Whole Foods Market, Inc. (NASDAQ:WFM): The Most Amazing Business and Investment Story of Our Time
If your son dropped out of college before getting a degree and without taking a single business class, joined a far-left commune dedicated to progressive ideals, and made no secret of his heartfelt belief that business is all about greed, selfishness and exploitation, what would you say the odds are that he would found and run a Fortune 500 company with $12 billion in annual sales and gross yearly profit of more than $4 billion?
Don’t ask Bill Mackey. Because his son John did just that when in 1978 he founded with a single shop the company that would eventually become Whole Foods (Nasdaq:WFM), today’s world leader in natural and organic foods with 340 stores and more than 73,000 employees.
This is one of the most astonishing business stories of the past few decades – and one of the best stock market investments of the last few years. (If you had picked up some shares of Whole Foods in late 2008, for example, you would be up over 1,150% today.) Mackey tells the whole riveting tale – of his company’s remarkable transformation and his own personal journey – in a superb new bookConscious Capitalism, co-written with Dr. Rajendra Sisodia of Bentley University. This is essential reading for every businessman, investor… or lover of a good story.
Three fascinating threads run through this book. The first is the almost unbelievable story of the founding and growth of Whole Foods Market. The second is the transformation in Mackey’s world outlook as a result of his experiences. The third is his current mission to help change the world and rebrand the free enterprise system to reveal its heroic nature.
Heroic? In the wake of the corruption at Enron and Worldcom, the arrogance and mismanagement at Bear Stearns and Lehman Brothers, the ineptitude at GM and Kodak, and the crony capitalism of Fannie and Freddie (or, as I prefer, Phony and Fraudie), surely he’s kidding, you say.
Far from it. With eyes wide open to the flaws and shortcomings in the business world, Mackey passionately and convincingly reveals the capitalist system for what it is: the greatest wealth creator of all time. And his personal story is an eye-opener.
Starting From Scratch
Poor as church mice, he and his girlfriend opened their first store in Austin, Texas as a way of sharing their passion for healthy food. They worked 80-hour weeks, paid themselves salaries of $200 a month, lived in an office above the store and – since there was no shower or bathtub – “bathed” in the store’s Hobart dishwasher. “I’m pretty sure that violated several city health codes,” Mackey writes.
Despite working long, hard hours and living frugally, in the first year Mackey and his partner managed to lose more than half the capital entrusted to them – $23,000. Yet word of mouth continued to spread and customers flocked to the store. At least, they did until Memorial Day, 1981. That was the day Austin experienced its worst flood in 70 years.
As Mackey writes, “Our store was eight feet under water. All the equipment and inventory were destroyed; our losses were approximately $400,000. The flood basically wiped us out. We had no savings, no insurance, no warehoused inventory. There was no way for us to recover with our own resources; we were financially bankrupt.”
What happened next – which I won’t reveal here and spoil the story – is a moving, almost unbelievable real-world version of It’s a Wonderful Life. It’s also a testament to what can be achieved when you are passionate about quality and genuinely concerned about the welfare of your customers, employees, suppliers, investors and community. Mackey calls it stakeholder theory… and it stands in sharp relief to the depiction of profits as the be-all and end-all of business.
Profit is Not a Product; It’s a By-Product
From the beginning, Mackey understood that profit is not a product. It’s a by-product. And it can only be sustained and increased over the long haul when business is conducted not like a battle between opposing forces but as a cooperative venture where everyone – except the competition – stands to gain.
As he and Sisodia put it, “We believe that business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it can elevate our existence, and it is heroic because it lifts people out of poverty and creates prosperity.”
Visit a Whole Foods outlet – any Whole Foods outlet – and you’ll see something you rarely see outside of an Apple store: rabid customer loyalty. Whole Foods is obsessive about seeking out the finest natural and organic foods available and maintains the strictest quality standards in the industry. Its stores are clean, well lit and attractively laid out. Employees regularly tell me they are working the best jobs they have ever had. So perhaps it’s no surprise that last week Whole Foods landed on Fortune’s “100 Best Companies to Work For” list for the sixteenth consecutive year.
Whole Foods stands apart from its competitors, a highly innovative firm in an industry that hardly innovates at all. And it is committed to its mission of showing customers how healthy eating can create a longer, happier, more disease-resistant life.
This is a fascinating tale. Read the book. Enjoy the story. And spread the word.