What’s Not In The Bag.

Whole Foods Market, In Sun And Shadow.

By Errol Schweizer

Only in silence the word,

Only in dark the light,

Only in dying life:

Bright the hawk’s flight

On the empty sky.

-Ursula Le Guin, “Chronicles of Ea”

(Note: This is part one of a two part newsletter, written for the tenth anniversary of my departure from Whole Foods, after 14+ years of working there in stores, regions and national purchasing. Part two coming soon.)

Life is full of contradictions… playing off each other, pushing everything onward. So too are grocery stores.

My alma mater, Whole Foods, for instance. At scale, they sell among the highest quality, most carefully curated assortment of groceries in the U.S.

Plant-based, organic, non-GMO, fair labor certified. Sure, there are plenty that do better, the Natural Grocers, the Kimbertons, the PCCs of the world. But none are as ambitious or as expansionist in ensuring more people can eat better, building vast supply chains along the way to operationalize the vision.

On the other hand, Whole Foods is owned by Amazon.

That statement is a Rorschach test, testing your cognitive biases. Amazon, paragon of convenience and consumer sovereignty, fast and efficient delivery of anything you need? Amazon, world’s largest company, highest injury rates in the warehouse sector, workers peeing in bottles and disproportionately dying on the job, allergic to unions, robot overlords collecting your data to manipulate prices and exploit your needs and desires? Yes to all.

As the joke went back in 2017… Jeff Bezos in bed, ordering breakfast, probably in his frog pajamas, asked Alexa, “Alexa, buy from Whole Foods”. Alexa, glitching, responded, “Buying Whole Foods.” For pennies on the dollar compared to the 2013 valuation.

Whole Foods, now a very small business unit of Amazon, a small fraction the size of Amazon Web Services, Amazon Marketing or Fulfillment operations, less than a sixth the size of Amazon’s actual online grocery business.

Life is full of contradictions. Sun and shadows, playing off the cardboard boxes and cello bags on the endless endcaps, selling you what’s not in the bag.

The entryway always has a powerstack.

That is the Whole Foods way. This week it is LaCroix, last time it was Siete, or Boulder Canyon, or maybe Liquid Death. Dozens, maybe hundreds of cases artfully stacked, arranged, displayed by highly skilled clerks, to stimulate your impulse to buy, price point psychologically optimized to make you feel justified. Win, win, win, for supplier, wholesaler, retailer and even you.

Walking through the front door, forced flow air keeping out the hot weather, the store is cool and breezy and smells floral, fruity, fresh, clean, bright, with light reggae, Drake or Taylor pumped in through the satellite radio, a feel good psyop so you can buy groceries with a little pep in your step.

Opening with produce is one of Whole Foods’ greatest gifts to retail.

Their premier department, fresh and fully stocked, all unicorns and rainbows, built off of a fully integrated internal supply chain, routing produce from farms and aggregators in California and Mexico and Florida through Whole Foods’ own distribution network, enabling the chain to compete on quality, freshness and price with really just about any other full service grocer. It is a powerful first impression, a full sensory upload, with a couple of clerks usually busily packing out displays as customers thread their way through the bounty.

Tables of berries, winter citrus, pomegranates, stacked with high margin, high dollar cut fruit culled from floor stock and packed into plastic tubs. Shelves of packaged green beans, celery sticks, French beans, snap peas, okra, carrot sticks, Brussel sprouts, broccoli crowns, cauliflower florets and cobs of yellow corn. The wet rack, a fully misted upright cooler of fresh vegetables, is overflowing, with a produce clerk packing out an impressive array of organic herbs, lettuce, cabbages-both red and green, various parsnips, turnips and beets, celery stalks, cello-wrapped cauliflowers, rubber banded broccoli stalks and crowns, bunches of green kale, red kale, Russian kale and dinosaur kale, bok choy and even organic dandelion greens, all cultivated and harvested by non-union, piece rate farmworkers in the Central Valley and loaded from the parking lot outside that was just sprayed with Round-Up to kill any unwanted locally grown dandelions. Yes to these dandelions, no to those.

