Whole Foods Markets
A Wal-Mart for the granola crowd
Jul 28th 2005
From The Economist print edition
John Mackey sees no limit to the appetite for natural foods
NO ONE admits to being more surprised by the runaway success of Whole Foods Market/WFMI than its boss. “In all my profound wisdom I decreed a maximum of 100 stores, and thought that would saturate the United States,” recalls John Mackey of the time when his company went public in 1992. That in itself was quite a milestone for a grocery retailer that he began in 1978 in a garage in Austin, Texas, when he was living in a vegetarian co-op. At first, hippies and college students were his main customers. But now, with over 170 stores feeding America's organic-food-addicted middle class, Whole Foods Market has become firmly established as the world's largest natural-foods chain.
Nor is there any sign of the firm's rapid growth coming to an end. Its sales rose by 23% to $3.9 billion in the latest financial year. Mr Mackey is now expanding the firm abroad, initially with a move to London. As for the success of this, a chastened Mr Mackey says, “we actually don't have the least bit of doubt”.
To understand the allure of Whole Foods Market, look no further than the new landmark store that it opened in Austin, Texas earlier this year. Occupying almost 80,000 square feet (7,300 square metres), it is one of the firm's largest, and features a vast array of treats, from organic enchiladas to an in-house meat smoker. There are sampling stations, cooking demonstrations and café tables galore. Employees, called “team members”, are as enthusiastic as the shoppers, and gladly explain company policy on, say, sustainable fishing (no Chilean sea bass, for instance, as it is seriously overfished). The firm is starting to label its own-brand foods to indicate any genetically modified ingredients.
Yet fancy food is just one part of the recipe. Whole Foods Market is also deeply committed to its “green mission”. “We see the environment as a stakeholder in the business,” says Mr Mackey who, no surprise, lives his brand. Trim and fit, he prowls the office in shorts and a handyman-style canvas shirt, and is very much the outdoors type. This summer he is hiking along part of the Pacific Crest Trail, which runs from Mexico to Canada.
The firm's environmentalism is decentralised: each store is encouraged to experiment, and implement what best suits its own circumstances. So, for example, the California stores use solar power, taking advantage of subsidies provided by the state government. In other locations, some use wind energy. Newer stores, such as one in Sarasota, Florida, are pioneering new types of “green building”, for instance, using recycled materials. Successes and failures are shared via the internet.
Yet Mr Mackey's organic idealism and greenery should not be confused with a lack of hard-nosed business acumen. He can quote Adam Smith with the best of them. He is often criticised for wiping out the small, local natural-food businesses that, not so long ago, were what the industry was all about. He is also opposed to trade unions. Whole Foods Market workers in Madison, Wisconsin, caused a stir three years ago when they voted to join a union, but the company persuaded them to back down. Currently his stores remain non-union. Mr Mackey says he dislikes the “adversarial nature” of labour unions—the “zero-sum mentality” whereby “if shareholders are winning, labour is losing”. The market, he says, is the “best check against exploitation, because people can vote with their feet.” Indeed, says Roy Bingham of Health Business Partners, an investment bank, Whole Foods Market benefits from the undying keenness to work for it of the “sandals brigade” of young idealists. The firm is regularly cited by Fortune as one of the top 100 places to work in America.
If there is something familiar about a giant, anti-union retailer crowding out small local businesses, Mr Mackey rejects any comparison with Wal-Mart—well aware of the battering that the world's biggest retailer has taken because of its relentless growth. “It's like comparing a Hyundai car to a Lexus,” he says. “Wal-Mart's focus is on getting the cheapest stuff in; we're focused on getting the best stuff.” That said, Wal-Mart is starting to offer organic and natural foods as it pursues wealthier customers. This may spell trouble some day for Whole Foods Market. For all its growth, the company is still dwarfed by Wal-Mart, which had revenues last year of $285 billion.
Also unusually for the organic-food industry, but in common with Wal-Mart, Whole Foods Market has grown partly by acquisition, buying chains such as Fresh Fields, Bread & Circus and, in London, Fresh & Wild. More acquisitions may follow abroad. Although there is now little left to buy in America, Mr Mackey still sees opportunity to grow there. Whole Foods Market currently has a presence in only 39 of the country's top 50 metropolitan markets. “None of those markets has reached saturation, plus the whole market is continuing to rapidly expand,” he says. As for Europe, Mr Mackey wants to open a big Whole Foods Market store in London, but has yet to find the right site. If London does well, then he would move aggressively into continental Europe.
Now in your basement
Always looking for new opportunities, Mr Mackey is now trying to combine organic food with the other craze gripping America's middle class: real estate. The idea is to build Whole Food Market stores into apartment-building basements. “In urban areas like New York or London, land is so expensive that it really helps to make our stores more affordable if we can get multi-use developments on top of us,” says Mr Mackey. “And housing is perfect because it doesn't compete with us and in fact gives us customers” who enjoy direct access by elevator to the store.
So, is there anything that could cause Whole Foods Market to choke? “You know, I'm not a worrier,” says Mr Mackey. Barring some freak event such as food terrorism, Whole Foods Market seems set for more success. Mr Mackey certainly seems relaxed about the future. When trekking through the wilderness, he does not even bother to carry a mobile phone.
Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved
Jul 28th 2005
From The Economist print edition
John Mackey sees no limit to the appetite for natural foods
NO ONE admits to being more surprised by the runaway success of Whole Foods Market/WFMI than its boss. “In all my profound wisdom I decreed a maximum of 100 stores, and thought that would saturate the United States,” recalls John Mackey of the time when his company went public in 1992. That in itself was quite a milestone for a grocery retailer that he began in 1978 in a garage in Austin, Texas, when he was living in a vegetarian co-op. At first, hippies and college students were his main customers. But now, with over 170 stores feeding America's organic-food-addicted middle class, Whole Foods Market has become firmly established as the world's largest natural-foods chain.
Nor is there any sign of the firm's rapid growth coming to an end. Its sales rose by 23% to $3.9 billion in the latest financial year. Mr Mackey is now expanding the firm abroad, initially with a move to London. As for the success of this, a chastened Mr Mackey says, “we actually don't have the least bit of doubt”.
To understand the allure of Whole Foods Market, look no further than the new landmark store that it opened in Austin, Texas earlier this year. Occupying almost 80,000 square feet (7,300 square metres), it is one of the firm's largest, and features a vast array of treats, from organic enchiladas to an in-house meat smoker. There are sampling stations, cooking demonstrations and café tables galore. Employees, called “team members”, are as enthusiastic as the shoppers, and gladly explain company policy on, say, sustainable fishing (no Chilean sea bass, for instance, as it is seriously overfished). The firm is starting to label its own-brand foods to indicate any genetically modified ingredients.
Yet fancy food is just one part of the recipe. Whole Foods Market is also deeply committed to its “green mission”. “We see the environment as a stakeholder in the business,” says Mr Mackey who, no surprise, lives his brand. Trim and fit, he prowls the office in shorts and a handyman-style canvas shirt, and is very much the outdoors type. This summer he is hiking along part of the Pacific Crest Trail, which runs from Mexico to Canada.
The firm's environmentalism is decentralised: each store is encouraged to experiment, and implement what best suits its own circumstances. So, for example, the California stores use solar power, taking advantage of subsidies provided by the state government. In other locations, some use wind energy. Newer stores, such as one in Sarasota, Florida, are pioneering new types of “green building”, for instance, using recycled materials. Successes and failures are shared via the internet.
Yet Mr Mackey's organic idealism and greenery should not be confused with a lack of hard-nosed business acumen. He can quote Adam Smith with the best of them. He is often criticised for wiping out the small, local natural-food businesses that, not so long ago, were what the industry was all about. He is also opposed to trade unions. Whole Foods Market workers in Madison, Wisconsin, caused a stir three years ago when they voted to join a union, but the company persuaded them to back down. Currently his stores remain non-union. Mr Mackey says he dislikes the “adversarial nature” of labour unions—the “zero-sum mentality” whereby “if shareholders are winning, labour is losing”. The market, he says, is the “best check against exploitation, because people can vote with their feet.” Indeed, says Roy Bingham of Health Business Partners, an investment bank, Whole Foods Market benefits from the undying keenness to work for it of the “sandals brigade” of young idealists. The firm is regularly cited by Fortune as one of the top 100 places to work in America.
If there is something familiar about a giant, anti-union retailer crowding out small local businesses, Mr Mackey rejects any comparison with Wal-Mart—well aware of the battering that the world's biggest retailer has taken because of its relentless growth. “It's like comparing a Hyundai car to a Lexus,” he says. “Wal-Mart's focus is on getting the cheapest stuff in; we're focused on getting the best stuff.” That said, Wal-Mart is starting to offer organic and natural foods as it pursues wealthier customers. This may spell trouble some day for Whole Foods Market. For all its growth, the company is still dwarfed by Wal-Mart, which had revenues last year of $285 billion.
Also unusually for the organic-food industry, but in common with Wal-Mart, Whole Foods Market has grown partly by acquisition, buying chains such as Fresh Fields, Bread & Circus and, in London, Fresh & Wild. More acquisitions may follow abroad. Although there is now little left to buy in America, Mr Mackey still sees opportunity to grow there. Whole Foods Market currently has a presence in only 39 of the country's top 50 metropolitan markets. “None of those markets has reached saturation, plus the whole market is continuing to rapidly expand,” he says. As for Europe, Mr Mackey wants to open a big Whole Foods Market store in London, but has yet to find the right site. If London does well, then he would move aggressively into continental Europe.
Now in your basement
Always looking for new opportunities, Mr Mackey is now trying to combine organic food with the other craze gripping America's middle class: real estate. The idea is to build Whole Food Market stores into apartment-building basements. “In urban areas like New York or London, land is so expensive that it really helps to make our stores more affordable if we can get multi-use developments on top of us,” says Mr Mackey. “And housing is perfect because it doesn't compete with us and in fact gives us customers” who enjoy direct access by elevator to the store.
So, is there anything that could cause Whole Foods Market to choke? “You know, I'm not a worrier,” says Mr Mackey. Barring some freak event such as food terrorism, Whole Foods Market seems set for more success. Mr Mackey certainly seems relaxed about the future. When trekking through the wilderness, he does not even bother to carry a mobile phone.
Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved
posted by David M Gordon | 11:14 AM
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