Is Whole Foods Market a Consumer Hero or Big Business Bully?

Few companies take their social and environmental responsibilities as seriously as Whole Foods Market (NASDAQ: WFM  ) . The company has created foundations for lifting the world's poorest people out of poverty and encouraging kids and schools to eat healthier. It also sports a local producer loan program and "5% days" when individual stores donate 5% of a day's net sales to a local nonprofit or educational organization. 

365 is Whole Foods Market's flagship organic food brand. Source: Whole Foods Market

Many also consider Whole Foods Market a consumers' hero for taking a leadership role in the organic food market. For instance, the company has become a champion for the Right to Know movement, which aims to allow consumers to make better grocery purchasing decisions by calling for the labeling of all foods containing ingredients produced from genetically modified organisms, or GMOs. Regardless of the success of public labeling mandates, the grocer will make storewide labeling mandatory by 2018 to appease its loyal customer base.

The move may be good for business overall, but it does create the potential for friction and disagreements with suppliers. While smaller brands can alter their supply chains and established brands from WhiteWave Foods (NYSE: WWAV  ) and General Mills (NYSE: GIS  ) can survive an ouster from shelves, not every brand is so fortunate. Has Whole Foods Market's unrelenting pursuit of non-GMO foods turned it into a bully? Could its practices actually be a growth-trap for small suppliers?

New rule: Obey or get the boot
The nation's favorite high-end grocery chain has done an excellent job communicating with its numerous and diverse suppliers about its intentions and expectations for its labeling initiative. Of course, it has other ways of persuading suppliers to comply. Recently the company announced that it would stop selling Chobani yogurt in 2014 to allow smaller brands that do not contain GMO ingredients to gain exposure. So much for labeling.

Consumers won't see any of these products at Whole Foods in 2014. Source: Chobani website

Whole Foods offered some intimidating words for companies in its supply chain. While the company has "challenged suppliers to create unique options," "Chobani has chosen a different business model," as told to the Wall Street Journal. That may resonate with customers, but it isn't exactly accurate. The truth is that Chobani has rooted ingredients containing preservatives and hormones from its supply chain, much like the Horizon brand from WhiteWave Foods.

Unfortunately, the company has taken heat for using milk produced from cows fed GMO animal feed. That should have been an easy problem to fix, right? It isn't quite that simple. Organic animal feed isn't available in adequate quantities or at reasonable prices to institute an overnight change, which makes it impossible for Chobani to source enough organic milk for its own products (I recently explained how market conditions could lead to events such as this).

Luckily for Chobani, being removed from store shelves won't spell disaster: The Greek yogurt pioneer generates the grand majority of its $1 billion in annual sales independent of the grocer. General Mills, which owns the Cascadian Farm organic brand, and WhiteWave Foods also have enough reach to survive any potential disagreements with Whole Foods. Meanwhile, smaller suppliers should be nimble enough to source organic ingredients for their own products -- for now.

Small suppliers beware?
You can't really argue that Whole Foods' unwavering pursuit of organic foods is bad for business, especially considering the company's extremely loyal and passionate customer base. It also isn't uncommon for a business to use its position of power to strong-arm suppliers into alignment with internal goals or bring about change. If all goes according to plan, the company will spur growth in the organic market -- including that for organic animal feed.

It just seems a bit strange to commit to labeling GMO products if, in the end, you won't end up selling any. Why announce a deadline of 2018 if you won't afford larger suppliers time to change their supply chains?

What will the grocer do if the organic animal feed market doesn't grow quickly enough (sending prices skyward) to keep up with demand? Will gaining exposure on the shelves of Whole Foods actually be detrimental for small suppliers in the long run? After all, small suppliers will grow up and require more inputs one day. While there is a seemingly endless supply of small suppliers willing to comply with organic standards today, investors have to wonder if the grocer is creating a standard that, for economic reasons, will be impossible to meet down the road. That could create more supply chain friction that, unfortunately, may not be so easy to move past.

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Read/Post Comments (10) | Recommend This Article (6)

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 December 29, 2013, at 1:41 PM, TheLightBearer wrote:

    I salute Whole Foods for their non-GMO

    stand, which they have every right to

    impose. I also salute those food companies,

    both large and small, who say thanks but

    no thanks, I will run my business according

    to my standards. Freedom is a wonderful

    thing.

  • Report this Comment On December 29, 2013, at 2:03 PM, SIRIking wrote:

    I salute Whole Foods Market for committing to let their customers know which product has GMO and does not have GMO. Saying that as a loyal Whole Foods Market customer.

    I oppose small and large companies who do not care about their customers well being and preference to know what is GMO, NON GMO. For that reason I avoid buying Organic products from companies like general mills and host of others.

  • Report this Comment On December 29, 2013, at 2:04 PM, SIRIking wrote:

    I disagree Whole Foods Market is a bully.

  • Report this Comment On December 29, 2013, at 7:44 PM, mycorner1st wrote:

    A Bully? For giving consumers the right to choose GMO or not? This is a writer that suspiciously looks like a right wing plant to support the"rights" of wealthy corps to force GMO on consumers.

  • Report this Comment On December 29, 2013, at 10:58 PM, Jim88 wrote:

    I see this as a marketing ploy to sell whatever...nothing more...a 'hey, look at us, we're looking out for you' to the people who drink the WF Kool-Aid...and I can understand issues with, for example, Monsanto, about GMO and their business practices (bully?), but have GMOs been proven a risk to health?...and I go to WF when needed, but don't worship them...

  • Report this Comment On December 30, 2013, at 9:36 AM, Howdie wrote:

    Any business has a right to say to a supplier "If you do XYZ, we'll buy your product and if you do not do XYZ we won't buy your product." That is free enterprise.

  • Report this Comment On December 30, 2013, at 11:22 AM, Farmhound wrote:

    Totally support WF business model. Don't believe all the hype about non-gmo vs. gmo's but if people want to pay extra for the hyped up product..More power to them.

  • Report this Comment On December 30, 2013, at 2:37 PM, SIRIking wrote:

    I bet this writer is paid off by all corporations specially monsanto and slew of other evil corporations forcing GMO's down consumers throat. You are a bully when you fight for consumers to chose what to consume and not consume. You are an angel when you force down consumers throat garbage. Good portion of society are bumbling idiots. Unfortunately.

    There is no proof of GMO's being healthy or not healthy because evil empire monsanto and slew of others will not give government agency products they sell to test if they are good or bad. That tells me and I am sure to many others gmo's are bad for humans.

  • Report this Comment On January 03, 2014, at 2:58 PM, hankgagnon wrote:

    Typical right wing Big Corporate money bullsh..... People should me made aware of what they are eating. GMO food is junk. Its is greedy bastards trying to make more money no matter who they hurt. Mother nature provided the earth what we need to live. Messing with mother nature is what why we see babies being born with Autism and other birth defects at an alarming rate. People with normal active lives are getting fatter, our kids are getting fatter at an alarming rate. These chemicals and alterations to the food supply by these greedy cons are causing it.

  • Report this Comment On January 04, 2014, at 8:54 PM, TMFBlacknGold wrote:

    @hankgagnon

    "Mother nature provided the earth what we need to live."

    Yes, including the building blocks of DNA that can be assembled more precisely for creating enhanced products.

    Maxxwell

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