Whole Foods Market (NASDAQ: WFM) ranked in the top 20 of FORTUNE magazines "World's Most Admired Companies" (ranked the Most Admired Company in the food and drug store segment in February 2015). It has also appeared on multiple other lists noting its commitment to social responsibility.
Giving back to the community through charitable and non-profit contributions seems to be a major part of Whole Foods' overall strategy, which has helped the company gain a lot of recognition, as well as make each store more profitable through community engagement.
The values and mission section of the company's site reads: "In fact, our deepest purpose as an organization is helping support the health, well-being, and healing of both people — customers, Team Members, and business organizations in general — and the planet."
Just how much is Whole Foods giving?
Whole Foods total stakeholder approach (not just shareholders but employees, community, etc) is more than just lofty goals and public relations speak. The company actually devotes a section of it's 10-K specifically to financial matters regarding its charitable donations. Under the "Global Responsibility" section of Whole Foods' 2014 10-K, the company notes that 5% of WFM's after-tax profits are donated to charity.
That 5% actually equates to a pretty substantial amount of money. Of the company's $579 million in income in 2014, they donated around $29 million during the year.
Whole Foods is doing more than just donating to third party causes, the company has also set up three separate foundations to further their community contribution. Note that the company covers the operating expenses of these foundations in addition to the 5% listed above, so that all donations to these foundations go directly to the cause.
Whole Planet Foundation, started in 2005, focuses on promoting self-sufficiency for its partners and suppliers in developing areas of the world, including combating poverty, aiding with natural disaster relief, and providing micro-credit loans. The foundation estimates it touches around 4.2 million people (including family members) through this program. [Since publication of this article, the foundation has updated its information to indicate it has served a total of more than 5 million people.]
Whole Kids Foundation, started in 2011, supports community education initiatives to inspire families and schools to improve children's nutrition and wellness. The program provides grants for school gardens, salad bars, educational materials, and more. The Whole Kids Foundation works with approximately 2,100 schools in the U.S. and Canada.
Whole Cities Foundation, started in 2014, focuses on promoting healthy eating education and access to nutritious food for under-served communities. So far this foundation is focused mostly on high impact areas such as Detroit and New Orleans, but plans to expand soon with WFM promising at least $1 million in seed funding over the next three years.
Is social responsibility something to invest in?
The amount that Whole Foods gives to the community is admirable, but is it something to invest in?
Socially minded investors are taking note of how companies that score high on social responsibility metrics also tend to perform better. Take the Domini Social Index (MSCI KLD 400) for example. This index tracks companies that meet strict standards for social responsibility. According to the fund's data, since 1990 the index has outperformed the S&P 500 with a 10.46% total return, compared with 9.93% for the S&P 500.
That half a percent over 25 years may seem small, but it shows that being socially responsible certainly isn't hurting these companies. And here's one more reason it looks like it's actually been helpful to Whole Foods' business model -- it's helping WFM to gain a higher ROI on its stores.
Getting out and involved in the community drives the total number of shoppers per store higher -- Whole Foods is more profitable on a per store basis than its major competitors at an ROI of 15.4% compared to around 11%-12% for companies like Sprouts and Wal-Mart.
But Whole Foods might not have a competitive advantage here
Whole Foods is not the only company in the grocery space pushing for social responsibility. Kroger (NYSE:KR) is Whole Foods biggest threat right now in the organic and natural food space, with its own private label called Simple Truth directly competing with Whole Foods organic and natural offerings.
Kroger claims to have donated $1.2 billion to charity since 2010, and reported giving $280 million in 2014 alone. The actual wording is "in Kroger's name" so it's hard to say if that includes outside donations in Kroger's name or Kroger's contributions itself, but if those contributions were actually from Kroger itself then it would equal about 15% of Kroger's 2014 income.
Regardless, the actual difference of who is more charitable is probably a moot point to investors looking for returns. Both companies have their merits as long term investments, and each seems to have community and social responsibility as a core value that is helping to improve their long term growth.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Bradley Seth McNew owns shares of Apple. The Motley Fool recommends Apple and Whole Foods Market. The Motley Fool owns shares of Apple 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.