The healthy, conscious capitalist, w/Whole Foods Market co-founder John Mackey

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One thing our products are known for are being very vibrant very colorful, crunchy, and you know, that's again just using high quality vegetables with delicious spices.

I'm Maddie Elling. I'm one of the co-founders of Hosta Hill. And we're based in the Berkshires in Western Massachusetts. We make a Crizon Kraut, which is red and green cabbage with carrots and radish and onions in it. And that one has a beautiful red purpley color that people just love. We make a Daikon radish kimchi, which is cubed radish and a kimchi pepper paste with ginger garlic and the mushroom paste for the umami flavor. We have a a beautiful rainbow of colors in our product line. The colours really pop.

When we first started out we were farming and we were cutting the cabbage by hand and throwing salt on it and packing it into five gallon buckets. Really small batch and All by hand. When we first started in twenty eleven, we were just doing farmers markets and we were doing all of our deliveries ourselves. So we quickly got very busy

Eventually our local food co op wanted our products and then it was farm stores and then Restaurants and cafes too. So we reached this inflection point where we had to go with a distributor and they helped increase our sales and getting in front of more customers. We eventually started working very closely with farmers on contract. You know, we tell them each year Can you grow X amount of Napa cabbage for us and X amount of onions and they specifically plant seeds for us?

Now we are stocked in over a hundred grocery stores in the northeast, including over a dozen whole foods. The first Whole Foods we got into was a store in Hadley, Massachusetts, out in the Pioneer Valley. Hasta Hill is one of more than thirteen thousand suppliers providing high quality locally sourced food products to Whole Foods. If we didn't have great suppliers, then where would Whole Foods be?

John Mackie, Bull Food's co founder and longtime CEO. credits suppliers like Hasa Hill for much of his company's success. the suppliers who end up producing amazing craft artisanal cheeses and craft beers and all the different wonderful foods that I've watched people create and invent. They were partially responsible for our success.

All Foods's impact has been felt across the grocery industry, especially when it comes to increased access to organic and natural foods. The company has also helped raise awareness around food sourcing, quality standards, and ingredient transparency. With over five hundred stores, the company has locations in nearly every major city across the United States and Canada. On today's episode we're in conversation with John. His new book, The Whole Story, shares the history of the now world famous Whole Foods brand from its founding in nineteen eighty.

to John's retirement in twenty twenty two. Both his personal story and his book overflow with unconventional lessons of scale. From a focus on quality over quantity. to unique approach to real estate. Lessons that many business leaders, creators, and founders can apply to their own personal challenges and opportunities.

You gotta have incredible talent at every position. It's like this huge push. There are fires burning when you're going out. Can you believe it? Such an idiot. And then you go back to this is totally gonna be amazing. There are so many easy ways. Sorry, we made a mistake, but you have to time it right. Oops, working out of a three bedroom apartment. Ten years later, I'm like, well that's just how you do it. We haven't made just how you do it. This is masters of scale. I'm Jeff Berman.

Your host. Mm-hmm. Mm. Among the major grocery store chains like Safeway and Kroger. Whole foods stands apart.

While its nearly fourteen billion dollar sale to Amazon in twenty seventeen made headlines everywhere. It's been in the zeitgeist for as long as most of us can remember. Its size is a fraction of its biggest competitors' footprints. But this natural foods grocer has played an outsized role in driving the mainstream availability and acceptance of healthy organic food products. It's even inspired a slew of copycats.

Like sprouts and natural grocers. John Mackie didn't start Whole Foods with the hopes of making it into the cultural and social force that it has become. He simply wanted to provide healthy food to his community. His journey began as an aimless college student in Austin, Texas. A college student seeking meaning.

An adventure. I was young and I had no sense of purpose or direction. But I was increasingly felt like I was an outsider for various reasons Got off the path.

That my parents were programming me for. Is that psychedelic LSD trip I took back when I just turned twenty two. It was in August of nineteen seventy. Five.