There are a few shelves of non-organic analogues of all such produce, the result of controversial corporate decisions fifteen years earlier to ensure the chain could sell lower priced produce at higher margins, “cheap and cheerful”, reducing the produce organic sales ratio from about 70:30 to about 55:45, still pretty high by industry standards but more strategically positioned to make the normies happy and reduce price gaps to conventional supermarkets.

Across from the misty mountains of collards and brassicas, a few shelves of non-misted produce, zucchini, red, orange and green bell peppers, and a sign claiming that the bell peppers help fund scholarships for students in Latin America, along with various other vital services that your purchases are underwriting in the “Sourced For Good” program, formerly known as Whole Trade Guarantee, which returns some surplus value to producer communities, still more of a First World philanthropic, feel good effort than an economic solidarity relationship between equals.

Produce is vast, plump and ripe. It is beautiful, but not in the small is beautiful mythos sort of way.

It is a miracle of modern industrial cold storage, logistics and transcendence of seasonality through year round abundance, as much as it emphasizes appropriate seasonality in the rows and rows of winter oranges, tangerines, clementines, lemons, limes and grapefruits from Florida and Texas.. Frequent signs clarify that Whole Foods is still the first and only certified organic national grocer, a confusing but still praiseworthy achievement that means they have strict requirements on handling, storage and display of organic produce. Per that shrining organic to conventional sales ratio, it doesn’t mean they only sell organic produce. Leave that to Erewhon, Natural Grocers, or PCC (95% of the time).

This storybook abundance is consistent, store by store, region by region.

With some local, seasonal and geographic variances, like the local apples in New York or the peaches in Texas or Colorado. But it is still a monoculture, with a necessarily predictable, manageable assortment, the same logic that A&P supermarkets invented a hundred years ago, an inventory and margin mix based on decades of supplier relationships, the golden rules of produce operations dictated by decades of industrial fruit and vegetable merchandising that has winnowed down assortment and diversity in favor of efficiencies, even at this pinnacle of organic and fresh retail, with that vast internal logistics and distribution, a supply chain meant to find the optimum balance between profitability, freshness, customer retention and commitment to the mission of selling the highest quality foods (give or take).

The signage above a row of gravity fed bulk bins, “our purpose is to nourish people and the planet”.

Nourishing customers seems pretty obvious, but nourishing the planet, a weighty ambition, setting expectations high and vague. How do you nourish a planet? The Earth, the source of all our wealth and nutrition and all this abundance. All while governed by the need for profitability, the customer preferences and competitive pressures that dictate the limits of commitments to these heady promises, reminding you that at the end of the day, at the end of your shopping trip, for any of this to work, you must vote with your dollar, it’s all up to you, the buck stops with your bucks, the American Dream translated through conscious consumption, the industrial apotheosis of your omnivorous dilemmas. You can change the world. If you can afford to.

Whole Foods’ other major contribution to retail operations was leading with this sizeable perimeter that took up over half of store sales.

Typically, center store is 50-60% of store sales, with low margin, low labor, low shrink and fast moving non-perishable products. Whole Foods broke this model in the 2000s with a higher priced perishables focus, high margins, and industry-high labor rates, even higher than union shops, closer to food service operators than competing grocers and discounters. It made the top line sexy, the four wall EBIDTA iconic. It made the net income 3-4% of revenue, sometimes twice as high as the industry average as a standalone business pre-Amazon. And it made for that Whole Paycheck reputation, justified by labor intensive, fresh, abundant stores, the perimeter a hook, the draw, the headlines on earnings calls and the customer baskets’ driver, partly mythologized, partly material. Yes, expensive, but mostly worth it.

This strategy was especially important for the meat and seafood departments.

Their high sourcing standards required them to build proprietary and exclusive supply chains for full utilization of animal carcasses, raised humanely as possible. They couldn’t always go down to the ranch or the dock or the seafood market and spot buy. They needed control backwards from cooler and shelf all the way to the ranch or the boat. Buyers were required to work with third party certifiers, internal food safety auditors and a network of ranchers, fisher people and suppliers that could customize their sourcing to meet the needs of tasteful consumers. Marketers of course made it complicated, creating stair step certifications with different levels that each needed their own messaging and symbolism. And most of the sales volumes would stick to the lower tiers of standards, based on pricing and availability, product that was not really that different than the basic all-natural, factory farmed meats and fish you could find anywhere, and not really all that humane. Whole Foods occasionally stood out by elevating the ceiling, making the highest attribute, most sustainable and humanely raised and slaughtered products more available, and most of all, more achievable. Niche? Sure. And not cheap.

