When Culture Eats Strategy for Breakfast

Learnings from Personal Experience with McDonald’s and Whole Foods Market

Overview

Food retailing, whether in supermarkets or restaurants, is extremely fast-paced. Your weekly sales define whether you are winning or losing. Both Whole Foods Market and McDonald’s have won their categories through faithfulness to their mission and values, cultures of innovation, valuing experience, and emergent strategies.

I had the privilege of working for McDonald’s and Whole Foods as they evolved from new category creators that attracted competitors that they mostly didn’t worry about, to becoming much more concerned about competition and market share.

The 2 companies are of course vastly different in most ways, but remarkably similar when it comes to harnessing the power of culture over strategy. They were at inflection points in their development, and their culture was their competitive advantage that enabled them to continue to win, where many companies facing the same situations have not.

Although both these examples come from a different era, there is ample learning from dusting off their very successful playbooks. All sizes and stages of organizations will find relevancy here. Especially growth stage companies to help shape their own cultures and approaches to strategy in today’s challenging contexts. The 3 Key Ingredients, 7 Operating Practices, 3 Downsides, and 5 Top Takeaways provide actionable guidance.

Introduction

I was recently reminded of the saying “culture eats strategy for breakfast” (apparently mis-attributed to Peter Drucker). It made me reflect on my experiences with 2 leading companies that powerfully demonstrated that maxim. My learning from those experiences provides lessons that I believe are equally powerful for businesses today as they hope to shape and maintain their cultures. Especially with lasting impacts from remote working, younger adults with different experiences, expectations, and attitudes, high turnover rates, and the accelerated adoption of artificial intelligence.

McDonald’s Canada and Whole Foods Market USA

Both companies have been criticized for elements of their businesses. McDonald’s for being more of a real estate company that happens to sell burgers, because of its brilliant decision long ago to benefit from real estate valuations by owning its store sites. Whole Foods for being “Whole Paycheck” and selling organic food with perceived benefits more than actual. But their customers weren’t concerned about that, and both had a lot more going on behind the scenes that enabled their massive successes.

I was a regional marketing manager for McDonald’s Canada in the early 1990s, and then in the early 2000s was VP Marketing for Whole Foods Market, USA. Both created new but very different food retail categories. At that time they were highly decentralized, and most decisions were made close to the front lines. My 2 roles gave me different perspectives, from a region with McDonald’s, and from a national office with Whole Foods, where aligning the regions on key initiatives was paramount.

Approaching Inflection Points: Awakening to Competition

There’s a certain arrogance that comes from creating new categories and being runaway successes with little threatening competition. They were both enjoying strong same store sales growth (how retailers report on organic sales growth), though less strong and harder to earn than previously.

Both began to realize their respective competitive landscapes were evolving quickly. McDonald’s and the growing list of competitors for each “daypart”, and Whole Foods and the growing listings of organic and natural items in conventional supermarkets.

It needs to be noted that once they became concerned about competitive advantage, they were even more driven to succeed, unlike too many companies in similar situations who now no longer exist or are a shadow of their previous size.

McDonald’s Canada

When I joined McDonald’s I naturally asked to see the strategic plan. My boss advised me that “we don’t work that way”. Having recently completed my MBA, this was of course surprising. However, 8-10 months later a new strategic planning process, 3-1-Q, was introduced by its new CEO in Oakbrook, IL. The business was about to evolve, starting with paying more attention to the competition. Until that point, it had been a bunch of guys (overwhelmingly) who had grown up in the business, most often starting during or after high school, focused on perfecting the business model, driving efficiencies and profitability.

The 3-1-Q process began with leadership teams visiting key competitors in each major city in its region. We visited a lot of fast food outlets that week – tasting everywhere. After eating all that junk food, I felt like Morgan Spurlock (“Supersize Me”) must have felt when he did it years later.