And I Had a ego death, I merged back into the one. After I was coming down, I ran into this philosophy professor on a walk. Professor Robert Solomon.

And he was a existentialist and somebody I really looked up to. Thought wow this guy's so smart. So I asked him, I said, Professor Solomon, you know, you teach that there's no objective meaning, and I really don't see if you really believe that. There's no real purpose to anything, then I don't really see how you could be very happy. And he looked at me and he said

You're right. I'm not very happy. And and then I continued the walk and I thought well Yeah.

I wanna be happy. And I want community, I want love, I want purpose and meaning, and and so I decided I was no longer an existentialist. And then after that I moved into a vegetarian housing co-op, and I became a vegetarian, I learned how to cook, I got passionate about food and health, and that was sort of the genesis. At the Vegetarian Co op, John met Renee Lawson Hardy. The two became a couple. John got a job at a small natural food store in Austin.

Or inspiration. Hit him. One day. I was closing up the store and I was looking around, and I felt all this love. I thought, wow, you know, I really like. doing this.

I'm friends with everybody that works there. I get to serve the customers, we're selling healthy food. And I thought I can this is in my realm of competence. I can do this. I'm good enough to do this. And

I went home to the co op and I ran into Renee and I I just looked her in the eyes and I grabbed her hands and I said, Hey Renee. What do you think if we open up our own natural food store? And she looked at me right in the eye and she said, Oh Macoman. That would be so cool.

We're both hippies. Let's do it. You're probably not surprised that investors didn't come running to this hippie couple. But with some help from friends and family, the two raised forty five thousand dollars.

Barely enough to start the one store. They hired friends to do the plumbing and electrical work. What use appliances? And moved into an old Victorian home in Austin.

Which was a pun on our joke on Safeway. I always say I didn't have a grand vision for opening up a chain of stores, but when you're how old I was twenty-four and Renee was twenty when we started working on the store. One of the great things about being young is you don't yet know what you can't do. But we learned, we got smarter and better.

Despite losing more than half of what they raised that first year. John and Renee used the experience to learn what it takes to push a business forward. We were at a competitive disadvantage before I knew what competitive disadvantage meant. I could see that we weren't gonna win this game, that we needed to get bigger. Ultimately you made an offer to acquire one of your competitors. That feels like a critical moment in your scale journey going from one store where maybe you're earning a a good living and doing some good in the world and and living your values to to actually building something that's got scale.

So We found the location first and then one of the competitors that we were friends with because we bought things together. And I started pitching them about closing their store down and m merging in it. Pipe.

Путін і Туге, вигада Остоп бік стор. This merger was a big moment for the company. Instead of trying to outcompete their competitors, they approach them with a logical offer. We can be bigger. better and more efficient together than we are apart.

With the merger, the first Whole Foods Market opened in 1980 in downtown Austin. People ask me how long it took that first whole foods market to be successful. I say until about three o'clock in the afternoon on the first day. It just exploded out of the gates. And within six months we were the highest volume natural food store in the United States. Less than a year after the store opened, tragedy struck. A flash flood tore through their uninsured building.

We should have died. We had eight feet of water in our store, we were wiped out. And we were literally saved by our stakeholders, although I didn't have that name back then. But they came and the neighbors helped clean up our store, and our employees worked for free. We couldn't pick the payroll. while they got us reopened. So I just had a sense of A debt.

That А на бган та сі. That there's a system, the stakeholders are all interdependent. That that whole foods is a platform and we're creating value for all of these constituencies. And once you see that. You can't unsee it.

And back then What was happening in the food scene Yeah. is kind of interesting. The supermarkets were they were kind really ugly, very sterile, kinda like a hospital. And

Walmart was on the march. And all the supermarket companies wanted to compete with Walmart on price, so they began to cut labor. cut back on their capital expenditures. That made them more price competitive, but their stores were less attractive to shop in. And that became Whole Foods opportunity because we made beautiful stores and we gave great service and yeah, we were a little more expensive.

