Incorporated: 1980
NAIC: 445110 Supermarkets and Other Grocery (except Convenience) Stores
Whole Foods Market, Inc. is the leading chain of natural food supermarkets in the United States. The company's stores average 28,500 square feet in size and feature foods that are free from artificial preservatives, colors, flavors, and sweeteners. They also offer many organically grown products. Many locations include in-store cafes and juice bars. Whole Foods has also developed a growing line of private label products such as organic pasta, freshly roasted nut butters, oak-aged wine vinegars, and aromatic teas. After the company was founded in 1980 with a single store, it grew dramatically into a chain of more than 130 stores in 25 states, the District of Columbia, and Canada. It is a Fortune 1000 company, ranked as the 41st largest U.S. supermarket and the 730th largest U.S. company overall.
The company was founded in Austin, Texas, in 1980 when the first Whole Foods Market opened on September 20. The company's founders were Craig Weller and Mark Skiles, owners of the Clarksville Natural Grocery, and John Mackey, owner of Safer Way Natural Foods. Mackey, a self-described hippie who had dropped out of the University of Texas a few credits shy of gaining a philosophy degree, had cajoled $45,000 out of family and friends to open Safer Way, a small health food store, in Austin in 1978. Age 25 at the time, Mackey had, as he described it, "had the natural foods conversion," and wanted to convert others.
Natural food stores first began to appear in the United States in the late 1960s as an outgrowth of the 1960s counterculture. Well into the 1970s, these stores were typically small, rather dingy and unattractive, and often poorly managed. The Whole Foods Market that Mackey, Weller, and Skiles opened in 1980 after they decided to merge their businesses was huge--12,500 square feet--by comparison; it was, in fact, a supermarket. This was not the first natural food supermarket but there were less than half a dozen others at the time, and the immediate success of Whole Foods Market showed that the founders had gotten the formula right.
That first store included but went well beyond the typical fare of natural food stores--organic fruits and vegetables, dried beans, and whole grains. Also available were fresh fish, all-natural beef, locally baked bread, and selections of cheese, beer, wine, and coffee that far exceeded that offered by conventional supermarkets. The store's selection, neat and clean appearance, and helpful staff of 19 attracted not only those already "converted" to natural foods, but also people who had never stepped into one of the smaller health food stores. Mackey and his partners also found out early on that many people were willing to pay a premium price for food products considered more healthful, more nutritious, or simply devoid of artificial ingredients.
Unfortunately, on Memorial Day in 1981, Austin suffered from its worst flood in 70 years. The Whole Foods Market was caught in the flood's path, with $400,000 in resulting uninsured losses; the entire store inventory was wiped out and much of the equipment was damaged. Nevertheless, the store was reopened only 28 days later thanks to the cooperation of creditors, investors, customers, and staff alike.
By 1985, two more Whole Foods Markets had opened in Austin and another in Houston. The company suffered a setback, however, when it ventured beyond retailing by opening a restaurant in 1985 that subsequently failed, costing Whole Foods $880,000 in the process. In these early years, Mackey clearly emerged as the company leader; Skiles left the company in 1986, while Weller headed up Texas Health Distributors, the wholesale division of the company founded in 1980, which served both the company's stores and other natural food stores and restaurants.
In October 1986 Whole Foods made its first purchase of an existing store, when it bought the Bluebonnet Natural Foods Grocery in Dallas and converted it into a Whole Foods Market. From this point forward, the company expanded both by purchasing existing natural food stores or chains and by opening new stores. The expansion program was a gradual one, ensuring that Whole Foods did not grow too quickly. Typically, each year saw the addition of one new store in each existing region as well as the addition of a new region.
In May 1988 Whole Foods ventured outside Texas for the first time when it acquired the Whole Food Company, which operated a large natural food supermarket in New Orleans. This store had opened in 1981, having replaced the Whole Food Company's first store that had debuted in October 1974. Later in 1988, the seventh Whole Foods Market was opened in Richardson, Texas.
The president of the Whole Food Company, Peter Roy, stayed with Whole Foods following the purchase and in July 1988 moved to California to help launch a new region. In January of the following year, the first California store opened in Palo Alto.
