The supermarket that changed the world

The American organic supermarket chain Whole Foods started 25 years ago as a small health-food store. Led by maverick CEO John Mackey, it has reached unprecedented growth and sales rates. "If you look back 100 years from now, history will show that Whole Foods will be in the top-five companies that changed the world."

Charles Fishman | December 2004 issue

In March 2003 in the elegant ballroom of the Fairmont hotel in Santa Monica, California, John Mackey, CEO of Whole Foods Market, tried several times to cut off an animal-rights activist. Lauren Ornelas, director of Viva! USA, a group devoted to improving the living conditions of farm animals, was doing a lot more than asking a question at Mackey’s annual shareholder meeting. She had taken the floor to make a speech about ducks—a speech about the treatment and lives of the ducks that end up in the display cases of Mackey’s stores, ready to cook and eat.

“She was disrupting our meeting,” says Mackey. “She was trying to force her worldview on other people.”

Ornelas, in fact, was lecturing a man who has probably done more to improve the quality, sustainability, healthfulness, and purity of the food Americans eat—from farm field and barnyard to kitchen table—than anyone else in the past 25 years.

Whole Foods, the company Mackey cofounded and heads, is the largest organic- and natural-foods grocer in the world. It is also Mackey’s ongoing experiment in battling the industrialization of the food supply and in running a large public corporation in radically new ways. At a time when grocery chains treat food as just another item in the supply chain, to be bar-coded, shelved, and self-scanned, Whole Foods has succeeded with exactly the opposite strategy. In 157 stores in 28 states, the District of Columbia, Canada, and Great Britain, Whole Foods creates supermarkets that are a celebration of food: a mouth-watering festival of colors, smells, and textures; an homage to the appetite.

Worried about the safety of the farm-raised salmon? Some of Mackey’s stores recently displayed placards detailing test results for PCB contamination in the chain’s farm-raised and wild salmon, along with FDA limits. Curious about the life of a chicken in the display case? It comes with a 16-page booklet and an invitation to visit live chickens at the supplier’s Pennsylvania farm.

And so Mackey’s initial response to the duck lady was dismissive—even classically corporate. “I actually said to Lauren, ‘We have the best animal standards in the country—go bother somebody else,’” he recalls. And then, as Ornelas talked on about the meager lives of farm ducks, Mackey stepped from the lectern and strode from the ballroom. He says he was just taking a bathroom break, but it looked as if the CEO was walking out in a huff—so much so that he was followed by several of his senior executives and a handful of Whole Foods stockholders.

After he returned and the meeting wrapped up, Ornelas found Mackey in the crowd. They had a cordial chat, and the CEO gave the activist his email address. For several weeks, they traded arguments about how animals are raised. Mackey quickly found the exchange tedious—rhetorical rather than persuasive—and says he sent Ornelas a final email that basically said, “I’m done. We’re not going to agree about this.”

And then the CEO of what will this year be a $3.7 billion corporation did something very un-CEO-like—something that shows why he is such an unusual leader and ultimately such an influential one. Instead of simply dismissing Ornelas from his busy brain, Mackey decided to try to make sense of her and her beliefs. “I didn’t understand why these people were so passionate about this issue,” he says. “I perceived them as our enemies. Now, the best way to argue with your opponents is to completely understand their point of view.”

He tackled the puzzle of Ornelas the way he has addressed other difficult questions over his career—by reading dozens of books about Japanese management in the 1970s to figure out how Whole Foods should be organized, for example, or becoming a student of labor unions when he was confronted by unionization efforts in the 1990s. Over three months, he gave himself a solo tutorial on modern factory farming. “I read a dozen books about how animals are raised in this country,” he says. “The more I read, the more I was interested in it. I said, ‘Damn, these people are right. This is terrible.’”

Mackey did two things. He changed his vegetarian diet to vegan (he no longer eats food produced from animals, including dairy products). And he sent Ornelas an email telling her she was right—not just about ducks, but about chickens, pigs, and cows. Mackey wrote that Whole Foods would immediately begin using its influence and buying power to demand that the meat it sells comes from animals that have been treated with a measure of dignity before being slaughtered. He even invited Ornelas to help.