But lots of people were willing to pay for a better experience of higher quality food. John's focus on the quality of the experience, rather than only on profits, is what created that intense loyalty among the customers, team members, and suppliers. His stakeholders. But one successful whole foods market location does not an empire make. The next step to growth was to reach additional investors.

Наріво. in healthy foods like John did. Initially the hardest barrier whole feeds For us, scaling was convincing people that there was a market for what we were doing. Venture capitalists didn't believe it. I got turned down again and again and again. I was told you guys are a bunch of hippies selling food to other hippies. And we don't think that's a very big market. We were

А каркульчур Store and the counterculture was gaining speed. What they didn't understand was the world was changing. They couldn't see that change. I didn't necessarily see it myself. I just was doing what I was passionate about, and it turned out It's one of the ways to be successful in business. Make sure that you catch the wave. If you're trying to open a business and nobody wants what you have, you're gonna fail. But there was a generational change that was beginning to happen in the United States. While John did not see the enormity of the coming wave of the organic and healthy foods movement, he could sense the sea change.

From his vantage point, it was a no brainer. His customers were not the fringe, even if they were at the time a niche. And they were exactly the type of customer you want. Loyal and willing to evangelize. John was confident that the market for natural foods would continue to grow.

And that Whole Foods was in prime position to take advantage of that opportunity. But not without some very tough challenges. One of the reasons we were successful in the early days so much was my dad. He had been a accounting professor at Rice University and he had a very successful business career. And I didn't have any business background.

He didn't know what to make of me. It's like What the hell are you gonna do with your life, son? And when I found passion about these natural foods, he wasn't interested in natural foods, but he was very happy that I was interested in business. And so we got very close. And my my dad ended up being one of my closest friends. He was my best man at my wedding. And he mentored me for the first sixteen years of the business from nineteen seventy eight. Two Nineteen ninety four.

Yeah. Ultimately, when I turned 40 years old, we were fighting in these board meetings all the time. Whole face was now public, went public in 1992. And we acquired bread and circus, which was the natural foods crown jewel of the East Coast, and Mrs. Gooch's, which was the crown jewel in in Southern California, and it was like those three companies together, we that was the DNA that we needed to become a national brand.

But my dad opposed both deals. W why did he oppose them, John? He just thought we were trying to grow too fast, trying to do too much, but I asked him to resign from the board'cause it was ruining our relationship and I wanted to to run the company without us fighting all the time. How did you have that conversation with your dad? It's hard enough to end a relationship with a board member, but when it's your father, your best friend, the best man at your wedding, your conciliary, how did you have that conversation with him? Well, it was that was the most difficult thing I've ever had to do in business, to be honest. Um but

I I had to do it and I But it's basically pitched him out and said, Dad, listen, we're we're both very passionate guys. I'm a lot like you. We both we both see our point of view, we're good debaters. And um We've tried to change, we can't do it. I I really think you need to leave the board. I

I then I came around to his his desk and said, But you're still gonna be my main advisor. So it was a difficult decision, but it was such a milestone for me, Jeff, because After that, even though I did consult with my father, that was really the first time I really felt like I was actually kind of in charge of the company. I'd been the CEO and chairman of the board, but This was a big step in my own personal growth.

as a leader. It's not easy to fire anyone. But it's a leader. He knew it was necessary for the transformation of the company. With the training wheels off, John and the company were on a fast track to exponential growth.

Acquiring competitors was the first step. Next, we hear how Whole Foods capitalized on its unique ability to identify real estate for its new stores. And why the romance with Amazon. Was a match made in heaven. After the break.

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Learn more at creative planning dot com slash masters of scale. Humans will never be more intelligent than AI. There's gonna be two types of companies. Those were great at AI and those that went out of business because they weren't. How do we build a future? That is human centered.

I'm Rana El Calyubi. And on my podcast Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone. Every week, I sit down with the pioneers shaping our future. And we take you behind the scenes of the AI that's transforming our lives. Find pioneers of AI wherever you tune in. Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show.

