NACS Show Preview: The Success Story of John Mackey

LAS VEGAS — During the 1970s, independent health food stores proliferated — California alone was home to more than 300, said Kevin Wehr, author of “Green Culture.”

But not all survived. One that did was Whole Foods Market Inc., which went on to become the largest natural supermarket chain and the only one with a national footprint.

Whole Foods was founded in Austin, Texas, in 1980 when hippie college dropout John Mackey and three partners merged two 1970s health food chains. Today, the $14.2-billion Whole Foods operates 427 stores, including 18 in Canada and the United Kingdom. The average store size is 41,000 square feet.

Whole Foods is known for natural foods like organic produce and free-range chicken. But the whole success story involves much more. It revolves around co-CEO Mackey, a lifelong vegetarian, yoga practitioner and business strategist.

While other 1970s entrepreneurs were nutrition gurus, many did not understand issues like operations, margin mix or personnel. Few risked carrying perishables, with offerings frequently limited to vitamins, supplements, tofu and whole grains.

At Whole Foods, 66.9 percent of its business is in produce, bakery, meat and prepared foods, according to its annual report. Mackey’s devotion to decentralized store operations and egalitarian worker concepts ensure the functionality, efficiency and open communication needed to manage such volatile categories.

PRACTICING PRINCIPLES

Mackey, 63, is the author of “Conscious Capitalism.” This philosophy incorporates the principles of higher purpose (beyond profit maximization), stakeholder interdependence (rather than shareholder centricity), conscious leadership (instead of command and control), and conscious culture (in place of bottom-line obsession).

Mackey, a prolific speaker and opinionated writer on every topic from non-GMOs to Obamacare, takes this philosophy to heart. In a Nov. 2, 2006 letter to employees, he announced he was reducing his salary to $1 annually, would donate his stock portfolio to charity and establish a $100,000 employee emergency fund.

“I am now 53 and have reached a place in my life where I no longer want to work for money, but simply the joy of the work and to better answer the call to service I feel so clearly in my own heart,” said the letter, which was published by Fast Company (February 2007).

CONSCIOUS LEADERSHIP

Mackey’s decentralized store operations model empowers team members. This gives them pride and accountability, which drives success.

“Rewarding team members for increases in labor productivity — something they can control — gives them a direct stake in the success of our business,” the annual report stated.

Each store employs between approximately 55 and 680 team members, who generally comprise 10 self-managed teams per location. Each team has its own leader and is responsible for a specific product offering or aspect of store operations. A store team leader works closely with one or more associate team leaders, as well as with department team leaders, to operate the store as efficiently as possible. Team leaders can spend up to $100,000 annually sans permission.

“Team members are involved at all levels of business,” said the annual report. “We strive to create a companywide consciousness of ‘shared fate’ by uniting the interests of team members as closely as possible with those of shareholders. In this structure, an effective store team leader is critical to the success of the store.”

The concept is reinforced by Whole Foods’ Gainsharing program. As part of the yearly planning process, each team is allocated a budget based on a percentage of their team’s sales. When teams are under budget due to higher sales or lower labor costs, part of the surplus is divided among team members and paid out every four weeks. A portion is set aside in a savings pool.

When teams are over budget or in a labor deficit position, no Gainsharing money is paid. The excess is removed from the team’s savings pool or, in the absence of savings, paid back using future surpluses. The savings pool is paid out annually to all teams with a positive balance.

According to the company’s website, the average hourly wage for a full-time Whole Foods team member in fiscal 2014 was $19.16. After three years of employment, full- and part-time employees are eligible for stock options. A salary cap limits employee cash compensation to 19 times the average annual wage, including bonuses, for all full-time workers. The employee-to-customer ratio is high, augmenting customer service and ensuring shelves stay stocked.

Sixty-nine percent of employees are full-time. Turnover is 11 percent, far lower than other food chains, the annual report noted. For 18 years, Whole Foods has been one of Fortune’s 100 Best Companies to Work for in America.

BUYING AT STORE LEVEL

Most of Whole Foods’ purchasing occurs at the national and regional levels. The chain also employs store buyers, who focus on local products and community needs. Few chains give stores this type of autonomy. Among retailers that do — including Bed, Bath & Beyond, Home Depot and Walmart — success is high.

Promotionally, Whole Foods invests about 0.4 percent of total sales in paid media and marketing, according to its annual report. This is far less than most retailers. Rather, it relies heavily on store-level promotions, content marketing and social media. Its website contains a plethora of recipes, articles about food, nutrition and philanthropic causes, how-to cooking videos and a seemingly endless assortment of Mackey’s blogs.

Companywide, Whole Foods publishes 1,200 messages daily across 830 social media channels. Its total social media footprint on Facebook, Twitter, Instagram and Google+ is about 9 million, with 4 million Facebook “likes” and 4.5 million Twitter followers. This includes corporate and store accounts. Store marketers develop and execute local events.

The natural and organic foods segment has come a long way since 25-year-old Mackey opened his first store in 1978. According to Retail Insights, the category has climbed from about $1 billion in the early 1980s to $63 billion today.

The customer has also changed. Rather than the long-haired, left-wing hippies of the 1970s health food movement, today’s natural/organic customers can be anybody from hair dressers and construction workers to engineers and accountants.

One 1970s element that has not changed is Mackey’s lifestyle and philosophy. “I chose a vegetarian lifestyle, lived in communal housing, and grew my hair and beard long. I was, and still am, one of those crunchy-granola types,” he has said.