Whole Foods next launched a private label called Whole Foods in January 1990. For the majority of the products in this line, the company sought out smaller manufacturers located in the "right" region--a salsa maker in Texas, a producer of pasta in Marche, Italy--who were committed to producing quality organic products. The private label proved quite successful, generating healthy margins and brand loyalty that helped to encourage customers to return to Whole Foods Market despite an increasingly competitive market. In just a few years, the Whole Foods label included more than 500 stock-keeping units (SKUs) within 22 categories.
From the beginning Mackey espoused a team-oriented atmosphere at Whole Foods, believing that management and staff should work together to attain the company's goals. In such an environment he believed that workers did not need unions, that they were "beyond unions." Nonetheless, he and his company were at various times accused of being anti-union, a charge that first surfaced in 1990 when the company opened its second California store in Berkeley at the location of a Berkeley Co-Op that had closed. Starting on the day of the grand opening, the United Food and Commercial Workers local set up a picket line to protest that the store paid its workers from $1 to $5 less per hour than other supermarkets paid comparable employees and that Whole Foods had practiced discriminatory hiring in terms of age and race, the store having failed to hire a single person who had worked at the Co-Op. Picketing continued for the next 18 months to no avail. In the years that followed, similar union protests occurred at newly opened Whole Foods Markets in such union strongholds as Los Gatos, St. Paul, and Madison, Wisconsin.
During 1991 Texas Health Distributors (THD) moved into a new, 85,000-square-foot facility. As Whole Foods expanded, however, the company decided that it needed a warehouse and distribution center in each of its regions to better serve its increasingly far-flung stores. THD was eventually transformed into the central distribution center for the Southwest Region, serving stores in Texas and Louisiana.
In November 1991 the company acquired Wellspring Grocery, Inc. and its two natural food supermarkets in Durham and Chapel Hill, North Carolina. Wellspring had been founded in March 1981 by Lex and Anne Alexander. This buyout marked the beginning of Whole Foods' Southeast region. Unlike in previous purchases, this time Whole Foods decided to retain the Wellspring Grocery name, in order not to alienate existing customers. In October 1992, a third Wellspring opened its doors in Raleigh, along with Wellspring Distributors, which was launched to serve as the region's central distribution center. Lex Alexander stayed with Whole Foods, becoming director of private label products.
By the end of 1991 Whole Foods had 10 stores, more than 1,100 employees, sales of $92.5 million, and net profits of $1.6 million. It had quickly become the largest chain of natural food stores in the country. The company went public in January 1992 through an initial public offering, raising $23.4 million in the process. A secondary offering in 1993 raised an additional $35.4 million. Backed by this war chest, Whole Foods subsequently grew rapidly, moving in concert with a rapidly expanding industry. From 1990 to 1996, sales of natural products in the United States more than doubled, increasing from $4.22 billion to $9.14 billion, while organic sales grew from $1.0 billion to $2.8 billion during this same period.
Whole Foods' $26.2 million acquisition of Bread & Circus in October 1992 brought with it six stores in Massachusetts and Rhode Island and a central distribution center in Boston which served Whole Foods' new Northeast region. Bread & Circus was founded by two students of macrobiotics, Anthony and Susan Harnett, when they purchased a store in Brookline, Massachusetts, in 1975. The name derived from the first store's unusual product line: natural foods and wooden toys. The Harnetts subsequently opened stores in Cambridge, Wellesley, Hadley, and Newton, all in Massachusetts; and in Providence, Rhode Island. In 1991 they relocated the Brookline store to Brighton, Massachusetts. When acquired by Whole Foods, Bread & Circus was the Northeast's largest retailer of natural foods and enjoyed an outstanding reputation for its produce, meat, and seafood departments. As with Wellspring Grocery, Whole Foods decided to keep the Bread & Circus name. Following the acquisition, two additional Bread & Circus stores opened in the Boston area. One other consequence of the buyout was that Mackey was accused of union busting, since the stores' employees had been unionized but voted against union representation following the takeover.
In February 1993 Whole Foods acquired a majority interest in The Sourdough: A European Bakery, which had been providing breads to the stores in Texas and Louisiana for a number of years. The move enabled the company to leverage the expertise of master bakers through an apprenticeship program. Whole Foods also went on to open bake houses in all of its operating regions.
Whole Foods launched a Midwest region in March 1993 with the debut of a Lincoln Park store in Chicago. Over the next few years, additional stores were opened in the Chicago area, as well as in Ann Arbor, Michigan; St. Paul, Minnesota; and Madison, Wisconsin. Also in 1993, Peter Roy, who had been serving as president of the company's northern California region, was appointed president and chief operating officer in August. Mackey remained chairman and chief executive officer (he had also been president; the COO position was new). With the appointment, Whole Foods' regional presidents now reported directly to Roy, who was also charged with coordinating national purchasing, distribution, and vendor programs.