The result, after all those years, was a fully integrated meat and seafood supply chain.

While there are smaller operations that can do higher quality standards and higher baseline entry level products, no one has been able to replicate the sheer size of what Whole Foods has done in meat and seafood, buoyed by experienced buyers and auditors, and skilled clerks and meat cutters slinging the filets and steaks for customers.

It’s still a mistake to refer to Whole Foods as a “health food” store.

Sure, the perimeter is overrepresented, but once you get past the fresh stuff, you still have a thorough center store assortment, row upon row, section after section of shelf stable, frozen and refrigerated processed and ultra processed foods, colloquially referred to as “BFY”, better for you. Not as bad as your typical junk food, or at least that’s what they want you to think. There’s even some research out there suggesting that may be the case. When 55% of your assortment is UPF and the industry average is well over 70%, when 40% of your sales are organic and the industry average is under 10%, you can be accorded some bragging rights. But “healthy”, that may be a bridge too far, one that stops just past the tofu, misted produce and dusty bulk bins.

These vast aisles of non-perishables not only fill dozens of consumer need states and pantry priorities, but they balance out the grocery math. Low shrink, low labor, higher sales volume and high margin, the yang to perishable’s yin. Every year center store gross margins’ are further value engineered through store level labor cuts, higher supplier fees and trade allowances, those crews of endcap building skilled clerks carrying the weight of the enterprise like Carharrt-clad Atlases, with box knives and pallet jacks.

Chips and snacks are their best-selling center store sections.

Outselling eggs, milk, cheese, bread, soda, pretty much everything except yogurt. Unlike most grocers who hand most of this aisle over to the Pepsico or Snyder’s/Campbell’s direct service delivery operators who merchandise, stock and restock their sections daily, Whole Foods does its own thing, working with wholesale partner UNFI to keep a consistent national assortment along with some regional and local varieties. Almost every city has its own favorite local tortilla chip or potato chip brand. For the most part, you are looking at a BFY snack food monoculture, found in any other natural/specialty shop or the store within a store aisles in Wegman’s or Woodman’s, alongside a wide range of 365, Whole Foods’ house brand that has expanded in leaps and bounds across the store to form a defensive perimeter to the likes of Trader Joe’s and Kroger’s Simple Truth and Walmart’s Great Value, increasing in category share, decretive to margins but great for value perception.

Value engineering as category strategy.

This deep dive into private label value focus delivered Whole Foods into Jeff Bezos’ frog pajama-clad arms. When you took 25-40% off the retail prices of 20% of your assortment, but couldn’t churn enough units to make up for the delta, same store sales growth was not pretty, and neither were those earnings calls. These days though, the comps have come back and private label prioritization is status quo, and core to the business.

The value engineers have won.

Around the corner is cookies and crackers. Very different categories, purchase occasions, flavor profiles, but somehow still associated with each other through corporate ownership, plus vast flour, sugar and oil supply chains, manufacturing efficiencies and syndicated data segmentation. But cookies are cookies and crackers are crackers, except for graham crackers, which are cookies, and they are only relevant for s’mores. Who actually eats just graham crackers?

No Keebler, No Oreos, No Pepperidge Farm besmirches this “better for you” amalgamation.

These are responsible cookies, cookies with attitude, cookies with dietary restrictions, cookies for the health conscious that still want a treat, cookies that are responsibly grown, organically made, not genetically modified, cookies that use rotational crops and regeneratively grown grains and seeds, cookies with no seed oils, cookies with no gluten, nuts or other common allergens, yet still, miraculously high in sugar and definitely not a substitute for an actual meal. Cookies, even at Whole Foods, are still ultra processed.

