CEO Gaffe of the Week: Whole Foods Market


Last year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week, I plan to highlight one of my personal favorite CEOs, John Mackey of Whole Foods Market , who took a break from leading by example to stick his foot in his mouth not once, but twice, over the past two weeks.

The dunce cap
From an operational standpoint, John Mackey is a remarkable CEO who should be applauded for promoting a happy and healthy work environment. Mackey's success has derived from his company's ability to deliver organic and natural foods, which are more nutritious to consumers, at a slightly higher price point than they'd find in traditional grocery stores.

What we've witnessed is a consistent trend from consumers in both rising and falling economies that they'll pay nearly any premium in order to eat foods perceived to be healthier. With organic foods being in scarcer supply, they often carry higher price points and healthier margins, which are warmly welcomed with open arms by Whole Foods. In contrast, traditional grocers Safeway and SUPERVALU have struggled to install fuel stations and remodel their stores quickly enough in order to draw traffic and have largely missed the boat on the organic shopper. Not surprisingly, Whole Foods' margins are often two or three times higher than traditional grocers'.

This trend has also caused a boom in natural and organic food producers like Hain Celestial Group and Annie's . Hain's most recent quarter exhibited across-the-board sales growth of 25% and income growth of 36% as acquisitions and existing businesses contributed equally to top-line growth. Annie's investors saw sales increase 20% in its most recent quarter as the company pointed to rising brand awareness and its new rising-crust pizza line as the reason for its rapid growth.

However, even great CEOs slip up once in a while; and John Mackey did his best foot-in-mouth impression a little more than a week ago.

In an interview with NPR that aired last week, John Mackey openly scolded the U.S. government's involvement in health care reform. When asked if he still believes Obamacare is a "form of socialism," as he had implied in a 2009 Wall Street Journal column, Mackey clarified his stance by referring to Obamacare as "more like fascism." In Mackey's own words in an editorial in The Huffington Post"I believe that, if the goal is universal health care, our country would be far better served by combining free enterprise capitalism with a strong governmental safety net for our poorest citizens and those with preexisting conditions, helping everyone to be able to buy insurance. This is what Switzerland does and I think we would be much better off copying that system than where we are currently headed in the United States."

First of all, it's rarely ever a good idea to publicly scold the policies of the president, regardless of how unpopular they are. Recent comments from Papa John's CEO, John Schnatter, on how health care costs were going to add to his expenses and force him to boost pizza prices by $0.14 didn't benefit his businesses image very well, and Mackey's are unlikely to help Whole Foods' image, either.

Second, as ThinkProgress points out, the Swiss health care system and Obamacare are actually somewhat similar. Swiss citizens are required to have health care, the poorest citizens who can't afford health care are covered by the government, and health insurer profits are capped while minimum benefit limits are set. The only major difference is that private markets are used and the Swiss government helps negotiate the price insurers can charge instead of openly competitive markets as will soon be the norm in the United States.

To the corner, Mr. Mackey
I hate to say that it gets worse, but it does!

John Mackey ultimately recanted his statement calling Obamacare both socialism and fascism, but didn't take long to reinsert his foot in his mouth when asked for his opinion on climate change a few days later. Once again, in Mackey's own words: "Climate change is perfectly natural and not necessarily bad." He clarified his position with Yahoo! Finance a few days later by stating, "I guess my position on it is that I don't think that's that big a deal."

As you might guess, many of Whole Foods' organic- and natural-food-seeking customers also care deeply about the environment. Even Whole Foods' webpage will give you multiple examples of how the company is helping reduce its carbon footprint. Yet Whole Foods' own CEO has seemingly decided to refute scientific evidence that global warming is a serious issue and has instead angered some of its faithful following in the process.

As a public figure and representative model of a company, sometimes it's best to bite your tongue and not say what you're really thinking. Needless to say, this is something John Mackey might want to consider working on.

Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may see your suggestion in the spotlight.

Is the natural food craze beginning to wane?
It's hard to believe that a grocery store could book investors more than 30 times their initial investment, but that's just what Whole Foods has done for those who saw the organic trend coming some 20 years ago. However, it may not be too late to participate in the long-term growth of this organic foods powerhouse. In this brand-new premium report on the company, we walk through the key must-know items for every Whole Foods investor, including the main opportunities and threats facing the company. We're also providing a full year of regular analyst updates to go with it, so make sure to claim your copy today by clicking here.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool recommends Hain Celestial and Whole Foods Market. The Motley Fool owns shares of Hain Celestial, Papa John's International, SUPERVALU, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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