I can share about two important market issues, (1) the entrance of organic into mainstream grocery and big box stores, and (2) the progression/regression of the organic market.
For many years, Whole Foods was the only major grocery chain offering certified organic food. But times have changed and demand for organics has grown with purchasing increasing 8% annually compared to 3% for all food. Organic products are now easy to find at stores like Wal-Mart, Costco, and Kroger. And yet, despite this growth, still less than 1% of U.S. farmland is organic, and some crops like soy have virtually no organic production in the U.S. How could this be?
The answer, of course, is that much of this organic expansion in supply is coming from overseas. This raises a lot of questions. Let’s look at three of the main ones (I won’t cover farmworker health but that is also a big issue).
Is Overseas Organic Better for the Environment?
The first issue is carbon footprint. Organic production is estimated to be 20% more energy efficient than conventional. However, how many miles can you ship an organic apple before that environmental benefit has been wiped out? To give you some perspective, in 2005 alone, the CO2 emission caused by the planes flying fruits, nuts, and vegetables from other countries to California was the equivalent of putting 12,000 more cars on the road that year.
Is Overseas Organic As Nutritious?
The second issue might surprise you. After much study, we know that organic certification does not necessarily mean the food will be more nutritious. What is probably more relevant to nutrition and taste is the decline that occurs when the time between harvest and consumption is lengthened, and when the product is shipped long distances. If you buy an organic apple grown overseas, it likely won’t have as much nutrition as the conventional, locally grown apple contains. And, often produce is treated to help it arrive in the best condition possible, which can negatively impact taste and may also damage nutrients.
Is Overseas Organic Really Organic?
The third issue is that your imported, organic apple may not be as organic as you think. The USDA says its organic inspection process is the same across the world; however, organic certification is mostly a paper trail. There is very little testing to ensure crops claiming they are organically grown truly are. If I buy sunflower seeds from China, the broker I buy from deals with a middleman in China who may deal with other middlemen, and ultimately sourced from hundreds of farms. We are counting on each of those accurately reporting their organic practices. I’ve tried to chase down that supply chain before and it proved impossible. The US supply chain is not as difficult to trace.
In addition, environmental factors, such as air pollution (particularly in China) and chemical drifts from conventional farms, both of which can seep into organic crops, are not taken into consideration. Glyphosate testing (a chemical of concern found in Round-Up), for example, reveals that surprising amounts are showing up in some organic products.
As the owner of a food company, I can tell you that my colleagues and I consider overseas organic suspect, and in some cases a downright hoax. To be sure, if you can’t get your ingredient domestically grown, like poppy seeds, it’s better to buy organic than not. But I won’t risk exposing my customers to chemicals simply because I want an organic certification. I would buy a reliable, domestic conventional crop over an unknown source of an organic overseas crop any day of the week.
In fact, we do just that for our fruit bars. We source our fruit from Oregon and Washington (and a bit from California) farms because the Pacific Northwest has cold, hard winters, which kills off their weeds. As a result, farmers do not need to use an herbicide like Round-Up on their conventional crops like other regions with warmer climates. In fact, we test for glyphosate in all our products, so I have data to back this up. Our conventional “Just Fruit” bars measure nearly as clean as our organic Seed+Fruit bars. (Side note, there is measurable glyphosate in nearly everything now because it is in the water, even your shower and drinking water. But, that’s for another blog post.)
How Did These Changes Lead to Whole Foods Decline?
I’ve noticed for years that even the domestic, organic produce sold at Whole Foods isn’t as good as it was back when my children were little in the early 2000s. Yes, Whole Foods does sell some overseas organics (I estimate about 1/3rd of my local Whole Foods produce is imported) but I speculate the quality decline I’ve noticed is in part due to storage and shipping practices put into place as the company got larger, and in part due to the commercialization of some organic farms. It’s hard to blame the farmers. Organic farming is expensive; certification is expensive. In response, some organic farms are also operating at the edge of what most consumers would consider organic, using copious amounts of organic chemicals and growing monocultures, hardly the biodiverse farming many of we organic shoppers hope we are supporting. And, I firmly believe these factors impact taste–those suspiciously large, beautiful organic apples usually don’t taste as good as the smaller spotted ones. But, organic farming is expensive and it’s cheaper for stores to source from farms growing on the edge of what’s allowed and from overseas. The problem for Whole Foods is that these lower costs made it possible for grocers like Costco and Kroger to offer certified organic produce, and offer them at lower prices.
My local Whole Foods team members tell me they are really seeing the impact of what they see as bad decision making from Amazon. They told me numerous senior staff members have left the company as a result. For example, Amazon has told them only to order a certain amount of product. So customers shopping later in the day are finding shelves empty. And, it’s not just about supply. Since Amazon has taken over, Twitter has been a-fire with Whole Foods customer complaints of rotten produce and end cap displays of non-organic, big food brands on top of out-of-stock items. So, if consumers can get home delivery from Costco for their organics, be assured it will be fresh and in stock, and save on toilet paper while they are at it, why wouldn’t they?
Can Whole Foods Be Saved from Destruction?
No one ever shopped at Whole Foods because it was price competitive. I shopped there for better, safer foods and local, innovative brands that were ahead of mainstream trends, like gluten-free. Bezos’s response to the mainstreaming of organic has been to focus on lowering prices. That’s a no-win game for him — companies built on superior product and consumer experience never win by competing on price.
I think Whole Foods could have fixed this quality problem two years ago by playing up—offering a higher “better than organic” standard and buying from more local farms. That could have restored their position at the top, though it likely would have meant fewer, more profitable stores. But Whole Foods was in the capitalist game of “go big or go home.” It stumbled at the former, and so chose the latter. Luckily for them, they went home with a big wad of cash in their pockets by selling to Amazon.
Now it’s on Amazon to turn this around. But if the Twitter storm and employee complaints are right, what we’ve seen since the buy-out is that lower prices are coming at the expense of the very things the store was built on — quality products and quality shopping experience.
What’s next for Whole Foods and Small Food Brands?
The next wave of changes have already started at Amazon Whole Foods and, as a result, some small brands have started pulling out of the stores due to Amazon’s new contract requirements. This could lead to the company’s final and full destruction unless Bezos starts listening (and I hope he does) to its small brands and core customers. That is unless cannabis can save them–more on that in the next blog.