John Mackey, the outspoken CEO of Whole Foods Markets, has been at the center of the natural and organic food business for three decades. But he had stopped talking to the media and shut down his blog because of an investigation by the Securities and Exchange Commission into his anonymous posts on a Yahoo message board.
Once the SEC ended its investigation without taking action last month, Mackey began talking again. "I feel like I've been liberated," he told me. In a wide ranging interview, he talked about the Wild Oats deal, rising food prices, the company's soon-to-be-launched humane meat ratings system, and the prospects for sustainable seafood.
The interview, conducted by phone in late May, has been edited and condensed. It will run in two installments.
Fromartz: Well you're finished with the SEC, but the FTC is still trying to block your deal to acquire Wild Oats.
Mackey: The FTC is still appealing the court decision made last August (which was in Whole Foods' favor), which is unfortunate because the merger's done. We paid all the shareholders, we sold off the Henry stores, we integrated Wild Oats into our system, we’ve shut down several stores, changed the name of many of the stores – so the eggs are scrambled and mostly eaten.
Fromartz: Ignoring the FTC for the minute, was it a good deal in retrospect?
Mackey: It's a difficult question. Because if I could go back in time, we wouldn't have done the Wild Oats acquisition. We spent tens of millions of dollars in legal fees, we've been investigated, it's been highly disruptive. I didn't realize it would cause so much grief.
But if you're saying has it been a good deal aside from that, well, it's very early in the process. And we have to invest money before we get returns on it. We always say it takes about two years to integrate a company we acquire and with Oats we're about 8 months into the process. I'd say we're pretty happy so far but can't say with an absolute certainty until the 24 months have passed. But moral is very high and we've seen a lot of good sales increases.
Fromartz: You've made a lot of acquisitions. Was this one the most difficult?
Mackey: No, I wouldn't say it's the most difficult one. Usually in a merger, there's resistance – the good old days stand firm in the minds of employees. But here, Wild Oats people were waking up from a nightmare of uncertainty. They were glad to have some leadership and some security. We didn't lay anyone off, we've raised pay, raised benefits, and did a lot of training, and they haven't been resistant.
Fromartz: You even offered job security at the stores that were closed?
Mackey: Correct. All the stores we closed were in markets where we already had stores, so they were offered alternative positions. First of all, that's the right thing do, and secondly, if people have a lot anxiety that they could lose their jobs, that inhibits their ability to learn and to adapt. I feel you've got to offer security if you want to get people to move forward. Otherwise they're too scared.
Fromartz: As you've said, the deal was distracting. But did it inhibit your ability to compete with up-and-comers in the supermarket business or even more mainstream players nibbling at your heels?
Mackey: You said nibbling. Well, they're doing a lot more than nibbling. They're very aggressive and coming from a lot of angles. The whole idea that Whole Foods doesn’t have competition (as the FTC argued in its case) actually boggles my mind – we have more competition than we've ever had before. It isn't from Wal-Mart, which the media was talking about a couple of years ago. It's from Trader Joe's, and Safeway's Lifestyle stores. HEB is difficult in Texas, Wegmans has expanded up and down the East Coast and is now targeting Boston. You've got Sunflower and Sprouts and Henry's that are going after the lower end and then the whole phenomenon of farmers' markets. You add all that stuff up and we have a lot more competition.
Fromartz: And you've been feeling that competition in less robust sales?
Mackey: Our comps (year-over-year store sales gains) have declined. We don't know for certain all the causes of that but it's not unreasonable to assume competition's one of the factors. A year ago, the media was making a lot about competition. The theme this year is trading down. I have to read about it every day, how people all over the United States, apparently hundreds of millions of people, aren't going to shop at Whole Foods markets anymore, and it almost becomes self-fulfilling because it's such a theme.
Our comps last quarter were pretty strong at 6.7 percent, which means we gained market share at the expense of our competitors. But the way it's been portrayed, you would think customers were abandoning us in droves. An objective look indicates Whole Foods had more customers in the last month, or in the last year, than ever before, but we're not gaining them quite as fast as we used to. Is competition a factor in that? Yes.
Fromartz: On food price inflation, have you retooled to react?
Mackey: I don't know if I would say we retooled. We respond mostly on a local level. I always thought Whole Foods had good value if people would take an objective view of it, but they seldom do. An article came out in the Twin Cities on May 17, and it just showed – surprise, surprise – Whole Foods was just about as cheap as Trader Joe's, but almost no one does the objective research. We're tagged with the name Whole Paycheck, and we have expensive things, but we also have 30,000 items. So we're trying to respond by emphasizing value in our stores to our customers.
Fromartz: Like emphasizing private label products?
Mackey: Well, just communicating to customers the value products we have, just trying to get the message out there but it's sort of a message most people don't want to hear because they associate Whole Foods with Whole Paycheck. They don't register that we have products with good value. They've got us in a category and don't want to change.
One of things that hurts price is perishable foods. In areas like meat and seafood, Whole Foods isn't cutting corners. Our core mission is selling the highest quality organic and natural foods. And the highest quality and the lowest price – they don't go together.
Fromartz: But is that precisely the areas people are going to cut back on, to lower their grocery bill?
Mackey: In Whole Foods case, I think what's affecting us more is gas prices. Customers driving 10 miles or more to our stores may not drive as often. Plus with the real estate crash, people don't feel as wealthy. I mean I don't feel as wealthy. Whole Foods stock has fallen 65 percent in the past two years and by any objective standard I'm wealthy, but compared to two years ago, I'm a lot less wealthy. So people are more concerned and cautious.
Fromartz: So you've seen a slowdown or slump in perishables?
Mackey: We have seen a little of that, but I'm not going to disclose any more information than I already made in our earnings call.
Hi Sam...
I'd like to touch base with you by email but cannot find a contact link.
Thanks...
Lois Smithers
Posted by: Lois Smithers | June 14, 2008 at 03:48 PM
Enjoyed reading the interview! This blog, Natural~Specialty Foods Memo, has been writing alot about the FTC/Whole Foods issue, as well as arguing there is plenty of competition, names many of those John Mackey used in your interview as examples,for Whole foods out there. Thought you might like it if haven't read it before.
www.naturalspecialtyfoodsmemo.blogspot.com
There are lots of posts going back as far as last year. I found them doing a search on the blog and looking through the archives. Keep up the good work.
Posted by: Michael Beesom | June 20, 2008 at 11:01 PM