'Streamlined structure' for Whole Foods' front office

The dismantling of Whole Foods Markets' co-CEO office announced Wednesday was made in solidarity with the company's recent efforts toward greater efficiency in stores, sources told SN, and while it costs a leader who brought imaginative merchandising flair and a conspicuous concern for Whole Foods' role in society to the front office, the company's determined and visionary co-founder remains.

In a conference call reviewing quarterly earnings also announced late Wednesday, departing co-CEO Walter Robb said he would continue to "cheer on" his partner John Mackey as Mackey resumes sole leadership of the natural and organic giant. Robb added that the change represents a vote of confidence from its board of directors — on which Robb remains — as to its strategic direction.

"We have a very optimistic view this coming year ... that moving to a more streamlined structure is the right thing at this juncture to lead the company to the next level," Robb said. "And I will be here [on the board] to continue to cheer that on."

Jay Jacobowitz

Jay Jacobowitz, president of Brattleboro, Vt.-based natural foods consultant Retail Insights, described Robb as a "nuts-and-bolts merchandising guy," whose promotion to a co-CEO role in 2010 in part addressed the board's concern that Mackey could be under some pressure to resign in the wake of being outed years before for anonymously attacking a rival on an Internet message board. Analysts at the time of Robb's promotion also noted the move could save Robb, then Whole Foods' co-president, from being poached by rivals.

Today, Jacobowitz said, "Whole Foods needs clear leadership unfettered by an inefficient structure at the top."

He said Robb excelled in creating "wonderful store experiences" and was noted for initiatives such as Whole Foods' stores in downtown Detroit that addressed access to healthy food in distressed neighborhoods. "He led with his heart, with less contemplation for the practical consequences of those choices."

Mackey, by contrast, has been "an eloquent speaker on behalf of free-market principles, standing defiantly against unionization, and talking about the rising tide of economic growth representing improving lifestyles for society at large."

Mackey's determination was on display as Whole Foods reviewed financial results for its fiscal fourth quarter Wednesday, saying the company would continue to seek expense reductions while resisting temptation to participate in what he called "a race to the bottom" on pricing, despite falling comp-store sales and store traffic impacted in part by price competition from conventional and discount rivals. Some analysts have been sharply critical of the plan, but Mackey pointed to continued store productivity, better sales figures in the first weeks of its new fiscal quarter, and the company meeting profitability targets in spite of the sales challenges.

"Our strategy revolves around leading a race to the top in terms of a differentiated customer experience, continuing to raise the bar on our quality standards and selection, providing new levels of transparency and accountability and leveraging technology to deliver an improved shopping experience," he said. "We believe we have the right strategies in place to position the company to produce strong results and returns for our shareholders over the long-term."

Mackey said Whole Foods was more than halfway through a goal to reduce expenses by $300 million by the end of the 2017 fiscal year, making the biggest reductions to date with labor reductions in stores including fewer buying positions and by combining departmental teams like meat and seafood departments in its lower volume stores. Initiatives pioneered at 365 stores, such as automatic replenishment, also offer a runway toward further cost savings at legacy stores, he said.

Mackey said store traffic would improve as Whole Foods expands an affinity rewards program now live in its Dallas stores, with the expectation of reaching all stores in the fiscal year. He also said Whole Foods would increase spending on marketing this year. "We're really quite excited about the marketing strategy that we're going to unleash here," he told analysts. "We're already beginning to unleash it and you'll see it much stronger as we get into calendar 2017."

Results at the initial three 365 stores have been mixed so far, Mackey said, but he was "incredibly bullish" on the concept. "Some of the results have actually blown us away and others have been a little bit less than we had hoped for," he said.

The next 365 store, he said, would open next spring near company headquarters in Austin, Texas, and will reflect tweaks gleaned from the first three units. "It's going to be a kind of 365 2.0," he said. "We're taking the things that have worked better and we're putting more capital into them. Things that haven't worked we're phasing out."