In September 1993 Whole Foods made an even larger acquisition than Bread & Circus when it paid $56 million for Mrs. Gooch's Natural Food Markets, a chain of seven stores in the Los Angeles area with 1992 sales of approximately $85 million. Mrs. Gooch's, which was the nation's number two retailer of natural foods at the time of the buyout, had been founded in 1977 by Sandy Gooch, a homemaker and former grade school teacher, and Dan Volland, who ran three health food stores in southern California. The two opened the first Mrs. Gooch's in west Los Angeles in January 1977, then added six more over the next decade. In 1987 the chain opened a distribution center, which, following the takeover, became Whole Foods' central distribution center for its new southern California region.
Mrs. Gooch's stores, which operated under the name Mrs. Gooch's Whole Foods following the acquisition, traditionally had a slightly different product mix than Whole Foods Markets. Sandy Gooch did not sell any product that contained white flour or sugar and did not offer beer or wine, either. Whole Foods subsequently added these products to the stores, as well as its Whole Foods private label items, although it did keep some Mrs. Gooch's brand products.
During fiscal year 1995, Whole Foods made several small acquisitions. In February the company acquired Bread of Life and its two stores in the San Francisco Bay area, as well as the Unicorn Village Marketplace in North Miami Beach, Whole Foods' first location in Florida. In December, the Oak Street Market in Evanston, Illinois, was added to the company fold. All four of these stores subsequently operated under the Whole Foods Market name.
In July 1996, as part of a restructuring of the southern California operations, the company began to transform the Mrs. Gooch's stores so that they would completely resemble other Whole Foods stores, including having them adopt the Whole Foods Market name. The change in name apparently resulted in a 5 to 10 percent sales drop--in a testament to customer loyalty--but company officials were confident that this was a temporary phenomenon. Nevertheless, in the future Whole Foods was more cautious about changing the names of acquired stores.
By January 1996 the company had 43 stores in ten states, with plans for about a dozen more to be opened in 1996 and 1997. Many of the newer stores were much larger than the 22,000-square-foot company average. With 30,000 to 40,000 square feet, Whole Foods was finding that it could generate sales of $15 million a year from a single store. Company management, meanwhile, was setting aggressive expansion targets: 100 stores and $1.5 billion in sales by 2000 (fiscal 1995 sales were $496.4 million).
Whole Foods took a giant step toward achieving these goals in September 1996 when it acquired the 22-store Fresh Fields chain, its closest rival, for $135 million in stock. Fresh Fields had been founded only in May 1991 but had grown more rapidly than any other natural food chain. It had stores in four different market areas: Washington and Baltimore; Philadelphia; New York, New Jersey, and Connecticut; and Chicago. One of Fresh Fields' founders was Leo Kahn, who had previously found retailing success by building the Purity Supreme and the Staples office supplies superstore chains.
Following the acquisition, Fresh Fields stores in Chicago and Washington, D.C., were closed, while three other Chicago stores became part of Whole Foods' Midwest region. Four stores in the greater New York City area were folded into the Northeast region, a store in Charlottesville was added to the Southeast region, and the remaining 12 Philadelphia and Baltimore area stores were combined with four Bread & Circus stores to create a new Mid-Atlantic region. The Chicago stores were converted to the Whole Foods Market name because the company was already established there, but name changes at other Fresh Fields stores were placed on the back burner.
In March 1997 Whole Foods bolstered its operations in Florida with the purchase of a two-store Bread of Life chain. Bread of Life had been founded in 1990 by James Oppenheimer and Richard Gerber with the opening of a 7,000-square-foot location in Fort Lauderdale. The cofounders then opened a 30,000-square-foot store in Plantation in 1995 and had in development a 33,000-square-foot store in Coral Springs scheduled for opening in fiscal 1998. At least initially these stores would retain the Bread of Life name, and, along with the Whole Foods Market in North Miami Beach, formed a newly created Florida region, headed up by Oppenheimer as regional president and Gerber as regional vice-president.
