Whole Foods Market

Whole Foods' quality crop

November 27, 2012: 5:00 AM ET

Grocery chain Whole Foods made its name by offering locally sourced organics. Can it continue on this path as it plans a major expansion?

By Anne VanderMey, reporter

FORTUNE -- Customers may grumble about the prices at the high-end grocery chain (even nicknaming the place "Whole Paycheck"), but no one is complaining about the returns. Or, for that matter, the food. Whole Foods, No. 1 on Fortune's list of most admired food and drug stores, grew from a single store in 1980 into an $11.7 billion company, with most of its growth occurring in the past decade. The grocery chain has handily outstripped the S&P in recent years, and it's leading the charge toward sustainable, green products and organic living. Now even the Whole Paycheck moniker may fall by the wayside. The company plans to nearly triple its U.S. store count, and to do so it is lowering prices and expanding into some not-so-high-end areas. By 2015 it expects to open as many as 65 new locations, including one in Detroit next spring.

World's Most Admired Rank: 28
Headquarters: Austin
Employees: 72,000
The business: Operates a network of grocery stores, focusing on natural and organic products.

A new kind of corner store

For a chain with 342 locations, Whole Foods (WFM) does a lot of customization. At any one time, 20% to 50% of a store's offerings are different from what's available companywide. A regional operating model paves the way for local offerings -- think Michigan blueberries or Wisconsin cheddar -- as well as wide variations in the size and look of stores. That targeted approach is the company's "secret sauce," says Kate Wendt, an analyst at Wells Fargo.

Better pay, good workers

Execs can't earn more than 19 times the company average, the co-founder gets $1 a year, and non-execs get 93% of company stock options. The result is 7% turnover -- among the lowest in the industry. Says co-CEO Walter Robb: "[We] really make love to the company values."

Compete on quality

Recently the company rolled out new quality standards for meat and poultry that took more than five years to test. Evolving regulations and a push toward clearer labeling mean cleaning products are rated on their environmental impact, no artificial preservatives or flavors are allowed, and no beef, pork, or poultry comes from a caged animal. The lowest quality "is still far above traditional grocery [standards]," Wendt reports.

This story is from the December 3, 2012 issue of Fortune

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