MGT 517 GU WK 4 Whole Foods Market Case Study: Management Answers 2021

MGT 517 GU WK 4 Whole Foods Market Case Study: Management Answers 2021

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MGT 517 GU WK 4 Whole Foods Market Case Study

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WHOLE FOODS, whole people Case Study
Whole Foods Market is the largest natural food retailer in the world with more than 360 stores and
approximately $12 billion in annual sales. With operations located primarily in the United States and
also in Canada and the United Kingdom, Whole Foods sells natural and organic food products that
include produce, meat, poultry, seafood, grocery products, baked and prepared goods, many drinks such
as beer and wine, cheese, floral products, and pet products. The origin of the company dates to 1978
when John Mackey and his girlfriend used $45,000 in borrowed funds to start a small natural food store
then named SaferWay. The store was located in Austin, Texas. John and his girlfriend lived in the space
over the store (without a shower) because they were ?kicked out? of their apartment for storing food
products in it. Much of its inventory was ruined and its equipment was damaged. The total losses were
approximately $400,000, and the company had no insurance. Interestingly, customers and neighbors
helped the staff of the store to repair and clean up the damage. Creditors, vendors, and investors all
partnered to help the store reopen only 28 days after the flood. With their assistance, Whole Foods
survived this devastating natural disaster.
Whole Foods started to expand in 1984 when it opened its first store outside of Austin. The new
store was located in Houston, followed by another store in Dallas and one in New Orleans. It also began
acquiring other companies that sold natural foods, which helped to increase its expansion into new
areas of the United States. In 2007, it expanded into international markets by opening its first Whole
Foods branded store in London, England. (In 2004, it acquired a small natural foods company in the
United Kingdom, Fresh & Wild, but did not
In 1980, Mackey developed a partnership with Craig Weller and Mark Skiles, merging SaferWay with
Weller?s and Skiles?s Clarksville Natural Grocer to create the Whole Foods Market. Its first store opened
in 1980 with 12,500 square feet and 19 employees. This was a very large health food store relative to
others at that time. There was a devastating flood in Austin within a year of its opening and the store
was heavily damaged. Much of its inventory was ruined and its equipment was damaged. The total
losses were approximately $400,000, and the company had no insurance. Interestingly, customers and
neighbors helped the staff of the store to repair and clean up the damage. Creditors, vendors, and
investors all partnered to help the store reopen only 28 days after the flood. With their assistance,
Whole Foods survived this devastating natural disaster.
Whole Foods started to expand in 1984 when it opened its first store outside of Austin. The new
store was located in Houston, followed by another store in Dallas and one in New Orleans. It also began
acquiring other companies that sold natural foods, which helped to increase its expansion into new
areas of the United States. In 2007, it expanded into international markets by opening its first Whole
Foods branded store in London, England. (In 2004, it acquired a small natural foods company in the
United Kingdom, Fresh & Wild, but did not use the Whole Foods brand until opening its new store in
London.) It also acquired one of its major U.S. competitors, Wild Oats, in 2007. And, it is currently
planning on expanding its footprint in Canada from 9 stores (all in British Columbia) to 49 stores moving
into other Canadian markets such as Montreal. It now has approximately 67,000 employees with about
7 percent growth in the employee base annually. Thus, Whole Foods has become a major business
enterprise and the most successful natural and organic food retailer in the world.
MANAGING HUMAN CAPITAL
Whole Foods Market has done a number of things right, thereby achieving considerable success. Yet,
many people believe that one of the best things it has done is to implement an effective peoplemanagement system. Each Whole Foods store employs approximately 40 to as many as 650 associates.
All of the associates are organized into self-directed teams; associates are referred to as team members.