Ultra processed paradise continues across the aisle with over twenty feet of health and nutrition bars, those calories dense, protein-forward, baked and extruded rectangular snacks, meal replacements and post-workout pick-me-ups that should be excluded from much of the nasty data results around ultra processed foods’ health defects. A billboard set of Clif Bar and Builder bars, the sales velocities on their products so high that their sales reps used to browbeat buyers into limiting space for competing items by showing how much money the retailer was losing by not jamming each and every slot with a Clif product. BFY monopoly capitalism, now happily owned by Mondelez. Aloha Bars, one of Clif’s organic upstart rivals, fresh off a $70 million fundraise, the products a softer, more flavorful approximation of the 1990s PowerBars that ruined many a dental filling. Three shelves of GoMacro, another organic fighter brand, still stubbornly family owned, always on sale. RxBar, now a faded Kellogg’s subsidiary after an astronomical valuation and acquisition that inflated the unrealistic hopes and dreams of too many startup founders and investors. LaraBar, a General Mills portfolio brand with strong legacy appeal, supposedly. No seriously, who still buys LaraBars?

Whole Foods’ beverage aisles are also a departure from grocery normalcy.

No endless rows of Coke, Pepsi, Dr. Pepper. Three shelves of yerba mate, an organic, caffeinated shrub tree from Paraguay, alongside the ubiquitous Poppi, recently acquired by Pepsico. Oli Pop, Liquid Death, Italian sparkling mineral waters, and boxed, canned seltzers from Rambler, Waterloo and La Croix, and several shelves of coconut water, alongside a dozen colorful brands of Gen Z coded soft drinks straight outta Snapchat. Like much of the parallel universe of Whole Foods assortment, the beverage merchandising decision makers are not shy about filling consumer need states, offering basic and unique flavors, sizes, lower sugars and no high fructose corn syrup, various package assortments, all heavily communicated with sustainability components that constitute an ESG investors fizzy wet dream for the millennials and Gen Z’ers who are buying such products in ever larger numbers, entitled to these better for you options, but there are many worse things to feel entitled to.

And only at Whole Foods would beans and grains tell a good story. Organic and regeneratively grown quinoa, chickpeas and beans sourced directly from sustainable, smallholder farms in Peru. Several shelves of Lundberg rice, regeneratively grown in California. Lotus Foods rices from southeast Asia, using intensive methods that empower women farmworkers, and reduce water usage and the need for harsh agrichemicals, a modest trade-off to opt-out of the global commodities “ABCD” monopoly whirlwind, instead into the Whole Foods whirlwind, out of one frying pan, into the fire of ad fees, trade allowances, MCB upcharges, Prime discounts and the ever-popular 3% outsourced merchandizing racket propping up the bottom line. Take that, ADM, Bunge, Cargill, Dreyfuss.

Across the store, there are plenty of other frying pans in the fire, the hot bar and salad bar still the highest selling PLUs in the store.

Not as much scratch made, much of it heated and served after being cooked by outsourced commissaries and copackers, who execute to Whole Foods’ exacting specs and undergo rigorous food safety audits. This ain’t no Trader Joe’s and their never-ending parade of food safety disasters. Yet, the value engineering has snuck in here too, the prepared meals are rarely organic, with lots of processed and lower quality ingredients to margin up and give customers a decent, mostly ok, but not best in class prepared foods. The labor needs for this department imbalance the whole store.

With a foodservice model at 20% of store sales, Whole Foods is one of the country’s largest restaurant chains, close to $4 billion in annual prepared food sales. At 50%+ labor as a percentage of department sales, and tens of millions of dollars in annual shrink and spoils, prepared foods means there will always be some Whole Paycheck price perception. You can only keep lowering center store labor rates so much to balance that out. And there is only so much value that can engineered out of the salad bars, the soup bunkers, the sandwich kiosks or the hot bar before quality and food safety start to suffer. This ain’t no Trader Joe’s. Right?

Chasing the shadow. A race to the bottom, even from way up at the top of the grocery food chain.

By any standard measure, Whole Foods is killing it. Customer loyalty is through the roof. The curated assortment is enough to engender the trust and loyalty of millions daily. Unit consumption is beating inflation, case pulls through wholesalers consistently exceeding double digit growth. The stores can’t hold enough product to get through the weekend until the next UNFI load comes in, and store labor value engineering means no one is facing or fronting anything anymore, so the stores look like a well shopped flea market garage sale clusterfuck by Sunday afternoon.