Because every Friday we release a second rapid response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely from Ford's CEO to NASA's administrator to the lessons from The Devil Wears Prada. It takes about 10 seconds to find, just search rapid response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there. We're back with John Mackie. Co founder and for more than thirty five years CEO of Whole Foods Market.

Between nineteen ninety two and nineteen ninety seven, Whole Foods Went Public, acquired more than half a dozen local natural grocers on both coasts and in the Midwest, and grew to one billion dollars in annual revenue. Whole foods markets were popping up seemingly everywhere. including in my neighborhood at the time, in Washington, DC. John, I remember the era that ensued quite well because I bought my first house in nineteen ninety nine on a one block street the police called

heroine Alley. Um you can imagine what that was like. Oh my gosh. Good story. About a year after I moved in Whole Foods opened up six blocks away. And it really anchored the transformation of that entire neighborhood. Um, that's a gross understatement. I mean it really was the Pea Street Peace. Yes. That's exactly right. The Peace Street store. That's exactly right. Yeah.

And so I'm I'm curious about the scale journey after your dad left the board and and in the nineties into the the early two thousands because it felt like You all weren't just growing a business, you were transforming neighborhoods and lives as part of what you were doing. So I'd love to hear about that phase of the journey. Well, what a lot of companies do, they decide they're going to go into a market and then they just they talk to real estate brokers to find ten locations in the next two years. So find us ten sites. And they deliver the best sites available. And if we didn't find a great location.

We wouldn't do it. I remember I wanted to go to San Francisco first when we came to the Bay Area. We looked and we did look, we couldn't find a location that met our criteria. So our first one was in Palo Alto. The second one was in Berkeley. The third one was in Marin County in Mill Valley. And it wasn't And our fourth store when we finally got to San Francisco, but it was worth the wait because that San Francisco store became For a while the highest volume store in the comp in the whole uh company for us. So patience.

And and Not forcing the growth you ha because this is one of the m most important competitive advantages Whole Foods had. I watched all our competitors make bad decisions. They wanted to get the stores open. They took B locations and And they they paid the price for it. Whereas we just held out. for great locations. And that's one reason we were able to successfully scale.

How did you assess what was a good location for Whole Foods that a realtor might have thought was a disaster or what a realtor thought was a great location that you knew was going to be wrong? Well, first it starts with demographics. Obviously population density is very important. In our case the biggest indicator was c college degrees. Who has a college degree? And the places that had the most college degrees, not surprisingly, also had the highest income. Not perfect correlation because a university town

Might not have the highest income, but they have the highest education levels. And we would do well there even if the income wasn't quite as high. But When you get the combination of high incomes and high education levels, that would always be a slam dunk for us. And then then it was just the basic retail. Does it have good parking? Does it have visibility from the street? Is it at an intersection? You don't want to be mid block. We had to learn that the hard way. Mid blocks where people can't easily make left or right hand turns in because people are ultimately about convenience. If you make it easy for them to shop.

Easy for them to pull in. get their stuff and be out on their way ten minutes later if that's what they want to be. That's going to give you a competitive advantage. John's strategy and the whole foods team's strategy to prioritize location. Was based on what they had learned about their customers from deep research and experience.

Waiting to enter a potentially lucrative market until real estate conditions are ideal is contrary to the blitz scaling ethos that many companies follow. But it paid off. By the mid-2000s, whole foods continued to grow nationally and internationally. Including locations in the United Kingdom and Canada. But the decade was not without controversy.

John faced several challenges to his leadership. including from members of his board, a unionization effort at a store in Wisconsin, and an acquisition that was challenged by the Federal Trade Commission. Perhaps no controversy was more public. than his editorial criticizing Obamacare in the Wall Street Journal. Back in two thousand nine I wrote an op ed piece in the Wall Street Journal about healthcare.

