The healthy, conscious capitalist

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MADDIE ELLING: One thing our products are known for are being very vibrant and fresh tasting, very colorful, crunchy, and you know, that’s just, again, 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 crimson kraut, which is red and green cabbage with carrots and radish and onions, and that one has a beautiful red purple y color that people just love, we make a daikon radish kimchi which is cubed radish in a kimchi pepper paste with ginger, garlic and a mushroom paste, for the umami flavor. We have a beautiful rainbow of colors in our product line. The colors 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 2011, we were just doing farmer’s 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. 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 the store in Hadley, Massachusetts, out in the Pioneer Valley.

JEFF BERMAN: Hosta Hill is one of more than thirteen thousand suppliers providing high-quality, locally-sourced food products to Whole Foods. 

JOHN MACKEY: If we didn’t have great suppliers, then where would Whole Foods be?

BERMAN: John Mackey, Whole Foods’ co-founder and long-time CEO, credits suppliers like Hosta Hill for much of his company’s success. 

MACKEY: Our business is only as good as 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 really partially responsible for our success. 

BERMAN: Whole Foods’ 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 500 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 1980 to John’s retirement in 2022. Both his personal story and his book overflow with unconventional lessons of scale. From a focus on quality over quantity, to a unique approach to real estate, these are lessons that many business leaders, creators, and founders can apply to their own personal challenges and opportunities.  

[THEME MUSIC]

BERMAN: I’m Jeff Berman, your host. 

Among the major grocery store chains like Safeway and Kroger, Whole Foods stands apart. While its nearly $14 billion sale to Amazon in 2017 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.

Mackey didn’t start Whole Foods Market with the hopes of making it into the cultural and social force that it became. 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 and adventure.

MACKEY: I was young, and I had no sense of purpose or direction. I increasingly felt like I was an outsider for various reasons. I got off the path that my parents were programming me for, the path my friends were going down, which would be to go to law school or medical school, join one of the professions. 

It was a psychedelic LSD trip I took back when I just turned 22, it was in August of 1975, and I had an 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 an existentialist, and he was somebody I really looked up to. I thought, wow this guy’s so smart, and so I asked him, I said, Professor Solomon, 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 then I continued the walk and I thought, well,I want to be happy. And I want community. I want love. I want purpose and meaning. And so I decided I was no longer an existentialist.  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. 

Copy LinkHow and why John Mackey opened his first grocery store

BERMAN: At the vegetarian co-op, John met Renee Lawson Hardy. The two became a couple. John got a job at a small natural foods store in Austin, where inspiration hit him.  

MACKEY: One day I was closing up the store, and I was looking around, and I felt all this love. I thought, wow, 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 just looked her in the eyes and 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, Macko, man, that would be so cool.” We were both hippies. “Let’s do it.” 

BERMAN: 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 $45,000 dollars, barely enough to start the one store. They hired friends to do the plumbing and electrical work, bought used appliances, and moved into an old Victorian home in Austin. 

It was called Saferway, 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 24 and Renee was 20 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. 

BERMAN: Despite losing more than half of what they raised the first year, John and Renee used the experience to learn what it takes to push a business forward. 

MACKEY: We were at a competitive disadvantage. Before I knew what competitive disadvantage meant, I could see that we weren’t going to win this game. That we needed to get bigger. 

Copy LinkThe merger that led to the first Whole Foods

BERMAN: 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 good living and doing some good in the world and living your values to, to actually building something that’s got scale.

MACKEY: So we found the location first, and then one of the competitors that we were friends with (because we bought things together), I started pitching them about closing their store down and merging it. So, putting it together we had a one-stop big store.

BERMAN: This merger was a big moment for the company. Instead of trying to outcompete their competitors, they approached 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.  

MACKEY: 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.

BERMAN: Less than a year after the store opened, tragedy struck. A flash flood tore through their uninsured building. 