And the prices, while still high, have come down relative to competitors, stealing share from larger market growth laggards like Albertsons, Target and even Kroger, while ably fending off low to mid-tier imitators like Sprouts or Fresh Thyme. It is an intentional and Faustian compromise, a marriage of John Mackey’s conscious capitalism with the Robert Bork-esque consumer welfare ethos embraced by big business and mainstream economics dogma. That scale, labor suppression and consolidation equals greater value for customers, served up piping hot to the Blue State Liberals that flock through the registers.

And are they wrong?

Good enough food, priced better by streamlining good food supply chains, built on the backs of employees whose morale and compensation rates have tailed off, losing that “special sauce” that made the company the growth engine of the 2000s, in the end just a corporate consultant’s playbook to hammer relentlessly on EBIDTA and net income.

This value engineering, relentlessly cutting costs to shore up margins.

For suppliers, it’s a mixed bag at best, an expensive and inconsistent, even abusive relationship. It’s always a thrill to get that national launch, that premier shelf placement, those ongoing purchase orders. There is the very occasional unicorn brand that rides the Whole Foods wave all the way to a massive exit. The lower prices and Prime deals are also funded by ever higher supplier fees and trade allowances, along with Whole Foods’ contractually required 75% take of all of UNFI’s controversial manufacturer charge back skimmings.

But damn, the finance bros dig the results, whispering digitalized, financialized sweet nothings to the Amazon bigwigs. In the tech world it would be called enshittification, but the products here are still near best in market. The enshittification here is for the employees, a gilded race to the bottom, an essential oil-fueled strip mine.

As a result, labor cutbacks have brain drained the company.

The Whole Foods Diaspora is very real, with thousands of experienced employees and managers plying their trade elsewhere, retail competitors realizing that many of the old school folks with decades of experiences are worth their weights in gold. The talent loss is hard to track because it has been so constant for the last few years, and you can never replace that institutional knowledge and experience. High retention operations like Publix, Wegmans and HEB know this math.

The in-store employee full time-part time ratio continues to widen, and for store level compensation, this metric is more important that admittedly decent hourly wages. $25 an hour is great when you are young and single, but at 25 hours a week, it still means one or two more jobs to make the rent, even when young and single.

High turnover, limited upward mobility and low morale plague stores.

A culture shift away from the service model of the 2000s, loaded with full time workers getting paid above market wages, even the occasional stock options, instead now hyper focused on price and market share, instrumental and technocratic. Stock options and restricted stock units now nonexistent at lower wage tiers, the upward mobility that characterized the Whole Foods experience for two generations of rank and file employees mostly gone. Stock clerks and department managers are not putting down payments on homes from their Whole Foods options anymore. Yeah, those upper management tiers are doing great, piles of Amazon RSUs, but that legacy of investing in their greatest assets, the store level employees, has taken a back seat to the Amazon approach: grind every kilojoule of energy out of everyone, next quarter grind more, and funnel almost all of that wealth upwards.

So while Whole Foods’ mostly positive impact on supply chains plays off against their lower prices and growing market share, the employees take it on the chin.

Class warfare, food apartheid, through the prism of who can afford to eat organic, better for you, values-based products, versus who stocks the shelves with them.

Matter can neither be created nor destroyed, but value sure as hell can be, and then ably extracted, and funneled upwards.

End of the rainbow, the unicorn stun-bolted and shipped off to the glue factory.

And yet, the customers don’t seem to mind.

At least right now, consumption patterns still beating inflation rates, conscious capitalism over solidarity, limited to whatever high attribute products tossed into packed shopping carts, while store labor gets trimmed another 50 basis points every quarter or two.

Whole Foods still matters to suppliers and matters to supply chains, the largest anchor retailer of the values-based products also embraced by dozens of municipal purchasing programs and school meal supply chains. But those values rarely extend past the product labels, woke consumerism filtered through the worldview of Hayek’s bastards.

Sun and shadows, moving it all ever onward.

Abundance for customers, austerity for the clerks.

That unionization effort in Philadelphia may be on to something.