CEO Gaffe of the Week: Whole Foods Market

Last year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week, I plan to highlight one of my personal favorite CEOs, John Mackey of Whole Foods Market (NASDAQ: WFM  ) , who took a break from leading by example to stick his foot in his mouth not once, but twice, over the past two weeks.

The dunce cap
From an operational standpoint, John Mackey is a remarkable CEO who should be applauded for promoting a happy and healthy work environment. Mackey's success has derived from his company's ability to deliver organic and natural foods, which are more nutritious to consumers, at a slightly higher price point than they'd find in traditional grocery stores.

What we've witnessed is a consistent trend from consumers in both rising and falling economies that they'll pay nearly any premium in order to eat foods perceived to be healthier. With organic foods being in scarcer supply, they often carry higher price points and healthier margins, which are warmly welcomed with open arms by Whole Foods. In contrast, traditional grocers Safeway and SUPERVALU have struggled to install fuel stations and remodel their stores quickly enough in order to draw traffic and have largely missed the boat on the organic shopper. Not surprisingly, Whole Foods' margins are often two or three times higher than traditional grocers'.

This trend has also caused a boom in natural and organic food producers like Hain Celestial Group (NASDAQ: HAIN  ) and Annie's (NYSE: BNNY  ) . Hain's most recent quarter exhibited across-the-board sales growth of 25% and income growth of 36% as acquisitions and existing businesses contributed equally to top-line growth. Annie's investors saw sales increase 20% in its most recent quarter as the company pointed to rising brand awareness and its new rising-crust pizza line as the reason for its rapid growth. 

However, even great CEOs slip up once in a while; and John Mackey did his best foot-in-mouth impression a little more than a week ago.

In an interview with NPR that aired last week, John Mackey openly scolded the U.S. government's involvement in health care reform. When asked if he still believes Obamacare is a "form of socialism," as he had implied in a 2009 Wall Street Journal column, Mackey clarified his stance by referring to Obamacare as "more like fascism." In Mackey's own words in an editorial in The Huffington Post"I believe that, if the goal is universal health care, our country would be far better served by combining free enterprise capitalism with a strong governmental safety net for our poorest citizens and those with preexisting conditions, helping everyone to be able to buy insurance. This is what Switzerland does and I think we would be much better off copying that system than where we are currently headed in the United States." 

First of all, it's rarely ever a good idea to publicly scold the policies of the president, regardless of how unpopular they are. Recent comments from Papa John's CEO, John Schnatter, on how health care costs were going to add to his expenses and force him to boost pizza prices by $0.14 didn't benefit his businesses image very well, and Mackey's are unlikely to help Whole Foods' image, either.

Second, as ThinkProgress points out, the Swiss health care system and Obamacare are actually somewhat similar. Swiss citizens are required to have health care, the poorest citizens who can't afford health care are covered by the government, and health insurer profits are capped while minimum benefit limits are set. The only major difference is that private markets are used and the Swiss government helps negotiate the price insurers can charge instead of openly competitive markets as will soon be the norm in the United States.

To the corner, Mr. Mackey
I hate to say that it gets worse, but it does!

John Mackey ultimately recanted his statement calling Obamacare both socialism and fascism, but didn't take long to reinsert his foot in his mouth when asked for his opinion on climate change a few days later. Once again, in Mackey's own words: "Climate change is perfectly natural and not necessarily bad." He clarified his position with Yahoo! Finance a few days later by stating, "I guess my position on it is that I don't think that's that big a deal." 

As you might guess, many of Whole Foods' organic- and natural-food-seeking customers also care deeply about the environment. Even Whole Foods' webpage will give you multiple examples of how the company is helping reduce its carbon footprint. Yet Whole Foods' own CEO has seemingly decided to refute scientific evidence that global warming is a serious issue and has instead angered some of its faithful following in the process.

As a public figure and representative model of a company, sometimes it's best to bite your tongue and not say what you're really thinking. Needless to say, this is something John Mackey might want to consider working on.

Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may see your suggestion in the spotlight.

Is the natural food craze beginning to wane?
It's hard to believe that a grocery store could book investors more than 30 times their initial investment, but that's just what Whole Foods has done for those who saw the organic trend coming some 20 years ago. However, it may not be too late to participate in the long-term growth of this organic foods powerhouse. In this brand-new premium report on the company, we walk through the key must-know items for every Whole Foods investor, including the main opportunities and threats facing the company. We're also providing a full year of regular analyst updates to go with it, so make sure to claim your copy today by clicking here.


Read/Post Comments (12) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 25, 2013, at 4:59 PM, FooLawson wrote:

    So many questions, but I'll start easy.

    A CEO should be able to speak their mind about the current president's new system. Things that a president does years ago may not have the same affect today. How do you like Obamacare? Has it benefited you?