MACKEY: 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. They came and they helped clean up our store. Neighbors helped clean up our store. And our employees worked for free. We couldn’t make the payroll while they got us reopened, and I just had this sense of debt. I began to see that there’s a system, the stakeholders are all interdependent, that Whole Foods is a platform, and we’re creating value for all these constituencies. And once you see that, you can’t unsee it. And back then, what was happening in the food scene, it’s kind of interesting, supermarkets were really ugly, very sterile, kind of 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 and higher quality food.

BERMAN: 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 make an empire. The next step to growth was to reach additional investors, and not everyone saw the value in healthy foods like John did. 

MACKEY: Initially, the hardest barrier Whole Foods for us scaling was convincing people that there was a market for what we were doing. Venture capitalists didn’t believe it. We got turned down again and again, 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 a counterculture 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 you catch the wave. If you’re trying to open a business and nobody wants what you have, you’re going to fail. But there was a generational change that was beginning to happen in the United States.

BERMAN: 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 the prime position to take advantage of that opportunity. But not without some very tough challenges. 

Copy LinkTwo key mergers that enabled Whole Foods to scale

MACKEY: One of the reasons we were successful in the early days, so much, was my dad because he had, he had been an accounting professor at Rice University and 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 going to do with your life, son? And what I found was 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 dad ended up being one of my closest friends. He was my best man at my wedding, and he mentored me for the first 16 years of the business from 1978 to 1994. Ultimately, when I turned 40 years old, we were fighting in these board meetings all the time.

Whole Foods was now public, we 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 Southern California. And it was like, those three companies together, that was the DNA that we needed to become a national brand. But my dad opposed both deals. 

BERMAN: Why, why did he oppose them, John?

MACKEY: He just thought we were trying to grow too fast, trying to do too much. I asked him to resign from the board because it was ruining our relationship, and I wanted to run the company without us fighting all the time.

BERMAN: 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?

MACKEY: Well, it was, that was the most difficult thing I’ve ever had to do in business, to be honest. But, I had to do it. I basically pitched him, I said, “Dad, listen, we’re both very passionate guys. I’m a lot like you. We both see our point of view as good debaters. And, we’ve tried to change. We can’t do it. I really think you need to leave the board.”

Then I came around to his desk and said, “But you’re still going to 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 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.

BERMAN: It’s not easy to fire anyone. But as 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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BERMAN: We’re back with John Mackey, co-founder, and for more than 35 years, CEO of Whole Foods Market.

Between 1992 and 1997, 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 my neighborhood at the time in Washington, D.C. 

BERMAN: John, I remember the era that ensued quite well because I bought my first house in 1999 on a one-block street the police called Heroin Alley. You can imagine, you can imagine what that was like. 

MACKEY: Oh my gosh, good story.

BERMAN: 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.

MACKEY: Is this the P Street, P Street store?

BERMAN: Yes, that’s exactly right. The P street store. That’s exactly right. So I’m curious about the scale journey after your dad left the board and, in the 1990s into the early 2000s 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.

Copy LinkHow Whole Foods geographically scaled

So I’d love to hear, love to hear about that phase of the journey.

MACKEY: Well, what a lot of companies do, they decide they’re going to go into a market. And then they talk to real estate brokers to find 10 locations in the next two years. So find us 10 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 did look but 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 into 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 company, in the whole company for us.

So patience in, in not forcing the growth you have, because this is one of the 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 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.

BERMAN: How did you assess what was a good location for Whole Foods? That a realtor might’ve thought was a disaster or what a realtor thought was a great location that you knew was going to be wrong.

MACKEY: First, it starts with demographics. Obviously population density is very important. In our case, the biggest indicator was 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 income 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. 

BERMAN: 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 blitzscaling 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 the 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. 

BERMAN: Back in 2009, 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 the way we were handling healthcare that could be adopted on a more widespread scale, but it was very controversial.