Whole Foods has been buying ducks from Grimaud Farms in California for nine years. Grimaud is known as a small, high-quality producer. That means no antibiotics, no steroids, and feed that is free of animal by-products. Still, says Mackey, the ducks raised by Grimaud spend their lives in barns. They don’t have access to the outdoors. Their bills are trimmed so they don’t peck one another. Most stunning to Mackey, “they are not allowed to swim. Ever. Ducks who never get to swim.”

Right this minute, at one of its California farms, Grimaud is designing swimming areas for its ducks.

John Mackey started out in 1978 with a small health-food store that he opened with his then-girlfriend, Renee Lawson Hardy, in a three-story building on 8th and Rio Grande in Austin, Texas. There was the store on the first floor, a health-food restaurant on the second, a bed on the third. “We didn’t even have a shower,” says Mackey. “Renee and I would take showers in the Hobart dishwasher in the restaurant, you know, using the spray hose.”

Now 50, Mackey still has an undisciplined head of hair, and he typically wears shorts and hiking boots to work. Mackey flies commercial airlines and likes to rent the cheapest car. A half-dozen times a year, his two senior operating executives—A.C. Gallo and Walter Robb, each of whom runs half the country for Whole Foods, from Boston and San Francisco, respectively—come to Austin and stay at Mackey’s house. They make their own beds, and talk shop at 6:45 a.m. over soy yogurt and fruit. Mackey “is hardly a manager at all,” says a former executive who reported to him for years. “He’s an anarchist.”

Maybe so. But there is nothing undisciplined about Whole Foods’ performance. The company cleared $188 million in profits in the last two years. The Food Lion supermarket chain, with seven times as many stores as Whole Foods and five times the revenue, made $150 million in the same period. Safeway lost $1 billion.

Whole Foods has even tromped the nation’s largest grocer, Wal-Mart. In each of the last four years, Whole Foods beat Wal-Mart in both overall and comparable-store sales growth. In the last two years, as the nation slogged through the downturn, Whole Foods’ comparable-store sales have grown at nearly twice the pace of Wal-Mart’s.

Just yesterday, it seems, Whole Foods was a cute, engaging company, obsessed with organic and natural foods, and committed to a puzzling egalitarian work culture. The customer-service staff had piercings, tattoos, spiky hair—and an apparently limitless patience to talk about the origins of the fresh mozzarella cheese, or the ingredients of the orzo salad, or the virtues of various homeopathic remedies. The company had a written “Declaration of Interdependence” (1,571 words, 249 more than the Declaration of Independence). It had a set of written core values (“satisfying and delighting our customers,” “team-member happiness and excellence”). And most striking of all, even for a small company, it had a set of quirky management rules that made Whole Foods an odd but effective workplace.

Every store was divided into about eight teams: You were hired to the seafood team, or the prepared-foods team, or the cashier/front-end team. But you didn’t just get hired. You got hired provisionally. After four weeks of work, the team you had joined voted whether to keep you; you needed a two-thirds yes vote to join the staff permanently.

Additional pay (beyond base wages) was linked to the teams, so people were careful about who got their votes. Thirteen times a year, Whole Foods calculated the performance of the people on each team in every store. How productive had the team been against goals? Teams that did well shared in the profits—up to $2.00 extra an hour was paid right back to team members, every other paycheck. So people didn’t want buddies on their teams; they wanted workers—people who were going to help make them some money.

Individual team leaders made decisions about what to stock in their stores, in consultation with the store team leaders. No one in Austin or Boston or San Francisco dictated what would go on the shelves. Stores were encouraged to buy and stock local produce, fish, or meat, so long as they met Whole Foods’ quality standards. Ordinary employees qualified for stock options, and executives limited their own pay to eight times that of the average frontline employee. The company gave 5% of its after-tax profits to charity. And, of course, whenever possible, Whole Foods stocked organic or natural foods.

In 1992, a year after going public, Mackey announced, “We’re creating an organization based on love instead of fear.”

The big question of the 1990s—after Whole Foods had acquired Wellspring, in North Carolina (two stores); Bread %amp% Circus, in New England (six stores); Mrs. Gooch’s, in California (seven stores); and Fresh Fields, on the East Coast (22 stores), while opening an average of five new stores a year—was about how the whole charming, loving, unlikely enterprise would end up.