Whole Foods Market, USA

Five years after leaving McDonald’s ( for an international posting and then a Northern California tech startup) I joined the Whole Foods leadership team. There were 8 operating regions across the USA, in  total about 120 stores. Most regions had grown in part by acquisitions and now focused on building new stores faster. Each store provided a totally different look and feel and customer experience, not only from region to region, but within regions from store to store. As I shared at my first leadership meeting, it was like an orchestra where the strings, wind, and percussion were each playing a different song.

Whole Foods’ leadership team was split into 2 camps when it came to articulating its strategic direction: about half believed they were first and foremost a gourmet supermarket, the other half felt they were firstly a natural/organic supermarket. I brought them together by creating a positioning matrix, where they owned the quadrant that combined both elements. I reasoned that conventional supermarkets could never make their 30,000 items on shelf all natural/organic, and natural food stores could never rise to the gourmet foods level.

We moved toward a harmonized branding and store experience once we created a brand style guide and aligned all the marketing and store development teams on using it. The CFO loved that because it would drive increased enterprise goodwill value. To complement the fast store count growth, I recognized that it was a great retail and cultural story just waiting to be told. So I created a public relations team which achieved about 400 million media impressions within 18 months. Whole Foods quickly emerged from being a well kept secret among a core loyal customer base to celebrity-loving stardom.

3 Key Ingredients

I make no claims to know how these 2 companies are operating today, though I know both are much less de-centralized than they were when I was with them. These are what I see as the key ingredients to the success they had then.

1. The Mission is the Strategy - and it’s Emergent

McDonald’s mission-driven focus was on serving customers with the famous QSC&V (quality, service, cleanliness, value).

Whole Foods didn’t have what you would call a detailed strategy either. But they sure were mission-driven, as defined by Quality Goals, focused on selling natural and organic food without artificial ingredients, team culture, customer satisfaction and supplier partnerships. John Mackey, co-founder and ex-CEO of Whole Foods captured the essence when he frequently observed that competitors can visit their stores and copy their merchandising, but they can’t copy their culture that drives continual innovation and success.

In both cases, their mission was essentially their strategy. They faithfully and relentlessly focused innovation and implementation on aligning with their mission and core values. Although high level, both missions were measurable, ownable, and provided the necessary conditions for the other 2 ingredients below.

The lack of a detailed, static strategy enabled them to be flexible, adaptable, and dynamically opportunistic. Both were essentially practicing “emergent strategies”, even though didn’t realize or call it that. They were agile before it was in vogue, and were proactive rather than waiting for big challenges and poor results before acting.

As is often said, strategy comes to life daily through decisions made, and not made. On that basis, their mission provided the guardrails for their emergent strategy.

2. Confidence of a Leader and Valuing Experience

I once engaged with a company to help drive innovation. Several times its VPs responded to my recommendations with “That’s nice, but who else has done it?” Needless to say, I never once heard that kind of thing from anyone at Whole Foods or McDonald’s. They would have said that if someone else has done it, we’ll move onto the next innovative idea.

Both companies moved fast, to maintain leadership, but didn’t shortchange the review of  new opportunities. There was neither the risk of “analysis paralysis” nor the other end of the spectrum, “ready, fire, aim”. They weren’t afraid of taking calculated risks – of swinging a big bat. After analyzing what they could, they let gut feel decide. And they weren’t afraid of making mistakes – more on that below.

They both valued experience, especially when gained internally. Senior leaders had come up through the ranks and were revered for their intimate knowledge of the business. The accumulated company learning served as the bedrock for going forward. Because they had such an appetite for innovation, new hires needed to learn about the business including many of the new ideas they had already tried – successful and not. The new hires could build on the bedrock and learn from prior mistakes.

More on this below. But note that the same risk-averse company referenced above continually went outside the organization for key hires – a clear indication of not developing people, not valuing institutional knowledge, and not having the confidence of a leader.

