NEW YORK -- The business of love makes money, a panel of investors said. They cite the Austin, Texas, grocery chain Whole Foods Market Inc. (Nasdaq: WFM), which emphasizes "natural and organic products" and promotes a "people first" corporate philosophy. In the past two years, Whole Foods has outperformed more traditional supermarket chains like Safeway (NYSE: SWY) and Kroger (NYSE: KR).
Consumers have obviously been willing to pay a premium for locally grown and sustainable food, even during the Great Recession. And that performance has confirmed what Whole Foods co-CEO Walter Robb and two fellow panelists told an audience of several thousand at the National Retail Federation's 101st Annual Convention and Expo.
"A conscious business can be built on love," said Kip Tindell, CEO and chairman of The Container Store.
The panelists said companies that are committed to a broader, more philanthropic mission reap benefits on the bottom line -- and profitable businesses can be powerful forces for good.
Robb, Tindell, and Jonathan Sokoloff, managing partner at Leonard Green & Partners, a private equity firm that owns stakes in both Whole Foods and The Container Store, headlined a panel on conscious capitalism. The three agreed that a conscious business operates with clear purposes that transcend profits, and that it best serves investors by jointly addressing the needs of all stakeholders.
"We all have a firm belief that properly balancing the needs of all of a business's stakeholders -- its employees, customers, vendors, community, and shareholders -- is the right thing to do," Tindell said.
Since The Container Store was founded in 1978, Tindell has been part of a team that's been "running our business by putting purpose before profit." In the beginning, "we just called it the way we do business, kind of Golden Rule-ish." But now it has evolved into a bigger movement of companies committed to "more than making money."
A growing list of public and private companies, including Whole Foods, Zappos.com (a subsidiary of Amazon.com Inc. (Nasdaq: AMZN)), Southwest Airlines (NYSE: LUV), and TOMS Shoes, claim the result is a more profitable and sustainable business model.
Robb described the idea as simply creating a business with a sense of purpose. "Having a sense of purpose creates alignment between employees, customers, and all your stakeholders." Whole Foods has four "missions" -- helping the world's agricultural system evolve, improving the quality of animal care, fighting poverty around the world, and encouraging healthy eating. His company just launched Wellness Clubs, and a health initiative it launched for employees helped one Chicago-area team member lose 60 pounds.
The "employee first" culture at Whole Foods creates stronger leaders and energy, according to Robb. "When you create the space for people to be able to really bring their full engagement, their full involvement, and their full being to their work, the company can move much faster, innovate, and grow."
In 2011 alone, the chain expanded its proprietary line of value-priced packaged goods, created nearly 6,000 jobs, established a foundation to combat childhood obesity, and reinstated its quarterly dividend (which it then increased). Same-store sales have increased for eight consecutive quarters, and the company recently topped the $10 billion sales mark. The stock rose 38% last year, while the S&P 500 was flat. At the conference this week, Whole Foods received the National Retail Federation's Innovator of the Year award.
The little things often pay off, according to Sokoloff, who described Leonard Green & Partners as a private equity firm with a difference. "We have great respect for the companies in which we invest. Our strategy is to not mess anything up."
Leonard Green acquired a majority stake in the closely held Container Store in 2007. (At the time, Tindell promised customers that the retailer would remain "every bit as yummy, quirky, and exciting and every bit as true to its values, philosophy, and core concepts as we are right now.") The private equity firm bought a 17% stake in Whole Foods in late 2008, when the grocer was reeling from a huge drop in fourth-quarter earnings on slowing sales.
In addition, Leonard Green has retail investments in BJ's Wholesale Club (NYSE: BJ), David's Bridal Inc., Del Taco Holdings Inc., Equinox Fitness, Neiman Marcus Group, Inc., PETCO Animal Supplies Inc., and J. Crew Group Inc. (which went private again in 2011, five years after an IPO).