Whole Foods CEO’s poor excuse for poor performance – Jose Alvarez and Zeynep Ton

Harvard Business School Senior Lecturer Jose Alvarez

At a town hall meeting announcing Amazon’s purchase of Whole Foods, a Whole Foods employee had this question for CEO John Mackey:

“I have a question about Whole Foods’s commitment to those win-win-win-win partnerships with our suppliers, with our team members— and how that’s going to live on once this merger is complete.”

Mackey’s response was curious, to say the least:

MIT Sloan Adjunct Associate Professor Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

“I think, sometimes, our company’s gone a little bit too much team-member focus at the expense of our customers. And that’s one definite evolution that’s gonna happen. I love the passion these guys [Amazon] have around the customer. They put the customer first in everything they do and think backwards. And— we— we’re gonna be the same way.”

If Mackey thinks that investing in people is part of the reason for Whole Foods’s poor performance, he’s wrong. From what we see, the real problem is a lack of operational excellence. Whole Foods may be paying its employees more than competitors do, but it has not created an operating system that leverages that investment. You can’t put premium gas in a clogged-up engine and expect to win a race.

Whole Foods strikes us as an organization that doesn’t standardize where it needs to and doesn’t empower where it needs to. Five stores within a city may have five different people purchasing from the same local farm in five different ways. Their information systems are mediocre at best.  John Mackey’s own words about Whole Foods technology are useful here: “So I think that we can expect that we’ll go to the front of the class, eventually, in the grocery business, from … the class dunce to… the class valedictorian.”

Poor systems and lack of appropriate standardization mean lower labor productivity and higher costs. At the same time, frontline team members appear to have little empowerment to satisfy customers. One of us recently wanted to return a $3 Whole Foods reusable shopping bag that had broken the first time it was used.  You would expect the cashier to just exchange the bag for a new one.  Instead, she called for her manager to resolve the problem.  It was a waste of time for all, including the other customers waiting in line. Paying team members more than competitors do won’t pay off if you don’t empower them to make a $3 decision! Lack of empowerment reduces not only motivation but also customer service.

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