More Proof Politics and Business Don’t Mix: Whole Foods Market, Inc. (WFM) and More

If you’re selling to one side of the political divide, don’t get too loud on behalf of the other, or Foolish investors may have to sell your stock.

With Americans divided politically as seldom before, it just makes business sense to keep your head down. It’s tempting to speak out loudly on the issues of the day, especially those impacting your bottom line. But do it carefully.

Whole Foods Market, Inc. (NASDAQ:WFM)

The best example of how not to do this is Whole Foods Market, Inc. (NASDAQ:WFM). The company caters to upscale, socially conscious consumers, who tend to vote Democratic. But its co-CEO and founder, John Mackey, loudly proclaims himself a libertarian and tends to support Republican causes.

Whole Foods Market, Inc. (NASDAQ:WFM)Not that there’s anything wrong with that, as Seinfeld said. And Mackey’s company was not badly hurt by his 2010 profile in The New Yorker, where he loudly proclaimed political ideas in direct variance to those of his customer base. Since that profile ran, in fact, WFM has doubled in value.

But as health reform has kicked in, Mackey has been taking it up a notch. He called it socialism, then fascism. He also claimed he would cut workers’ hours in response to the law, denying them the 30 hours work necessary to get coverage under the law.

For a guy who calls himself “daddy” to his workers, and his workers “team members,” this may have been too much for some shoppers. Shares tanked after earnings fell recently. The Motley Fool’s Blake Bos suggests that WFM is now a buy, but I question that.

Mackey himself has always been shocked at how few competitors have copied his act, which consists of charging premium prices for premium goods, and bragging about it. Well, privately held HEB finally has, and in his home market of Texas, under the name Central Market. Nine such stores are now open. Mackey’s shoppers are getting alternatives, and are starting, slowly, to vote with their feet.

Darden Restaurants, Inc. (NYSE:DRI)

Like many other companies in the service industries, Darden Restaurants, Inc. (NYSE:DRI) – owners of Red Lobster, Olive Garden, and other mid-scale restaurants – saw an opportunity to limit costs in the health care law.

The company, rather loudly, said it was experimenting with turning its 45,000 employees into part-timers, specifically to evade the law’s requirements. Worker groups have begun picketing the restaurants even though the company has publicly backed away from its plans.

But damage is being done. The company lowered guidance in December, and the stock promptly fell out of bed, falling almost 20% in a matter of weeks, despite the maintenance of a handsome 20 cent/share dividend.

It may well be that companies like Darden, which hire a lot of low-skill workers, will face higher costs due to health reform, the minimum wage, and other measures. Higher costs put pressure on margins, regardless of a store’s politics. But it’s one thing to lobby privately, another for a CEO to lobby publicly. And lobbying publicly against the interests of your workers can leave scars on investors, not just management.

Wal-Mart Stores, Inc. (NYSE:WMT) vs. Costco Wholesale Corporation (NASDAQ:COST)

Wal-Mart Stores, Inc. (NYSE:WMT), where founder Sam Walton started the drive to call workers “associates,” making many of those early workers into millionaires through purchase of company stock, is now ground zero in the American labor movement.

The company has been very loud in opposing organization of its workers, and on the surface has paid no price for it. Other than to make its stock a bargain.

Amazon.com, Inc. (NASDAQ:AMZN) shares carry an enormous price tag, thanks in part to spectacular growth that has caused sales to go from about $34 billion in 2010 to about $60 billion in 2012. That’s a gain of $24 billion on the top line, over two years.

You know how much Wal-Mart’s sales have grown in that time? They’ve grown by $40 billion. True, it’s from a bigger base, but the bottom line is investors will pay $2.50 for each dollar of Amazon sales, and only 50 cents for $1 of WMT sales.

If any company is likely to become the Pullman of our time, a flashpoint of employer arrogance leading to strikes, violence and reform from government, it’s clearly Wal-Mart.

It doesn’t have to be that way. Costco Wholesale Corporation (NASDAQ:COST) has been growing considerably faster than Wal-Mart the last several years – shareholders pay 60 cents for each dollar of the company’s sales, yet Costco manages to pay employees well.

Costco sells more merchandise in each square foot of space than Wal-Mart’s Sam Club warehouses. Wal-Mart employees take $4.6 billion in federal aid each year due to their low wages, while Costco employees make about $17 per hour. Costco doesn’t have to advertise as much for its sales — it doesn’t advertise at all — and it has less theft by employees. Customers will drive many miles to reach a Costco, often passing several Wal-Mart stores along the way.

You get Wal-Mart shares at a discount to Costco shares, paying less for Wal-Mart earnings than for Costco earnings, as a result of Wal-Mart’s politics, not its operations, which are great. Costco shareholders have also seen their shares gain 60% in value over the last five years, against 40% for Wal-Mart.

The Foolish Take

Keep your politics to yourself. Don’t let them get in the way of making money, or they will cost investors, who will withhold from you the capital you need to grow just when you most need it.

Do your research. If you can find nothing about the politics of a company and its management, that doesn’t mean they don’t have political views. It may be they’re just more businesslike in the defense of them.

Just as entertainers like the Dixie Chicks can be hurt by wearing their politics on their sleeves, so can corporations. In these cases, it’s investors who get hurt.

The article More Proof Politics and Business Don’t Mix originally appeared on Fool.com and is written by Dana Blankenhorn.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!