In the spring of 1997, in a move designed to contain costs and improve productivity, Whole Foods began to roll out a centralized purchasing system. Installed systemwide by the end of 1997, the system enabled the company to track product movement and prices. Also that spring, Whole Foods launched a low-priced private label called 365, which was meant to denote value every day of the year. The 365 line differed from the Whole Foods line in that 365 did not feature organic products and the 365 products were priced about 20 percent cheaper. The new label was meant to attract more value-conscious customers, people who typically shopped at conventional supermarkets.
In June 1997 Whole Foods acquired Amiron Inc.--a manufacturer and marketer of nutritional supplements and natural medicinals based in Boulder, Colorado--in a stock swap that translated into about a $138 million purchase price. Amiron was formed in 1987 by Mark Crossen and his father, Henry Morgan Crossen. The father had read about a compound that was supposed to strengthen the heart muscle; the Crossens then ordered some and found that it relieved their genetically caused irregular heartbeats. Amiron was founded to market this compound to others and the company expanded into other nutritional supplements, eventually producing more than 200 such products. The Crossens took the company public in 1988 and by 1996 posted net income of $4.5 million on sales of $54 million, 85 percent of which was generated through direct mail and catalog orders.
In 1996 the Crossens decided that it was time to sell Amrion or merge it with another firm, since they wanted to reach a broader market and knew that they had to step up their retail presence to do so. By joining forces with Whole Foods, Amrion would gain dozens of outlets at which its products could be sold. Amrion would take over the manufacture of the Whole Foods brand of nutritional supplements and further expand this line. Whole Foods would also gain Amrion's expertise in selling these items through catalogs and the World Wide Web. Following the acquisition, Amiron became an "autonomous subsidiary" of Whole Foods and Mark Crossen remained Amrion's CEO and also joined Whole Foods' board of directors.
Whole Foods ended 1997 with two additional acquisitions, both in December. It entered the Detroit area with the purchase of Merchant of Vino for $41.2 million in stock. This company owned four natural foods supermarkets and two wine and gourmet stores with 10-month sales of $42 million. It also acquired its longtime supplier, Allegro Coffee Company, for about $7.5 million in stock.
By 1998, Whole Foods and its sole major competitor, Wild Oats Markets, Inc., had purchased most natural foods businesses that had a significant number of stores. The company therefore slowed its pace of acquisition. It further expanded its Boston-area holdings in 1999 with the purchase for $24.5 million in cash of Nature's Heartland, the owner of four natural foods supermarkets. Later that year, Whole Foods spent about $3.6 million to buy 16 percent of Real Goods Trading Corporation, a retailer of environmental and renewable energy products by means of retail stores, catalogs, and the Internet.
In 2000, Whole Foods purchased Natural Abilities, the operator of three stores in Sonoma County, California, for $25 million. This transaction brought the company's Northern California presence to 12 stores. The 2001 acquisition of Harry's Farmer's Markets for about $35 million brought Whole Foods to Atlanta. This purchase also contributed to what Chairman Mackey called the company's "intellectual capital." The three stores were much larger even than Whole Foods', averaging over 70,000 retailing square feet. More important was the business' focus on perishables, with about 75 percent of its sales fitting that category. Mackey expected to "leverage" Harry's large store and perishables experience "across the Company."
Not only did Whole Foods expand geographically, it also tried to add the Internet to its methods of distribution. In March 1999, it launched Wholefoods.com, with the stated intention "of being the number one retailer of natural products online." By September further plans were announced to merge Amirn, the company's natural supplement subsidiary, with Wholefoods.com to create Wholepeople.com. This venue would combine Whole Foods offerings with those of Amiron, Real Goods Trading Corporation and other businesses focused on "the natural lifestyle." The company hoped to create a site that would "become the homepage for a community of people who share common values about healthy lifestyles and supporting the environment and who are looking for a wide range of high-quality products at competitive prices that are consistent with those values and interests." Whole Foods hoped to be able to spin Wholepeople.com off as a separate public company within a year.
Before Wholepeople.com could be launched, however, the bottom fell out of Internet stocks. Moreover, Amiron itself was suffering from a downturn in the natural supplement market. Whole Foods quickly exited both businesses, selling Whole people.com to the successful Internet company Gaiam.com in exchange for Gaiam stock in 2000, and selling Amiron (then named NatureSmart) to NTBY for about $28 million cash in 2001.
As Whole Foods entered the 21st century, it was by far the dominant natural foods supermarket in the United States. With the opening of a store in Toronto, Ontario, Canada, in May 2001 and plans to open one in Vancouver, it became an international company. It was also making plans to compete more directly with traditional supermarkets.
