The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

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Wednesday, September 6, 2017

Strategic CSR - Whole Foods

The article in the url below about Whole Foods' recent struggles is half right. It is correct in noting that Whole Foods is struggling, but incorrect in the underlying reasons for its difficulties:
 
"It's hard to think of a better poster child for 'conscious capitalism' than Whole Foods Market, the high-end grocery store that made a name for itself selling organic produce in feel-good, mood-lit stores. These days, the chain is floundering and a potential buyout is on the horizon. What does that say about the conscious capitalism it championed? … Whole Foods was supposed to be different. John Mackey, the company's chief executive, has long argued that Whole Foods is wired differently — that it runs on a 'conscious capitalism' model that outsmarts the competitive pressures of our for-profit system through creativity and innovation. … The Whole Foods founder penned his treatise in response to the growing consensus that capitalism is doing irreparable harm to the planet and the people who live on it. Our for-profit system is increasingly viewed as a zero-sum game in which ecological destruction, climate change and rising inequality are firmly linked to the rapacious behavior of multinational corporations. Mackey agrees that humans are harming the planet, but he doesn't think the problem lies in capitalism. Free-market capitalism, according to Mackey, is actually a 'beautiful,' 'heroic' system that, properly harnessed, can operate 'in harmony with the fundamentals of human nature' and the planet."
 
All of this is true. Fundamentally, however, the article misses the point about the root causes of Whole Foods' struggles. Yes, there are business decisions that the firm could have made that would have better protected it from competition. But, conscious capitalism is not the reason for the firm's decline. In essence, Whole Foods' sales are declining due to a lack of stakeholder support, particularly customers, who have been persuaded that products on offer at Walmart and Kroger (for example) are essentially the same as those offered at Whole Foods. As such, they see no reason to pay the higher prices that Whole Foods generally charges.
 
In reality, however, these customers are failing to distinguish between the low cost model pursued by most supermarkets and the differentiated model pursued by Whole Foods (something that might be threatened under Amazon's control). With food, as with many products, you get what you pay for and there is a price premium associated with quality. To draw an analogy, people are confusing a Toyota Corolla with a BMW 7 series because both cars are capable of getting you from A to B. Just because this is true, however, does not mean the two cars are comparable or even close to being the same product.
 
With all business models, stakeholder engagement represents either an endorsement or a rejection of what is on offer. Irrespective of what might be in our best interests, our perceived best interests take precedent. And, if customers no longer perceive Whole Foods to be a better value proposition, or they perceive a different company to be offering the same value at a lower price point, they will go elsewhere.
 
Whole Foods is essentially a premium product that, by definition, has a ceiling to its potential growth. Not everyone can afford or wants to shop at Whole Foods, just like not everyone can afford or wants to drive a BMW 7-series. The key, however, is to understand the underlying economic drivers – not be confused that products that are fundamentally different are really the same thing:
 
"Attractive as the conscious capitalism model may be, we simply can't rely on companies to deliver dignified workplaces, equitable models of food production or a better relationship between consumers and the planet. All stakeholders are not equal in our global economy, and even the best intentioned businesses run up against the implacable foes of profit and competition. Ultimately, the thorny problem of sustaining both decent livelihoods and a livable planet won't be solved by buying better things. It'll be solved through political struggle and demands that put people before profit."
 
Incorrect. Firms provide stakeholders with what they want and are willing to reward. Once we understand that good quality food is more expensive than poor quality food and are willing to pay for that product, then Whole Foods will have the success it deserves (and also be able to help improve the health of the general public and also the planet). We are not at that point at present.
 
Take care
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
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The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 
 
Whole Foods represents the failure of 'conscious capitalism'
By Nicole Aschoff
May 29, 2017
The Guardian