In the classic business book Built to Last: Successful Habits of Visonary Companies, Harvard professor and author Jim Collins researched common practices of enduringly great companies. One of the characteristics he found was that great companies were able to align management, employees, and even customers with the "vision" of the organization.
Collins defines vision as a combination of three elements: "(1) an organization's fundamental reason for existence beyond just making money, (2) its timeless unchanging core values, and (3) huge and audacious -- but ultimately achievable -- aspirations for its own future."
Many companies have an employee handbook or poster on the wall invoking their mission statement, values, and vision. However, few instill these into the culture of the company and live it on a daily basis.
Whole Foods Market (NASDAQ:WFM) is a company that has successfully identified its reason for existence and has instilled its vision into the fabric of company. Whole Foods stakeholders are believers that Whole Foods is in the business -- as the company says -- of "helping support the health, well-being, and healing of both people -- customers, Team Members, and business organizations in general -- and the planet."
Let's take a look at how Whole Foods embodies each of its eight core values:
"We sell the highest-quality natural and organic products available" (Whole Foods core value)
- Whole Foods lists 81 "unacceptable" ingredients that are not sold in its stores, including aspartame, lead soldered cans, and vanillin.
- It offers more than 25,000 certified organic products and over 8,500 Non-GMO Project-verified products.
- It's one of three supermarket chains out of 68 with a "stellar" produce score from Consumer Reports.
"We satisfy, delight, and nourish our customers"
- Whole Foods has higher sales per location than any large-chain competitor.
- Frequent store events include kids' yoga, store tours, and animal adoption days.
- It's ranked No. 3 on The Reputation Institute's list of most reputable companies in the retail industry.
"We support team member excellence and happiness"
- 69% of employees who posted on Glassdoor would recommend the company to a friend.
- Whole Foods has been ranked among Fortune magazine's top 100 companies to work for for 17 straight years.
- All employees are eligible for stock options at 6,000 hours of service, that would be 150 40-hour weeks. Team members can benefit from a bonus pool based on store efficiency and performance.
"We create wealth through profits and growth"
- Whole Foods has posted 19 consecutive quarters of double-digit return on capital.
- The stock has returned 1,810% since going public in 1992, compared with a 355% return for S&P 500.
- The company has a goal of 1,200 locations across the United States. There are currently 435 stores.
"We serve and support our local and global communities"
- The Whole City and Whole Kids foundations are funded by Whole Foods to support healthy food access for children and lower-income communities. The Whole Planet foundation has granted $64 million to microfinance partners in 65 countries, helping more than 5 million people.
- 5% of after-tax profit is donated to non-profit organizations.
"We practice and advance environmental stewardship"
- The company plans to have transparent GMO labeling by 2018 on all items sold in its stores.
- It doesn't sell over-fished seafood and provides animal and seafood welfare ratings.
- It offers a rating system on produce and flowers based on items including producers' soil health, energy choices, waste reduction, farmer welfare, water conservation, and pest management
"We create ongoing win-win partnerships with our suppliers"
- 24% of produce is sourced locally through 1,200 different farms.
- A program is in place to fund up to $25 million in loans to local producers.
"We promote the health of our stakeholders through healthy eating education"
- The Total Healthy Eating Immersion program provides educational opportunities for all employees at no cost.
- The Whole City, Whole Kids, and Whole Planet foundations offer free educational support on nutrition.
Whole Foods Market's focus on its core values has been a key to the company's success to date. However, those values are now being tested more than ever. Much of Whole Foods' competitive advantage is dependent on the trust employees and customers have put in its values. That trust was compromised this past year, when a New York City Department of Consumers Affairs investigation found that Whole Foods was overcharging customers on multiple pre-packaged foods. Whole Foods admitted fault, blamed employee error, and corrected the errors. The negative publicity affected same-store sales, not only in the New York locations that were found out of compliance, but also nationwide. In the quarter in which Whole Foods' management admitted to overcharging customers, same-store sales declined 0.2%, the lowest year-over-year comparison since the Great Recession.
Whole Foods Market has built up a lot of brand equity through the years. Nonetheless, its ability to gain back trust with the consumer will be critical in returning to growth.
Many of Whole Foods' customers are loyal because of how the company cares for people and the environment. Getting away from those values hurts companies such as Whole Foods more than it would a competitor. The current backlash against Chipotle Mexican Grill (NYSE: CMG) is a perfect example. When a food retailer's unique selling point is the quality of its food, that quality cannot be compromised. For Whole Foods, it can't compromise its trust with consumers, suppliers, team members, or the environment.
A powerful mission statement and strong core values alone won't get you to the promised land, but companies that stand for something are companies everyone can get behind. Much of Whole Foods' ability to get back to growth will be dependent on how it can stick to to those values.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Palbir Nijjar owns shares of Whole Foods Market. The Motley Fool owns shares of and recommends Chipotle Mexican Grill 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.