12 Interesting Facts About the Growth of Whole Foods
Whole Foods is now a household name but in the beginning, nearly 45 years ago, it was one of the few places where people could purchase organic products. From a $45,000 initial investment to a $13.7 billion takeover by Amazon in 2017 Whole Foods is a great success story. If you are curious about how the retailer landed on a corner near you then consider these 12 facts.
1. John Mackey and his girlfriend Renee Lawson started Whole Foods in 1978. He was 25 and she was 21 at the time. The couple raised $45,000 from friends and family to open their first store. “It was all equity investments, though my $10,000 portion was a loan from my father. Renee put in a few thousand dollars that she had saved up, and her family, my family and some our friends invested a little bit, too,” says Mackey. “So it was like a lot of entrepreneurial start-ups— it started with financing from family and friends.”
2. Since the couple was tight on money they decided to live in the same building that housed their first store.
3. In the beginning Whole Foods did not sell meat or products containing sugar, caffeine, alcohol, or white flour. But focusing on such a narrow product assortment caused the company to lose half of its initial investment in the first year. “If your philosophy is too Puritan,” Mackey says, “you can’t do enough business to be successful.” “We decided we were not going to be Holy Foods Market.” “We were gonna sell foods our generation wanted to buy.” “still organic, still no artificial flavorings, colorings, or preservatives, and still focused on health, just not in a full of judgment way.”
4. In 1981 the historic Memorial Day Floods occurred, the worst flood in 70 years. The company’s only Whole Foods store was completely flooded, swimming in seven feet of water. The flood destroyed Whole Foods’ inventory and caused $400,000 in damages. That’s a small amount for Whole Foods now but at the time Whole Foods did not have any insurance. It looked like Whole Foods would go under literally and figuratively.
But the local community stepped in to save the retailer. Creditors, investors and vendors gave the grocery retailer the space to get back on solid footing. Whole Foods ended up back in businesses after only 28 days. “By all rights, Whole Foods should have died through that flood. We had to rebuild the store and it was going to cost a lot of money to do that and we just didn’t have the money, so I thought, we all thought, we were finished,” said Mackey.
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5. In 1988 as Mackey tried to get funding to expand his company he was rejected by a number of venture capitalists. One venture capitalist even told Mackey this: “you know, John, I see you have got a pretty good business here, but it looks to me — I looked at all the stores — like you are a just a bunch of hippies and you are just selling food to other hippies and I don’t think that is a very big market.” Ten years later that very same venture capitalist told Mackey that not investing in Whole Foods was the worst decision he had ever made.
6. In Whole Foods’ early years they company fuelled its growth by acquiring other natural food stores. It would often enter a new market through an acquisition.
7. When Mackey was 40 years old he asked his dad who was on Whole Foods’ board to resign. He was tired of arguing with his dad about the best way to grow Whole Foods. “We were constantly arguing about whether we should do this store, whether we should make this acquisition. I just found him way too conservative.” “[It was] the hardest thing I’ve ever done,” Mackey says. “I had to overcome a lot of fear, because I was dependent on my dad, emotionally and intellectually. I knew it hurt him a lot, he felt rejected, so I felt guilty. It was a painful decision, and that pain lasted a while.”
8. Whole Foods went public in 1992 to help capitalize the business. “Our company was capitalized with $45,000, and we lost $23,000 our first year. Overcoming that cash flow problem was a real challenge, and until Whole Foods went public in 1992, so for 14 years, we never had enough money,” says Mackey. It was always about making sure we had enough to make payroll, enough to pay our suppliers, that was definitely the biggest issue.”
9. Another reason for going public was to rid the company of a number of venture capitalists that had invested in the company. Mackey said this about his decision to go public: “that decision was really made when we decided to raise venture capital money four years earlier. At that point, we wanted to continue to grow but had outrun our ability to get funding from friends and family. So we turned to venture capitalists, who I have learned are like hitchhikers with credit cards. They get in your car, and as long as you take them where they want to go, they will help pay for the gas. But if you get lost or wander off the road you promised you were going down, they will hijack the car, throw you out and bring in a new driver.”
“We were very conscious that we had taken on these hitchhikers who wanted to get to an exit. So, we needed a plan, and we only had two options, one, we could sell the company, or two, we could take it public,” says Mackey.
10. By 2007, 27 years after Whole Foods started, it passed $1 billion in revenue with 70 stores in operation.
11. As the popularity of Whole Foods grew so did its competition. Lower cost retailers like Walmart starting selling organic food and by 2015 Walmart was the largest seller of organic food in the United States. “At first, we really didn’t pay any attention to price, because there was no one out there selling the same foods we were,” says Mackey. “Supermarkets back then weren’t carrying organic milk and organic produce. If you’re successful, though, you will eventually spawn imitators and competitors, and once that started happening, we had to work to become more efficient and price conscious.”
12. Amazon, looking to boost its share in the grocery sector, bought Whole Foods for $13.7 billion in 2017. Mackey says that Whole Foods has a good working relationship with Amazon. “The best way to put it would be: if we had to make the decision all over again, would we make this decision? The answer is yes, because Amazon’s been a great partner,” says Mackey. “They’ve helped us evolve; they’ve helped us get better at technology, delivery. We’re taking on the parts at Amazon that can help Whole Foods be a better company, but they haven’t tried to consciously change our culture.”
“Does that mean I love absolutely everything about Amazon? No. I don’t,” Mackey said. “I don’t love absolutely everything about my wife, either, but on balance, I love like 98 percent. That’s a pretty good ratio based on my previous relationships.”