Several years ago I really started questioning what made Whole Foods such a powerhouse while its chief competitor, Wild Oats, always seems to be struggling to stay afloat. After taking various factors into account, I narrowed it down to a couple key insights into the things that set the two companies apart, based on my having dealt extensively with both. (These are only my opinions, of course – but if they contribute to your understanding of what works best in the rapidly expanding natural channel, then they where worth putting out there.)

1) It’s essential to remember what business you’re in. Whole Foods understood who its customers were and what brought them in. Wild Oats thought it did, but ended up marketing itself to a much narrower customer base. To better explain this insight, let’s say that there are three major customer groups for the natural channel: the eco-advocates, the health enthusiasts and the food enthusiasts or “foodies” (this is how we viewed the world for Pet Promise and other organic food products, developing triggers and motivators for each consumer group).

Wild Oats limited its appeal to the first two categories, as was evident both from the very strict standards it established for products it would carry and from its corresponding approach to marketing and promotional programs. As a result, things like prepared foods and atmosphere were not the primary focus of the chain for many years. Whole Foods, on the other hand, understood that it was first and foremost in the business of selling food and that “foodies” were its primary customers. It therefore made a point of enticing them by serving up fantastic prepared dishes and offering an appetizingly displayed array of fresh foods, even though its health and environmental criteria were essentially identical to those of Wild Oats and its core values were the same as those held by the eco-advocates and health enthusiasts.

This to me was one of the key differences between the two chains. Now it should also be emphasized that Whole Foods conducts a sizable corporate social responsibility campaign and does more for the organic industry than any other single company. But its executives also remembered they were in the retail food business, where appetite appeal is always of prime importance.

2) Empowerment is the best policy. Whole Foods treats the people who run its stores as if they are running the company. Local stores can make key decisions and team members are all encouraged to be excited, committed and passionate about what their store is doing.—something reflected in its having ranked fifth among the Fortune 100 “Best Companies to Work For” in 2007. This decentralized approach is one that actually “trickles up” up through the 11 regions and regional organizations all the way to Whole Foods headquarters in Austin. Such a system, of course, can be very frustrating to vendors who prefer the consistency of a company-wide operating policy, but it has served Whole Foods incredibly well. It also is a key to the company’s successful expansion program (which I’ll touch on in my third insight).

This method of empowering employees, which is described on the company’s Web site, is in keeping with its stated philosophy that corporate stakeholders are last on its priority list because great store employees will help assure that customers are happy, and happy customers will in turn make for happy stakeholders. Wild Oats, by contrast, went from a decentralized structure to a highly consolidated in just six years. Doing this may have cut down its SKU numbers and made the company more efficient for vendors and distributors to work with, but in my opinion it drained the individual store operations of enthusiasm and motivation. The company also brought in people from conventional food retailers who really didn't understand the emotional attachment that many consumers develop toward their local natural-food outlet. This resulted in a kind of revolving door for managerial personnel, with at least three company reorganizations that I know of taking place within the short space of five years.

3) “Location, location, location” is still a key operating principle for a successful business. It’s also one Whole Foods appears to have taken to heart, as it has proceeded to compete for prime real estate in all of its 11 regions, whereas Wild Oats has all too often been willing to settle for ‘B’ locations – perhaps on the “build it and they will come” philosophy. In practical terms, however, it doesn’t always work out that way – especially in the realm of natural foods, which appeal to a largely upscale market. The placement of a store specializing in natural and organic products can thus make a very big difference in its ability to attract and keep a loyal customer base.