We had protests all around the country and 350,000 people and within 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 was 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 – my views were seen as the company’s views. I just thought I was speaking for myself. I wasn’t speaking for Whole Foods.

BERMAN: 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. I remember 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, not merely their 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 manage it as a system, you can optimize the system at a higher level. I could see how if you cheat any of your constituencies, any of your stakeholders, or try to sell them short, you can get away with it in the short term. In the long run, feedback loops are created and your business sub-optimizes. So I just realized 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 realize their ideas in the world. 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.

BERMAN: 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 2017 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 a group of shareholders mounted a challenge to his leadership and demanded the company lower its prices. 

MACKEY: We were being attacked by shareholder activists. The people that think only profits matter. They just said, “Look, we’re going to take over your company. There’s not a damn thing you can do about it. We’re going to throw out your board, and we’re going to get rid of the management that opposes us. And we’re going to 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 90 cents, well 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 dropped 10 percent and your stock price is just going to get totally hammered. So. You need time in order to make those types of changes. 

If you go private, which is an alternative Whole Foods looked at, we’d have been taking on, gosh, probably 11, 12, 13 billion in debt under our balance sheet. You could go bankrupt. You see you’re risking your whole company if you do that. 

BERMAN: 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. 

Copy LinkInside Amazon’s acquisition of Whole Foods

MACKEY: 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 morning when I woke up. What about Amazon? 

BERMAN:  Did you cold call Jeff Bezos? How did the conversation start with Amazon, and how did you ultimately decide that was the right move to sell?

MACKEY: 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. And he’s an entrepreneur. Entrepreneurs have a certain affinity with each other. I mean, there’s, 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 for creation. So, I did like Jeff. So, we contacted them. 

So just a few days later, we flew down to Seattle in a top secret location and I had a two to three hour conversation with them 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.

And 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.

BERMAN: 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 adding more than 30 new stores, including a new retail format with a smaller convenience-store style.  

John stayed on as CEO during the transition, and then in 2022 he decided to step down. 

BERMAN: You’ve said many times that having a business is like having a child. What was it like to step down and fully hand off your child to Amazon and move on to new things?

MACKEY: That’s very difficult. When I retired, I was 69 and I wasn’t having as much fun anymore. We’d gone through the two COVID years. We’d gone through a lot of integration. The company was doing well. There was a younger generation that was 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 some of that in the book. I just clearly began to understand that it was time for me to go. So I gave a year’s notice and then the guy that I wanted to take my place, Jason Buechel, he’d come to Whole Foods as our Chief Technology Officer and I made him Chief Operating Officer. And, one of my gifts to Jason was, “I’m not going to 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, you need to talk to him, there’s no shortcut, I’m not helping you, you got to do your own thing here.”

So he didn’t have the founder CEO looking over his shoulder. 

Copy LinkJohn Mackey’s newest venture: Love.Life

BERMAN: You might think John would take some much needed time off, and go on a literal walk-about, 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.

MACKEY: I was already working on Love.Life before I left. The vision of it is to be basically one-stop medical wellness centers. We’re going to have a healthy food restaurant there.

We’re going to have a fitness center, a gym. We’re going to have a spa, a really nice spa. We’re going to have all kinds of recovery modalities. We’re going to have all kinds of alternative medical treatments from acupuncture, cupping, um, Ayurvedic, uh, physical therapy, chiropractic. I mean, all these different things.

And we’re going to 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 healthcare. I think there’s emotional and spiritual, there’s a, there’s a quest for meaning. My original search for meaning and purpose still is there in America now.

My higher purpose is to try to help people become and be the healthiest versions of themselves. Love and purpose, purpose and love, those are the two things that will make a transformative company.

BERMAN: I can’t imagine a better place to end this conversation. Thank you so much.

MACKEY: Thanks, Jeff. It’s been a pleasure talking with you. 

BERMAN: Whole Foods’ 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 13.7 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, Mackey 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.