Each of the teams is responsible for a specific product or service area (e.g., prepared foods, meats and
poultry, customer service). Team members report to a team leader, who then works with store
management, referred to as store team leaders. The team members are a critically important part of the
Whole Foods operation. Individuals are carefully selected and trained to be highly knowledge- able in
their product areas, to offer friendly service, and to make critical decisions related to the types and
quality of products offered to the public. Thus, they operate much differently than most ?employees? in
retail grocery outlets. These team members work with their team leader to make a number of joint
decisions with regard to their specific areas, and they contribute to store level decisions as well. Some
observers have referred to this approach as ?workplace democracy.? In fact, many of the team members
are attracted to Whole Foods because of the discretion they have in making decisions regarding product
lines and so on. Of course, there are other attractions such as the compensation. For example, the
company?s stock option program involves employees at all levels. In fact, 94 percent of the stock options
offered by the company have been presented to nonexecutive members, including front-line team
members. The company pays competitive wages and pays 100 percent of the health insurance premium
for all associates working at least 30 hours per week, which includes 89 percent of its workforce.
Although the annual deductible is high ($2,500), each associate receives a grant of up to $1,800 annually
in a Personal Wellness Account to be used for health care out-of-pocket costs. All of the benefit options
are voted on by the associates in the company. Current programs include options for dental, vision,
disability, and life insurance in addition to the full medical cover- age for full-time associates.
Whole Foods follows a democratic model in the selection of new associates. For example,
potential new team members can apply for any one of the 13 teams that operate in most Whole Foods
Markets. Current team members participate in the inter- view process and actually vote on whether to
offer a job to prospective colleagues. A candidate is generally given a four-week trial period to determine whether he or she has potential. At the end of that trial period, team members vote on whether to
offer a permanent job to the candidate. The candidate must receive a two-thirds majority positive vote
from the unit team members in order to be hired.
Teams also receive bonuses if they perform exceptionally well. They set goals relative to prior
perfor- mance and must achieve those goals to attain a bonus. Exceptionally high-performing teams may
earn up to $2 an hour more than their current wage base.
The top management of Whole Foods believes that the best philosophy is to build a shared
identity with all team members. They do so by involving them in decisions and encouraging their
participation at all levels in the business. They empower employees to make decisions and even allow
them to participate in the decision regarding the benefit options, as noted above. All team members
have access to full information on the company. It is referred to as Whole Foods? open-book policy. In
this open-book policy, team members have access to the firm?s financial records, which include
compensation information for all associates and even the top management team and the CEO.
Therefore, the firm operates with full transparency regarding its associates. This approach emphasizes
the company?s core values of collaboration and decentralization. The company attracts people who
share those core values and tries to reward a highly engaged and productive workforce.
The company also limits the pay of top executives to no more than 19 times the lowest paid
associate in the firm. While this amount has been increased over time in order to maintain competitive
compensation for managers, it is still well below industry averages for top management team members.
And, John Mackey, the former CEO and now co-CEO, only receives $1 annually in salary and no stock
options.
The outcomes of this unique system for managing human capital have been impressive. For
example, Whole Foods? voluntary turnover is much lower than the industry average. The industry
average is almost 90 percent annually, but Whole Foods? data show that it has a voluntary turnover rate
of only 7 per- cent (in 2012). In addition, Whole Foods has been ranked in the top 100 best companies to
work for by Fortune magazine every year since the inception of the ranking in 1998.
In addition to its flat organization structure (few layers of management between associates and
top managers) and decentralized decision making (e.g., selection of new associates), the company
believes that each employee should feel a stake in the success of the company. In fact, this is
communicated in its ?Declaration of Interdependence.? The Declaration of Interdependence suggests
that the company has eight core values. They are listed in Table 1.
TABLE 1
Whole Foods? Declaration of Interdependence (Eight Core Values)
1. Selling the highest-quality natural and organic products available.
2. Satisfying, delighting and nourishing customers.
3. Supporting team member excellence and happiness.
4. Creating wealth through profits and growth.
5. Serving and supporting local and global communities.
6. Practicing and advancing environmental stewardship.
7. Creating ongoing win-win partnerships with suppliers.
8. Promoting the health of stakeholders through healthy eating education
The company attempts to support team member excellence and happiness through its
empowering work environment in which team members work together to create the results. In such an
environment, they try to create a motivated work team that achieves the highest possible productivity.