Principal Subsidiaries
Whole Foods Market Services (100%); WFM Beverage Corp. (100%); Whole Foods Market Southwest I, Inc. (100%); Whole Foods Market Southwest Investments, Inc. (100%); Whole Foods Market California, Inc. (100%); Mrs. Gooch's Natural Foods Markets, Inc. (100%); Whole Foods Market Group, Inc. (100%); Allegro Coffee Company (100%); Whole Foods Market Distribution, Inc. (100%); Whole Foods Market IP, Inc. (100%); Whole Foods Market Finance, Inc. (100%); Whole Foods Market Purchasing, Inc. (100%); Fresh Fields Markets Canada, Inc. (100%).
Principal Competitors
Wild Oats Markets; Trader Joe's Co.
Further Reading
Algeo, David, "Whole Foods Buying Colo. Vitamin Maker," Denver Post, June 11, 1997, pp. 1C, 8C.
Appin, Rick, "Natural Food Has Healthy M&A Levels," Merger and Acquisitions Report, August 16, 1999.
Breyer, R. Michelle, "Whole Foods Spells Out Recipe for Growth," Supermarket News, March 31, 1997, pp. 1, 7.
Brooks, Nancy Rivera, "From Gooch to High Gloss," Los Angeles Times, July 24, 1996, pp. D1, D7.
Del Franco, Mark, and Moira Cotlier, "Mergers and Acquisitions," Catalogue Age, September, 2000, Financial Update.
Gattuso, Greg, "Nature Trails: The Two Main Natural-Food Players Chart a Course for Rapid Growth," Supermarket News, March 24, 1997, pp. 1, 11, 14, 61.
George, Lianne, "Green Grocer," Report on Business Magazine, April 26, 2002, http://www.robmagazine.com.
Hammel, Frank, "Green Goes Gourmet," Supermarket Business, April 1996, pp. 103-7.
Ismail, Adam H., "Feeling Just Fine," The Daily Deal, May 21, 2001, Industry Insight.
Lee, Louise, "Whole Foods Swallows up Nearest Rival," Wall Street Journal, June 19, 1996, pp. B1, B6.
Locke, Tom, "Colorado Pharmaceutical Amrion Inc. at a Crossroads," Daily Camera (Boulder, Colo.), November 19, 1996.
Loro, Laura, "Doing What Comes Naturally: Whole Foods and Fresh Fields Grow Their Own Strategies," Advertising Age, August 6, 1994, p. 22.
Mack, Toni, "Good Food, Great Margins," Forbes, October 17, 1998, pp. 112-13, 115.
Mackey, John, "Beyond Unions: The CEO of Whole Foods Market Explains Why Workers Don't Need Unions," Utne Reader, March/April 1992, pp. 75-77.
Murphy, Kate, "Organic Food Makers Reap Green Yields of Revenue," New York Times, October 26, 1996, pp. 37, 39.
Patoski, Joe Nick, "John Mackey: Winning the Food Fight," Texas Monthly, September 1996, pp. 119, 148.
"Real Goods Sells 16% of Company to Whole Foods Market," PR Newswire, September 23, 1999, http://www.prnewswire.com.
Riedman, Patricia, "Whole Foods Enters Tough Online Grocery Sales Arena," Advertising Age, March 22, 1999, p. 40.
Saxton, Lisa, "Leo Kahn's Fresh Start," Supermarket News, August 17, 1992, pp. 1, 40-41, 46-47.
Tosh, Mark, "Whole Foods' Natural Progression," Supermarket News, December 20, 1993, pp. 1, 44-45.
"Whole Foods Buys Natural Abilities," DSN Supercenter & Club Business, January 24, 2000, p. 3.
"Whole Foods Market," Chain Store Age Executive, April 2002, p. 20.
"Whole Foods Market to Launch E-commerce Subsidiary," PR Newswire, February 22, 1999, http://www.prnewswire.com.
"Whole Foods Market to Sell NatureSmart," Neutraceuticals World, June 2001, p. 107.
"Whole Foods Merger," MMR, July 24, 2000, p. 12.
"Whole Foods to Buy Merchant of Vino," The New York Times, November 6, 1997, p. D4.
"A 'Whole' Lot of Living Going On," Internet Retailer, May 2000, p. 12.
— David E. Salamie; Updated by Anne L. Potter
