John Mackey's Empire: Peace, Love, And The Bottom Line

How an ex-hippie built a nationwide natural-foods supermarket chain

John Mackey is a bit of an enigma. With his shaggy, though thinning, hair and his passion for meditation and organic food, it would be easy to mistake the 45-year-old CEO of Whole Foods Market Inc. for an aging hippie. You can even find traces of the summer of '67 in the way he runs his $1.4 billion health-food empire. Mackey espouses love, trust, and employee empowerment as his guiding management principles.

But there's a lot more to Mackey than flower power. He's also a ferocious believer in the power of capitalism and the free market. And woe to the labor union that tries to tangle with him. Says Mackey: "I want to be taken seriously. I don't want to be dismissed as a flake."

There's little chance of that. True, Mackey took his first bite of tofu shortly after he dropped out of college and went to live in a vegetarian co-operative, named Prana, in Austin, Tex., in 1975. But from that unlikely beginning, he has gone on to build a smartly run and brilliantly marketed health-food empire that has tapped into a generation's yearning for healthy living and eating.

With 87 supermarkets nationwide, Austin-based Whole Foods is more than three times the size of its nearest direct rival, Boulder (Colo.)-based Wild Oats Markets Inc. And since starting his first natural-foods store in 1978, Mackey has shown that his personal blend of capitalistic fervor, Japanese-inspired management principles, and idealistic vision of bringing the world a healthier diet can make big bucks. Earnings last year, excluding merger costs, jumped 55%, to $46.5 million. And, with conventional grocers nibbling at his heels, Mackey is pushing for more. He has been acquiring a string of smaller regional health-food chains, including Bread & Circus, Fresh Fields, and Mrs. Gooch's. His aim is to reach 200 stores and more than triple sales to $4.5 billion by 2003.

From the start, Mackey has always taken his own path. The son of an accounting professor-turned-businessman, Mackey refused to take no for an answer when he was cut from his high school basketball team in Houston for, he says, being "a rebel." So he transferred to a school nearby where he managed to make the team. His family even moved three miles so he could attend the new school. Explains Mackey: "I said, `I don't accept this. I'm going to prove that this was a mistake and I have worth."'

Once in college, Mackey delved deeply into his courses, developing a passion for philosophy and religion. "I was searching for the meaning of life," he says. But when it became clear his college texts weren't going to provide the answer, he lost interest and dropped out--first from the University of Texas and, again, from Trinity University.

PAPA'S HELP. While living in the vegetarian housing co-op and working at an Austin natural-foods store, Mackey stumbled upon his calling. "It was the first time I realized what you ate could affect how you felt," says Mackey. With $20,000 from his father, then CEO of a hospital-management company, and $7,000 from a girlfriend who had received an inheritance, the 25-year-old raised $45,000 and opened Safer Way, a health-food store and restaurant in an old Victorian mansion near downtown.

Unlike other veggie joints scattered around the college town, Mackey's store tried to cater to a broader clientele by carrying such things as refined sugar and eggs, products that some other health-food stores shunned. "It didn't seem like it had to be part of a certain lifestyle," recalls his former girlfriend and business partner, Renee Lawson Hardy. "Natural foods was just a good thing."

A good thing, maybe, but not such a good business. Parking was scarce and the restaurant lost money at first because of the young couple's insistence on making everything from scratch. To save on expenses, the two lived on the third floor with no shower or bath. Instead, they cleaned up in the oversized restaurant sink or by jumping into a chilly spring nearby.

But Mackey, an eternal optimist, considered the venture a success. After turning a tiny profit in his second year, he went back to his father and asked for $50,000 to open a bigger store. Recalls his father, William S. Mackey: "I said, `John, you've got this backward. You're supposed to succeed small and then expand."' Still, he promised to invest $25,000 if his son could find someone else to put up the other half. To his dad's amazement, John came back in less than a week with the money from a Safer Way customer. Eventually, he raised about $200,000 in debt and equity for his new venture.

BLUNT PITCH. In his first taste of wheeling and dealing, he persuaded owners of a nearby organic grocery to join forces with him. His pitch was simple and characteristically blunt: "`If you don't come in with me, I may put you out of business because I can sell cheaper than you can,"' recalls Mark V. Skiles, one of the store's owners. Mackey wasn't fooling around. His first Whole Foods store was 10,000 square feet, four times larger than Skiles's store.

Unusually large for its time and set up likea grocery store, Whole Foods was an instant success. BecausE of its size, it could carry more natural and organic items than rivals. And it also promoted one-stop shopping by selling such vegetarian no-nos as red meat and coffee. So loyal were customers that when the store was nearly destroyed by a flood in May, 1981, dozens pitched in for the cleanup, and the company was back in business in 30 days.

By 1990, when Mackey met his future wife, Deborah Morin, a software consultant, he had a thriving chain of 10 stores. On their very first date, Mackey couldn't resist peeking into Deborah's refrigerator. To his delight, he discovered a vegetarian's paradise. Now out of the software business, Deborah teaches yoga and takes care of the couple's home and ranch. She's an ardent environmentalist, horse rider, and Sufi, a follower of a mystical sect of Islam. On weekends, the pair hang out at their 680-acre ranch near Austin, allowing Mackey to dip into a pile of dozens of books ranging from history to sci-fi.

Away from his tranquil home life, Mackey's sometimes-clashing business and personal philosophies have made him plenty of enemies. To the dismay of the orthodox organic crowd, Mackey has always offered conventionally grown food as well. But Mackey's fiercest enemies have been the unions, who claim he offers inadequate pensions and health benefits. They've picketed his stores for years in California and elsewhere, inflicting at least temporary damage to sales and profits. "They're not trying to organize Whole Foods. They're trying to destroy us," says Mackey.

NEW AGE NONSENSE? Hogwash, insists Greg Denier, assistant to the president of the United Food & Commercial Workers International Union, who says Mackey has tried to squash union activities through "threats, intimidation, and fear." Says Denier: "What we're doing out in front of those stores is telling people this isn't what it's cracked up to be. This is New Age nonsense."

Indeed, there's nothing New Age about Mackey's old-fashioned quest to dominate his industry. Rival Wild Oats learned that lesson the hard way when Mackey opened a splashy new store and slashed prices by 20% early this year in Boulder, Colo., Wild Oats's hometown. The move came in retaliation for the opening of Wild Oats stores in some of Whole Foods's markets.

To drive home the point, after Whole Foods opened the Boulder store, Mackey sent Wild Oats CEO Michael C. Gilliland the game of Risk, with a note reading "Forewarned is forearmed." Gilliland concedes sales have fallen 10% to 20% with Whole Foods's entry but says they're slowly coming back. In the end, he says, the growing market for natural foods is big enough for both players. But for Mackey, peace and love go only so far. "If you want to win, you can't let your opponent gain an edge on you," he says. Spoken like a true capitalist.

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