In 2004, with 26,000 employees (twice the number at Apple Computer) and nearly a billion in sales in just the first three months of the year, what has happened to all those Woodstock-generation management ideas?

Every one of them is still in place—except that executive salaries are now limited to 14 times frontline workers’ pay. The salary book is still in every store. If you want to join a team—including, say, the national IT team—you still need a two-thirds thumbs-up vote. Nonexecutive employees hold 94% of company stock options.

These ideas have been put to the test as Whole Foods opens larger stores in labor markets where untraditional management may seem, simply, weird. This February, Whole Foods opened a signature store in Manhattan, in the new Time Warner building at Columbus Circle. It is the largest supermarket in Manhattan, with 59,000 square feet. The prepared-foods area includes a sushi bar, a pizza bar with 14 varieties; a coffee and tea bar; a salad bar with 40 items. The produce section on a recent visit offered 15 different varieties of organic greens, including dinosaur kale; the meat case held four dozen kinds of meat. The store has 30 checkout stations.

The Columbus Circle Whole Foods opened with 292 people on staff, which means some of the 14 teams had 50 or more members, a hard group to wrangle. Although Whole Foods is pricey—customers have ruefully nicknamed it “Whole Paycheck”—the opening staff was quickly swamped by the business in New York. Three months after it opened, Columbus Circle now has 468 team members.

Aaron Foster, 22, a two-year company veteran, came to Columbus Circle from a Philadelphia Whole Foods. He’s a cheese buyer, and standing at the cheese display, he’s pondering the tension in Whole Foods’ values—as he puts it, to “further the goals of sustainable agriculture and artisanal food production while being as big as we are and growing as fast as we are.” A customer comes up. “Excuse me,” she says, “I’m looking for a certain cheese.” She’s abashed. “It begins with a C.” Foster is all ears. “It’s one syllable,” she says. Foster focuses on the roster of C cheeses in his brain. “I bought it yesterday at Dean %amp% DeLuca!” the woman offers, as if this might be helpful.

“Comte,” Foster suggests.

“That’s it!” the woman says, and they head off to get her some.

Indeed, Chris Hitt, who was at Whole Foods for 16 years and who left as president in 2001, says, “Customers experience the food and the space, but what they really experience is the work culture. The true hidden secret of the company is the work culture. That’s what delivers the stores to the customers.”

Wendy Steinberg, 44, has worked at Whole Foods since 1992 (her husband works at Whole Foods, too), and she is now one of the associate team leaders at Columbus Circle. She has a story from her first year at the company, when she was working in a store in Providence, Rhode Island.

“I was on break, in the break room. I hadn’t been a team member more than six months, and there was this guy in the break room. He was sitting there, with his hands crossed, with this big 1970s-style Afro, just checking things out. We talked. He asked me a lot of questions. I had no idea who he was. I figured he was just another team member.”

Finally, says Steinberg, “I was like, who are you, anyway?”

That was John Mackey.

Mackey’s management style, his beliefs, are a baffling blend that defies categorization. Through stock ownership, Mackey is a multimillionaire, but he is unpretentious and uninterested in money. He’s now a vegan, but does eat eggs produced by the chickens that he and his wife raise on their Texas farm “because I know those chickens are happy.”

Mackey studied philosophy at the University of Texas in Austin, and though he never got a degree he remains an omnivorous intellect. In the course of an hour’s conversation, he’ll quote from the management theories of Ryan Matthew, Watts Wacker’s The Deviant’s Advantage, the demographics book Millennials Rising, Somerset Maugham’s novel The Razor’s Edge, and J.R.R. Tolkien’s Lord of the Rings. On a wall of Mackey’s office is a framed poster of the starship Enterprise; Mackey is an admirer of the political organization of Star Trek’s United Federation of Planets—and the regional organization of Whole Foods is similar.

The National Leadership Team of the company has 24 people on it, and, says Mackey, “We make decisions by majority vote. I almost never overrule them.”

And yet as inclusive and decentralized as he wants management to be, Mackey is more clearly in charge at Whole Foods than ever before. Two longtime veterans of the company who both once had the title of president, Chris Hitt and Peter Roy, are gone now. So is cofounder Craig Weller and several other longtime executives. Feelings are still pretty raw on all sides. But there was no crisis, according to Mackey. Just personality differences, growing pains, and people whose expectations didn’t get met. Mackey has taken back the title of president.