    From us regular human's, to CEO's of billion dollar companies, we cannot stop global warming. Even the companies doing their best know that it is what it is. We can aid, or divert, but completely stop? Explain?

  • Report this Comment On January 25, 2013, at 5:06 PM, klebad wrote:

    I don't believe either statement can be considered a gaffe. You can agree with him or disagree but his comments on healthcare represent his opinion as an individual and an experienced CEO. He's in a good position to know how the ACA will impact his company and others and what alternatives exist. The comment on global warming may have seemed wrong to you because of your beliefs based on your readings of the scientific evidence but Mackey was right in that humans aren't the only influence on global warming and that warm periods have generally beneficial. As long as his stores are providing what his customers are looking for he'll be doing fine.

  • Report this Comment On January 25, 2013, at 5:33 PM, dba3 wrote:

    Amen. If he had praised Obama care or bemoaned global warming he would be hailed by you as enlightened, He would be wrong but what does that matter. It is sad when critical thinking by a company's leader hurts the company.

  • Report this Comment On January 25, 2013, at 6:14 PM, TMFUltraLong wrote:

    To all,

    I'm not saying I agree or disagree with Mackey's statement. What I am saying is that as a CEO of a large public company shouldn't put his company's image in danger by speaking so emphatically about his personal views to the media. I'd be shocked if these two separate instances don't create some sort of PR lash back from some of Whole Foods' customers.

    TMFUltraLong

  • Report this Comment On January 25, 2013, at 6:23 PM, hightimes1 wrote:

    People, it doesn't matter a tinker's damn if a CEO "should be able to speak their mind" about matters of politics like this.The fact is that any CEO who makes a politically controversial statement like this man did, a statement easily calculated to offend half or more of those buying its product, has just committed gross negligence. It's no more complicated than that.

  • Report this Comment On January 26, 2013, at 1:29 AM, sliderw wrote:

    I like people speaking their mind. Less so (just a tiny bit) if he is the CEO of a business of which I am a shareholder. He is, after all, the face to the public for that company.

  • Report this Comment On January 26, 2013, at 7:24 AM, portillobw wrote:

    Two brief comments:

    1) Obamacare is laudable, but I have still not seen how adding 30 million people to the health care rolls is cheaper than are currently horrible existing system.

    2) Using the old Man on the Moon analogy, global warming is a fact, caused by both man and nature, but for man's part and as an example, are you telling me we can put a man on the moon but we can't burn coal cleaner (a fuel of which we have some of the world's largest reserves)?

  • Report this Comment On January 26, 2013, at 7:28 AM, portillobw wrote:

    with apologies, in point #1 I used are instead of our.

  • Report this Comment On January 27, 2013, at 12:25 AM, Corsair3117 wrote:

    A musing: Why is it house organs of left wing think tanks (ThinkProgress for example )trot out factoids, they "point out" where the term used when think tanks on the right do the same they merely "claim". An important semantic distinction . On evidence, both the CEO of Papa John's (try hanging with a stock that misses estimates by those 14 cents he cites in extra costs) and John Mackey have plenty of facts on their side. And no matter how often the prez, Gore and their running dogs in the media assert it, the case for man-made global warming is FAR from proven-quite the opposite. Just Google those who dispute the party line on the subject and find a host of distinguished scientists including Nobel winners who refuse to be stampeded just to curry political favor.

    As a former -and probable future-stockholder (sold during this current loss of momentum) of WMT, I will cede that the customer base likely has a bit higher percentage of those who believe the federal government should regulate bedtime and were offended by Mr Mackey's comments. To endanger ANY sales is seldom wise-granted- but a love of high quality meat, fish and produce has no ideology. Ken Fisher dumping shares has much bigger impact on the stock price and an episode or two of the Top Chef contestants shopping at WMT will offset the principled albeit impetuous CEO comments that created thistempest in a tea pot.

  • Report this Comment On January 27, 2013, at 12:03 PM, blablableh wrote:

    I stopped reading when you started inserting your views on the Swiss vs. the US healthcare system. I am not interested in what a far left website has to say nor am I interested in your views on healthcare systems.

  • Report this Comment On January 27, 2013, at 12:43 PM, sheldonross wrote:

    Apparently you stopped reading before that because those were Mackey's opinions, not the author's.

    Not that I agree with the author, apparently calling a pot black is a bad thing in his eyes.

  • Report this Comment On January 27, 2013, at 2:59 PM, TMFUltraLong wrote:

    To all,

    Yet again, not taking Mackey's or president Obama's side here. I'm merely pointing out how detrimental it can be for a CEO to publicly voice his opinion when he could be alienating the same customer base that frequents his stores. It wasn't a smart move regardless of your political beliefs.

    TMFUltraLong

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