Whole Foods Market: Moving Tofu Into The Mainstream

The typical 1970s health-food store always seemed so ... unhealthy. Cramped, poorly managed, and often grungy, it didn't hold much appeal for nonhippie consumers. Contrast that image with the thriving, 20,000-square-foot Whole Foods Market in conservative Richardson, Tex. This brightly lit supermarket features mouth-watering pastries made with unbleached flour, preservative-free cat food, and towels made of recycled paper. The prices are often steeper than at regular groceries. But, says loyal shopper Mary Anne Redmond: "It's worth it knowing there's not a lot of crud" in the food.

Whole Foods Market represents the industry's coming of age. The Austin (Tex.) company, the first of its kind to go public, is the largest operator in a rapidly growing business. Its 12 stores stretch from Palo Alto, Calif., to Chapel Hill, N. C. Whole Foods had sales of $92.5 million in its last fiscal year, ended Sept. 29, with profits of $1.6 million. Operating margins were a healthy 3.7%, vs. an average of 2.6% for conventional supermarket chains.

STREET CLEANER. Whole Foods' success could draw unwanted attention from traditional supermarkets, which have typically sold few health foods. "The No. 1 risk to Whole Foods would be that supermarkets just plow into the category," says analyst David C. Childe of Robertson, Stephens & Co. He doesn't expect supermarkets to succeed in the long run but fears they might pressure Whole Foods' earnings in the meantime.

That doesn't worry Chairman John Mackey, a college dropout who founded Whole Foods in 1980. He intends to stick to his methodical game plan: adding one new region and one new store in each existing region every year. And he insists Wall Street pressures won't change the company's team-oriented management style or its donations of 5% of aftertax profits to charitable causes. "Wall Street isn't going to corrupt Whole Foods Market," vows Mackey, 38. "We're going to purify Wall Street."

Idealism is still running rampant at Whole Foods. Mackey espouses "empowerment" of his 1,300 "team members" (employees) and speaks unabashedly about creating an organization "based on love instead of fear." In the stores, that translates into departmental teams responsible for their own buying, pricing, hiring, and firing. Bonuses are based on team goals.

At times, though, Mackey sounds like any other hard-nosed capitalist. He rails against the Food & Drug Administration's crackdown on what it considers misleading health claims. He calls an age-discrimination suit against the company "absurd." And as for the 18 months of union picketing at his Berkeley (Calif.) store, Mackey says: "We're not antiunion. We're beyond union." As long as he's not "beyond profits," investors aren't likely to complain.

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