3. Culture of Innovation and Collaboration

Both McDonald’s and Whole Foods had, and I’m sure still do, innovation embedded in their cultural DNA. They pursued mission-directed innovation, constantly pushing the envelope with integrity to it. New ideas were welcome from everyone, rather than being the exclusive preserve of company strategists. This enabled “spontaneous innovation” because employees felt connected, empowered, and took ownership of their own and the company’s results.

Team collaboration was consistently impressive at both companies. There was a conspicuous absence of the silos and turf battles endemic in so many companies. Which meant that functional teams worked very well collaboratively, internally, cross functionally, and from regions to national office, to deliver a consistent stream of big new innovations and strong results.

It should be noted that both companies had a very strong internal competition among operating regions and countries. There was great pride for a region when other regions adopting its innovations – and full appreciation and attribution from the adopting region.

Operating Practices Shape Culture

The 3 Key Ingredients were brought to life by a set of operating practices:

1. Values and behaviours: both had very strong cultures where it was expected that everyone would conform, which wasn’t hard because most leaders were inbred, having only worked for that company.
2. Recognition and rewards: one of the most motivating practices is developing people so that most promotions go to internal candidates, and both companies did this. They focused on hiring the right people, developing them, guiding them with a clear mission, and empowering them.
3. Performance measurement and results – Sure there was lots of empowerment and autonomy at both companies, but you still were accountable for delivering the results. Otherwise you were rather swiftly replaced.
4. De-Centralization and delegation – both companies at that time were highly de-centralized, pushing both decision-making for the emergent strategy and operational implementation close to the front lines – not just formulaic implementation of a static company-wide strategy.
5. Leadership: Strong, empowered divisional/regional leadership – Presidents, not just VPs, representing their level of empowerment. Almost always internal hires who knew and modeled the way.
6. Gut feel on customers’ needs: Neither company had really strong customer insights when I joined. The 3-1-Q process led us to more consumer research, which revealed that 78% of McDonald’s visits came from just 23% of its customers, who we called SHUs (Super Heavy Users). At Whole Foods I commissioned a quantitative study that defined 6 customer segments, and we decided to focus on the 3 larger ones. It revealed that organic food was primarily purchased for perceived health benefits much more than its environmental benefits.
7. Candid communication – Both companies addressed people issues as they arose, rather than let them fester. They provided clear feedback and guidance in what I’ve subsequently heard called “fierce conversations”, to get people and teams on track. Contrast that with other organizations I’ve been involved with, who let issues fester and were, no surprise, less successful.

Cultural Downsides

No company that I’m aware of has a perfect culture. The following are key issues I saw and experienced.

1. Cultural conformance – In both companies, most mid-level and senior leadership had essentially “grown up together”, that being the only company they had experience with. This helped create strong, homogeneous cultures, but meant there wasn’t a lot of room for differences. I can speak to this directly: At McDonald’s, because I had an MBA (I wasn’t aware of any others anywhere in the company) and I introduced a deeper level of analysis of promotions on sales and profits, I became known as the “numbers guy”, even though I contributed numerous innovations. At Whole Foods, I was the McDonald’s guy who came from the “dark side” of the food industry. Even though my undergraduate degree was in environmental science. It’s true that people like to label others, especially in business. It’s also true that it’s not particularly helpful.
2. Too much of a good thing – The competition among Whole Foods’ regional presidents for bragging rights on building retail store as palaces led to some stores costing more than US$10million to build (when conventional supermarkets typically cost about $3 million). Most of the high end fixtures added very little to the actual customer experience.

McDonald’s Canada tried to be all things to all people. It decided it wasn’t strong enough in the dinner daypart, so it launched McPizza nationally, at a very high capital cost for pizza ovens, staff training, and a massive marketing and advertising expense. The problem was that McPizza was a mediocre product and sales weren’t high enough to cook them ahead of time (their practices for burgers then too). They took a long time to cook on-demand. So pizza destroyed customer service times and added complexity to store operations. It didn’t survive very long, especially once franchisees began complaining about it.

The company had previously launched McLean Deluxe to try to appeal to health conscious consumers. It was an inferior product, and the learning was also that people don’t go to McDonald’s for healthier food. It too died a fairly quick death.