I really thought Whole Foods Market had a really good system for Uh the way we were handling healthcare that could be adopted on a more widespread scale. But Um it was very controversial. We had protests all around the country. Three hundred and fifty thousand people and within a uh a couple of weeks signed a Facebook petition to boycott whole foods market. Hundreds of letters were sent to our board of directors demanding that I be fired.

So it's like Whoa. I've learned a valuable lesson here. The mistake I made was I couldn't distinguish between my personal views because I was the co-founder of the company and the only CEO it had ever had. Uh My views were seen as the company's views. I just thought I was speaking for myself. I wasn't speaking for whole foods.

John took his own advice and stuck to his wheelhouse when he wrote a book in 2013 called Conscious Capitalism, a subject dear to his heart. I love capitalism. I love business. When I first got into business, I was skeptical of business. But what I found out about businesses is that Business.

Done. In a conscious way, is creating value for all of these constituencies. Teachers educate, architects design buildings, engineers construct things. And Yet they all make money. They're making money because they're creating value for other people. And business is a tremendous value creator for other people.

Merely. They're investors or their owners. They create value primarily first for their customers. I just think a lot of business people don't see it. They see it as a bunch of trade offs rather than a bunch of synergies. And once you begin to s manage it as a system. You can optimize the system at a higher level. I could see how if if you cheat any of your constituencies, any of your stakeholders, you try to sell them short, you can get away with it in the short term. And the long run, feedback loops are created and your business suboptimizes. So I just realized to to to to create the most value for shareholders too. You have to optimize the entire stakeholder system.

And Yeah, some people are strictly motivated by money, but most of the entrepreneurs I've known are just very passionate people and they're excited to to realize their ideas in the world that they make money too. They have to make money in order to be successful, but Frankly, it's about the dream that really drives them even more than the money. It's one of the ideas that we at Masters of Scale are keen to highlight. A business should create value beyond profits for shareholders. Corporate decision making should include

Other stakeholder considerations, considerations of team members, customers, suppliers, the environment and society at large. A capitalist system can be a force for good. When the interests of all stakeholders are prioritized. In twenty seventeen, John faced a new problem that tested his resolve. More competition meant that whole foods was losing market share in the natural foods sector.

So group of shareholders mounted a challenge to his leadership and demanded the company lower its prices. We were being attacked by shareholder activists. T. people that think only profits matter. They just said, look, we're gonna take over your company. There's not a damn thing you can do about it. We're gonna vote your board out. And we're gonna get rid of the management that opposes us and we're gonna sell the company to the highest bidder.

The dilemma that we faced was how do we cut our prices? And In the short term, if you're selling something for a dollar and now you start selling it for ninety cents, well Initially in the long run, that'll drive more people into your stores, right? You'll get more business with lower prices. In the short run, Your sales just drop ten percent. When you dropped your prices ten percent. And your stock price is just gonna get totally hammered.

So You need time in order to make those kind of changes. If you go private, which is an alternative whole foods looked at. We'd have been taking on the Gosh, probably eleven, twelve, thirteen billion dollars in debt onto our balance sheet. And you could go bankrupt. So you're risking your whole company if you do that.

Going private was not possible for Whole Foods on its own. John had to get creative. And that's when he hit. on an unlikely idea. I woke up one morning and I was not sleeping well and I was trying to figure out the solution and then it just popped in my brain one day morning when I woke up, What about Amazon?

Did you cold call Jeff Bezos and how did the conversation start with Amazon and how did you ultimately decide that was the right move to sell? So I'd met Jeff about a year before at a Microsoft CEO summit. He and I actually were the two people on a panel. And so I got to meet him and know him then, and we had a lot of common interests. Jeff Bezos has done something very few people have ever done. He's built this amazing company in a very short period of time. It's changed the world. So I was a huge fan of Amazon, and I liked Jeff.