There is an emphasis on individuals taking responsibility for their success and failure and seeing both as
opportunities for personal and organizational growth. The company develops self- directed work teams
and gives them significant decision-making authority to resolve problems and build a department and
product line to satisfy and delight the customers. The company believes in providing open and timely
information and in being highly transparent in all of its operations. It also focuses on achieving progress
by continuously allowing associates to apply their collective creativity and intellectual capabilities to
build a highly competitive and successful organization. Finally, the company emphasizes a shared fate
among all stakeholders. This is why there are no special privileges given to anyone, not even to top
managers. It is assumed that every- body works together to achieve success.
SOCIAL AND COMMUNITY RESPONSIBILITIES
Whole Foods Market takes pride in being a responsible member of its community and of society.
For example, it emphasizes the importance of sustainable agriculture. In particular, the firm tries to
support organic farmers, growers, and the environment by a commitment to using sustainable
agriculture and expanding the market for organic products. In this regard, the Whole Foods Market
launched a program to loan approximately $10 million annually to help independent local producers
around the country to expand. It holds seminars and teaches producers how to move their products
onto grocery shelves and how to command and receive premium prices for their products. These
seminars and related activities have been quite popular. Overall, the Whole Foods Market does business
with more than 2,400 independent growers.
Whole Foods Market also supports its local communities in other ways. For example, the
company promotes active involvement in local communities by giving a minimum of 5 percent of its
profits each year to a variety of community and nonprofit organizations. These actions encourage
philanthropy and outreach in the communities that Whole Foods serves.
Whole Foods Market also tries to promote positive environmental practices. The company
emphasizes the importance of recycling and reusing products and reducing waste wherever possible.
Further- more, Whole Foods was the first retailer to build a supermarket that met environmental
standards of the Leadership in Energy and Environ- mental Design Green Building Rating System (LEED).
It offsets 100 percent of its energy use with wind credits. Finally, Whole Foods announced a new
initiative a few years ago to create an animal compassion standard that emphasizes the firm?s belief in
the needs of animals. The company developed standards for each of the species that are used for foods
and sold through their supermarkets (concern for human treatment and animal welfare). In 2012, the
company produced its first Green Mission Report that reports on all of its areas related to
environmental sustainability.
Whole Foods launched a program to encourage higher wages and prices paid to farmers in poor
countries, while simultaneously promoting environmentally safe practices. In fact, the company donates
a portion of its proceeds to its Whole Planet Foundation, which in turn provides microloans to
entrepreneurs in developing countries.
Finally, Whole Foods has become a champion for healthy eating. It engages in healthy eating
education to promote more healthy Whole Foods, Whole People citizens and communities. It provides
recipes for preparing healthy meals. Very few, if any, major corporations, including competing supermarket chains, have established programs that rival those of the Whole Foods Market to meet social
and com- munity responsibilities.
SOME BUMPS IN THE ROAD
While the Whole Foods Market has been a highly successful company, it still has experienced some
problems along the way. Obviously, it has produced a concept that has been imitated by other natural
foods companies and a number of competing supermarkets as well. Yet, in general, Whole Foods has
been able to maintain its competitive advantage and market leadership, partly by being the first to the
market and partly because of its practices, which continue to generate a strong reputation and a
positive company image. Yet, a number of firms have developed competing products and are making
headway in selling organic foods, including some regular large supermarket chains. For example, Sprouts
Farmers Market has garnered a large number of customers with its sales of natural and organic foods.
Major supermarket retailers such as Kroger have expanded the number and type of organic foods sold.