Both examples proved you can’t be all things to all people.  But you aren’t going to bat 1,000 in all the innovations you try. Better to be bold and try, than be risk averse and be a follower. As Wayne Gretzky said: “You miss 100% of the shots you don’t take.”

3. Performance results sacrificed by skewed focus – McDonald’s was acutely focused on customer service speeds. Stores were all measured and compared on it, and laggards were singled out and fixed – instore and in the drive thru. Fast service was a key advantage for McDonald’s, and customers expected it. The problem is that the QSC&V emphasis was mostly on Service, which equals speed, and on Value, which equals cheap. Those come at a cost to quality and McDonald’s has spent decades trying to convince people that it really does have quality food.

Whole Foods focused especially on same store topline sales growth, which can be boosted by raising prices, often meaning selling fewer items and serving fewer customers. Pricing decisions were made in the regions and their impacts helped earn lots of annual bonuses. But few people could afford to shop there for more than a few items, certainly not a full shop. Its customer base therefore was smaller than it could have been, given Whole Foods distinct positioning and the fast emerging consumer trends it both led and was buffeted by.

5 Key Takeaways For Today’s Challenges

This article has dusted off previous, very successful playbooks from these 2 leaders, aiming to help current leaders adapt, adopt, adjust.

1. Value experience. It helps model the way, develop people, accelerate learning curves, retain industry knowledge, and make teams more productive.
2. Not too decentralized, not too centralized – companies with widely distributed business units, within countries and/or internationally, frequently experience the pendulum swinging from one end of this spectrum to the other. A new leader will come in and change it from whatever it has been to the other extreme. My experience in a variety of these situations, in Canada, USA, and internationally, is that both the extremes have pros and significant cons. I believe that a carefully nuanced middle ground is the best for employee alignment, engagement, motivation, innovation, and company performance.
3. Given the ongoing, accelerated and unpredictable change coming at us, emergent strategies guided by a higher level and well-understood mission and values seems to be a good driver for maintaining competitive positioning and differentiation.
4. There’s an important interplay between alignment and empowerment. One without the other results in either demotivation or chaos.
5. No silos and turf wars – Senior executives need to own this. It’s not enough to approve a VP’s plan and then make them sell it into their peers. Senior executives can’t delegate collaboration – they evangelize it with their reports, making sure they have shared interests and fates. That will foster cross functional collaboration. I have experienced both approaches as an executive – the one who delegates this important practice to me to go as a staff function leader to an operating group leader and plead for collaboration, and the one who actively engages with my peers and signals his endorsement of my plans as contributing to theirs.

Relevance to Elderberry.work’s Mission: Value Experience

In society and most businesses, the perception of aging hasn’t caught up with the fact that we aren’t aging like our parents did. Longevity endows us with extended years of high productivity.

The world evolves chaotically, unpredictably, and continuously. It’s recognized as a strategic imperative to harness the years of experience of older workers, to use their evergreen skills in managing change and adopting new technologies.

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About the Author

David Y. Smith, an executive with large blue chip companies & a leader or advisor for 4 tech startups, in the USA & Canada. Started 4 businesses. Consulted for many small, medium, large organizations in North America & internationally. Has driven 5 new consumer trends from niche to mainstream: WiFi, organic, health, sustainable, agetech.

Perspectives informed by hiring talent – staff & consultants, by providing consulting  and fractional services, by being a SMB leader and owner and by being a member of an untapped talent pool. He has a degree in environmental science and a MBA.

He launched Elderberry.work to match age 45+ proven business experience, and the 5 ways they create value, to businesses of all sizes. All functions, seniorities, industries. For consults, contracts, freelance, fractional.

Through our unique talent pipeline and on-demand and self-serve access to it, in tandem with your business’ embrace of a flexible workforce strategy, Elderberry.work helps you create the conditions for what we call Perpetual Agility, guidance that we capture concisely in our free Playbook.