He's an entrepreneur. And Entrepreneurs have a certain affinity with each other. I mean, there's you can you you can almost just instantaneously have rapport with somebody because you see the world in so many similar ways. You see the world is ripe with opportunities. of of creation. So We contacted them uh just a few days later we flew down to Seattle and in a top secret location and we had a

two to three hour conversation with him and The whole foods team went away super impressed because just how intelligent they were super smart. They asked great questions. And it was like We could just see how the synergies might work. Just three days later.

They flew down with a team to Austin. And started doing due diligence and we came to the price fairly quickly and Six weeks after that first meeting in Seattle, we'd signed a deal. It was like a whirlwind romance.

Since the sale to Amazon product prices have kept dropping. New suppliers and products have increased by thirty percent. And whole foods markets has continued to expand. having added more than thirty new stores, including a new retail format. With a smaller convenience store style.

John stayed on as CEO during the transition and then in twenty twenty two. He decided to step down. You've said many times that having a business is like having a child. w what was it like to step down and fulf your child to Amazon and and move on to new things? Oh that's very difficult. When I retired, I was sixty nine.

And I wasn't having as much fun anymore. We'd gone through the the two covet years We'd gone through a lot of integration. The company was doing well. There was a younger generation that

is ready to take over. I didn't want to work as hard. And I wanted to do some other things in life. And I detail that a little bit of that in the book. And I just felt like I'm a very interdirected person. I just clearly began to understand that it was time for me to go. So I gave a year's notice.

The guy that I wanted to take my place, Jason Beakle, he'd come to Whole Food as our chief technology officer, and I made him chief operating officer. And one of my gifts to Jason was I'm not gonna stay involved at all. If anybody comes to me complaining about anything It's like I had a mantra. That's not my problem anymore. You need to talk you go to you need to talk to him. There's no shortcut. I'm not helping you. You gotta do your own thing here. And so he didn't have the founder CEO looking over his shoulder.

You might think John would take some much needed time off and go on a literal walkabout, especially as an avid hiker. But he couldn't sit still. Before he was even out the door at Whole Foods he was planning his next venture. an integrated health and wellness company called Love Life. I was already working on Love Life.

But the vision of it is to be basically one stop medical wellness centers. We're gonna have a healthy food restaurant there. We're gonna have a fitness center. A gym, we're gonna have a spa, we're gonna have all kinds of recovery modalities, we're gonna have all kinds of alternative medical treatments from acupuncture. cupping, Ayurvedic, physical therapy, chiropractic, I mean all these different things. And we're gonna have medical doctors as well, that are functional doctors, that are lifestyle doctors, integrative doctors. And the whole idea is that we want to change the paradigm that people have about about wellness and and healthcare I think there's emotional and spiritual. There's a There's a

quest for meaning, my my original search for meaning and purpose still is there in America now. My higher purpose is is to try to help people become and be the healthiest versions of themselves. But love and purpose, purpose and love, those are the two things that will make a company A transformative company. I can't imagine a better place to end this conversation. Thank you so much. Thanks, Jeff. It's been a pleasure talking with you.

Whole Foods's scale story truly inspires. From its humble beginnings in a three story house on a quiet street in Austin, Texas. to its groundbreaking acquisition by Amazon for thirteen point seven billion dollars. The company's influence goes far beyond the grocery shelf.

It has changed an entire industry. Whole Foods has increased access to organic and natural foods and done wonders for small local farmers and producers. Along the way, John Mackie learned the importance of finding true purpose and meaning in your work. And of creating value not just for shareholders, but for all. Stakeholders.

I'm Jeff Berman. Thank you for listening. Masters of Scale is a Wait What original. Our executive producer is Eve Tro. The production team includes Chris Gautier, Alex Morris, Tucker Vagerski, Masha Makutanina, and Brandon Klein.

Mixing and Mastering by Erin Bastanelli. Original music by Eduardo Rivera and Ryan Holiday. Our head of podcasts is Let Al Mala. Visit mastersofscale.com to find the transcript for this episode and to subscribe to our email newsletter.

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