Even Wal-Mart offers organic foods in its grocery operations. In order to maintain its leadership and to
continue to command a premium price, Whole Foods Market has been continuously differentiating its
products and building its image so that people will buy from it rather than from competitors. Whole
Foods continues to expand the number of its stores and move into new markets. It has recently begun
to expand into smaller cities such as Boise, Idaho (population is 212,000) and Lincoln, Nebraska
(population is 260,000), with success. Previously, it only located stores in large metropolitan areas. It
recently opened its first Domain store in which it offers dining experiences such as oyster bars and Texas
barbecue along with retail groceries. And, Whole Foods recently market tested a ?click and collect?
program whereby consumers can order organic foods online and pick up the order at the nearest Whole
Foods retail store.
The top management of the Whole Foods Market has been strongly opposed to unionization.
The belief is that the company pays workers well and treats them with dignity and respect and that a
union is likely to interfere in its relationships with associates. Mackey, the CEO of the company, suggests
that it is a campaign to ?love the worker, not a union.? Yet, the first union for Whole Foods was voted in
at its Madison, Wisconsin, store. However, the Whole Foods Market executives have been able to fend
off union efforts at other stores, including a campaign launched that the company referred to as ?union
awareness training.? Still, it may experience problems with its planned expansion into Montreal where
unions are especially strong.
Several years ago Mackey was criticized for and investigated by the Securities and Exchange
Commission (SEC) for posting on a Yahoo! financial message board anonymous online critiques of
competitors and self-congratulating statements about the Whole Foods Market. These comments were
made using a pseudonym so no one knew that he was the CEO of Whole Foods. This action was strongly
criticized by analysts and others, and several questioned the ethics of his actions. The Whole Foods?
Board investigated the actions and reaffirmed its support for Mackey. In addition, the SEC concluded
that no enforcement action would be taken against the company or the CEO. Mackey has not engaged is
such actions since that time.
FIRM PERFORMANCE AND THE FUTURE
Whole Foods Market has performed well over the past several years, sustaining significant growth in
sales and profits. Its stock price has also generally performed well. However, during the period 2005?
2008, some analysts argued that the stock was overvalued, partly because they did not believe that
Whole Foods? growth rate and returns could be sustained. Undoubtedly, maintaining its growth rate will
be difficult as the competition in its natural and organic foods continues to grow. It was a special
concern during the recent economic recession. Yet, Whole Foods? business model seems to be strong
even with the challenging economic environment. The company is highly profitable and continues to
outperform its direct competitors. And the value of its stock has increased considerably with a return of
1,075 percent over its most recent five years ending with fiscal 2013. Shareholders enjoyed a 2 for 1
stock split in2013.
The firm has been combating com- petition with its new approaches and stores and recently
offering discounts on its products. The expansion of stores to new communities has been successful as
well, hurting established super- market competitors such as Albertsons in its own backyard (Boise,
Idaho). Clearly, Whole Foods Market has been a very positive force in dealing with its associates through
its highly unique means of managing human capital. It also has built a strong positive reputation and
differentiated its products in the eyes of consumers. Yet, there are some challenges with which the firm
must deal, such as growing competition and potential unionization. While the future likely remains
bright, further evaluation will be needed to determine whether there will be continued growth and
positive returns for all stakeholders of the Whole Foods Market. Source: Whole Foods Market logo used
with permission.
1
Whole Foods Market Case Study
Sarah B. Howard
Grantham University
MGT517: Organizational Behavior
Dr. David Marker
22 June 2021
2
Whole Foods Market Case Study
Human Capital
Human capital is the stock of knowledge, skills, values, and cultures that augment
employee performance to stimulate economic value. Whole Foods encourage the empowerment
of the human resource aspect in handling the daily process and engagement for a successful
business review to increase efficiency, sustainability, and competitiveness. Custom designs have
motivated workers to work efficiently to sustain the growth of the company. Whole Foods
Human Resources ensures selective recruitment and retention; therefore, the organization strives
for their reputation whenever they are in any store. Whole Foods managers have insisted on
using human capital?

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