Whole Foods Market's (NASDAQ:WFM) new produce rating system might have been launched with the best of intentions, but we know what's paved with such well-meaning works, and the grocery store chain is barreling down the highway full throttle.
A responsibility to act
"Responsibly Grown" is Whole Foods' attempt to quantify the entire farming process, from seed to harvest, worker to waste, and everything in between. It is using the results to provide customers with at-a-glance information about those foods that takes all those factors into consideration by ranking produce as good, better, or best (or unrated, if the farmers don't participate in the program).
What Whole Foods' Responsibly Grown program is actually doing is creating a schism in farming that might ultimately undermine the organic movement's growth trajectory.
Because of the trail Whole Foods blazed in grocery retailing, smaller rivals such as Trader Joe's and The Fresh Market have flourished while traditional grocers such as Kroger, Wal-Mart, and even Costco -- which is now the largest organic goods retailer, with an estimated $4 billion in annual sales this year -- have rushed to build out their own offerings.
But all the competition has eaten away at Whole Foods' leadership position, with sales in the second quarter falling short of analyst expectations and growth slowing to less than 4%. As it attempts to meet the threat by implementing programs such as Responsibly Grown that differentiate it from its rivals, "America's Healthiest Grocery Store" is also angering the very people who helped put Whole Foods in its preeminent position.
Opening up a wider lens on the industry
Responsibly Grown assigns ratings to produce based on seven broad factors:
- Soil health
- Air, energy, and climate
- Waste reduction
- Farmworker welfare
- Water conservation and protection
- Ecosystems and biodiversity
- Pest management
Additionally, Whole Foods prohibits produce that has been irradiated or fertilized with treated municipal waste biosolids within three years of sale. Any genetically modified produce must also be labeled. Produce can earn a total of 300 points.
But because the program doesn't give more weight to farmers who adhere to the federal organically grown standard -- it gives them just 10 points -- conventionally grown produce can and does earn higher rankings than organic produce.
Walk Whole Foods aisles and you'll find produce from nonorganic farmers who have used standard fertilizers and pesticides earning a "best" rating while nearby organically grown produce is rated only "good" or "unrated."
Considering organic produce is typically more expensive than conventionally grown food, the Whole Foods rankings could lead customers to buy more conventional produce, and that has a number of organic farmers angry.
An uneven playing field
In a letter sent to Whole Foods co-CEO John Mackey, five prominent organic farms objected to how the program is being run. They said while they have enjoyed working with the grocery chain over the years, and as much as Whole Foods has helped educated the public on the benefits of eating organic, the Responsibly Grown program "is onerous, expensive, and shifts the cost of this marketing initiative to growers" while unfairly putting conventionally grown produce on an equal footing with organic.
The farmers say the USDA's organic certification is the "gold standard" of labeling, so there's no way conventionally grown produce should ever earn the "better" rating, let alone "best," and there's no way organically grown produce should be stuck with an "unrated" label. The produce has already been vetted by third parties, so organic farmers should at least earn extra points in each of those areas.
Indeed, the farmers made the case that since organic growers are already doing more to protect the environment and their workers from harm, factors that should be paramount for an ethical grocer such as Whole Foods, conventional growers ought not even be considered for the "Responsibly Grown" program.
Whole Foods said it is trying to nudge conventional farmers closer to organic growing by requiring they follow certain procedures, but organic certification is still a half-empty basket. The New York Times quoted Whole Foods Associate Global Produce Coordinator Matt Rogers as saying "the organic standard does not cover water, waste, energy, farmworker welfare, and all of these topics are really important, too."
Although there's something to be said for Whole Foods' holistic approach to ethically grown food, it does seem to be working at cross purposes with the grocer's goal of making healthier, more natural produce ubiquitous.
As the farmers noted, if conventional growers can earn a best rating, then there's little incentive for them to turn organic. And if consumers are led to believe that conventional produce is as good or better -- even cheaper -- than organic, they'll purchase less of the latter and more of the former.
Or, as one farmer told NPR, "Organic is responsibly grown, for goodness sake. Organic should be the foundation of anything that Whole Foods might do."
However, as competition from traditional supermarkets eats away at profits, margins, and its leadership position, Whole Foods Market might feel it needs to position itself more toward the center. Not only might that undermine organic farmers, but it could also erode what made it special to both shoppers and investors.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Apple, Costco Wholesale, and Whole Foods Market. The Motley Fool owns shares of Apple, Costco Wholesale, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.