“There are power struggles and crap at every company,” the CEO says.

Hitt says he thinks Mackey may one day be considered as much a pioneer as Bill Gates or Steve Jobs. But in the same breath, he says, “Whole Foods isn’t just John Mackey. It’s a huge number of incredibly committed senior executives and people who [have worked] in those stores their whole careers.”

Whole Foods is already having a profound impact on how Americans eat. No less a giant than Dole Food now sells organic bananas—bananas are the number-one produce item in the nation—to Whole Foods and will soon sell organic pineapples. Much to Dole’s surprise, half the demand for its organic bananas comes from conventional supermarkets.

Organic Valley cooperative, a large national supplier of organic dairy products, grew up alongside Mackey and Whole Foods—“When they would open a single store, we would increase our production,” says Organic Valley’s marketing chief, Theresa Marquez. And Whole Foods’ markets are still 16% of Organic Valley’s business, but no longer its number-one customer. Organic Valley’s biggest account is Publix, a classy regional supermarket chain in the Southeast that is five times the size of Whole Foods—and thoroughly mainstream.

It’s unlikely there would be organic milk in every supermarket coast to coast, and it’s hard to believe Dole would be busy scouring Central America for farmland to convert to organic production if Whole Foods’ sales hadn’t tripled, and tripled again, since 1994. Says Doug Greene, founder of Natural Foods Merchandiser , the 25-year-old trade journal of the organic- and natural-foods business: “If you look back 100 years from now, history will show that Whole Foods will be in the top-five companies that changed the world.”

Still, for all of Whole Foods’ success and influence—one meat supplier uses the un-hippielike word “juggernaut”—the organic- and natural-foods business remains a pretty small niche. True, production and sales are growing at more than 20% a year in an industry that, overall, is close to stagnant. But the total U.S. market for organic and natural foods is now estimated at about $13.5 billion, between 1% and 2% of all foods sold in the United States. “Wal-Mart spills more milk than we sell every year,” says Organic Valley’s George Siemon.

But trends are all surging in Whole Foods’ direction. Americans are on hair-trigger alert to health issues such as Mad Cow Disease. It’s hard to envision the market doing anything but growing.

Mackey’s new determination to raise Whole Foods’ standards for animal care—a command decision to which there has been nothing but assent internally—may rock the cattle, pork, and poultry industries. After six months of meetings, Whole Foods settled on rules for ducks, and this summer will begin setting standards for pigs. And Mackey believes Americans will soon shun factory farms that raise and slaughter 9 billion animals a year as if they were protein products, not creatures. “Right now,” he says, “Americans have to pretend factory farms don’t exist. They turn their eyes away, because there’s no alternative, there’s no choice.” Once there is a choice, he says, we will allow ourselves to be outraged.

In 20 years of making predictions about his company and his business, Mackey has never missed a bet, except for underestimating the market for organic and natural foods. (At one point in the early 1990s, he said there were only 100 good sites for Whole Foods markets in the entire country.) Sitting in his office in 2004, he says without hesitation, “Twenty years from now, factory farms will be illegal in the United States.”

As bold, and even outrageous, as that prediction is, Mackey is nothing if not a hardheaded realist. He must regularly contend with countercultural critics who complain about the corporatization of their stores. “People write me letters, they send me emails. They say, ‘You’ve forgotten the people who made you.’ They say, ‘How can you let people who drive SUVs shop at the stores?’”

Mackey says they simply don’t get it. “The stores are larger, nicer, prettier—they are more inviting to the mainstream shopper,” he says. “Whole Foods is not a business for a clique, or for the elite. We wanted the philosophy of the stores to spread throughout the culture. We wanted to change the world.”

Excerpted from Fast Company (July 2004), which is not your father’s business magazine. It focuses on how the culture of commerce, more than spreadsheets and quarterly earnings statements, shows where the future of the economy is headed. Subscriptions: Fast Company, PO Box 2128, Harlan, IA 51593-0317, USA, subscription@fastcompany.com, www.fastcompany.com.

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