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Whole Foods Market, Inc.

Whole Foods Market, Inc.

601 North Lamar Boulevard, Suite 300
Austin, Texas 78703
U.S.A.
Telephone: (512) 477-4455
Fax: (512) 477-1301
Web site: http://www.wholefoods.com

Public Company
Incorporated:
1980
Employees: 20,800
Sales: $2.3 billion (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: WFMI
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 companys 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.

1980-1988: Foundation and Expansion in Texas

The company was founded in Austin, Texas, in 1980 when the first Whole Foods Market opened on September 20. The companys 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 huge12,500 square feetby 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 storesorganic 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 stores 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 floods 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 companys 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.

1988-1991: Company Expands Beyond Texas

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 Companys 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 regiona salsa maker in Texas, a producer of pasta in Marche, Italywho 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 companys 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 regions central distribution center. Lex Alexander stayed with Whole Foods, becoming director of private label products.

1991-1997: Challenges of a National Operation

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.

Company Perspectives:

Our mottoWhole Foods, Whole People, Whole Planetemphasizes that our vision reaches far beyond just being a food retailer. Our success in fulfilling our vision is measured by customer satisfaction, Team Member excellence and happiness, return on capital investment, improvement in the state of the environment, and local and larger community support.

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 stores unusual product line: natural foods and wooden toys. The Harrietts 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 Northeasts largest retailer of natural foods and enjoyed an outstanding reputa tion 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 companys 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. Goochs Natural Food Markets, a chain of seven stores in the Los Angeles area with 1992 sales of approximately $85 million. Mrs. Goochs, which was the nations 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. Goochs 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. Goochs stores, which operated under the name Mrs. Goochs 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. Goochs 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. Goochs 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 dropin a testament to customer loyaltybut 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).

Key Dates:

1980:
Whole Foods Market incorporates; opens first store in Austin, Texas.
1985:
The company owns three stores in Austin and one in Houston.
1986:
The company buys Bluebonnet Natural Foods Grocery in Dallas, converts it to a Whole Foods Market.
1988:
The company buys Whole Food Company of New Orleans, its first venture outside Texas.
1989:
The company opens store in Palo Alto, California.
1990:
The company launches a private label, Whole Foods.
1991:
The company acquires Wellspring Grocery of North Carolina.
1992:
The company buys Bread and Circus of Massachusetts and Rhode Island.
1993:
The company launches a Midwest Region with the opening of a store in Chicago.
1995:
The company buys Bread of Life in San Francisco area, the Unicorn Village Marketplace in North Miami Beach, and Oak Street Market in Evanston, Illinois.
1996:
The company acquires the 22-store Fresh Fields chain.
1997:
The company buys Amiron, a manufacturer and distributor of natural supplements, and acquires Merchant of Vino of Detroit and the Allegro Coffee company.
1999:
The company buys Natures Heartland of Boston and acquires a 16% interest in the Real Goods Trading Corporation; also launches Wholefoods.com, which is soon transformed intoWholepeople.com.
2000:
The company purchases Natural Abilities of Sonoma County, California, and Harrys Farmers Markets of Atlanta; sellsWholepeople.com.
2001:
The company sells Amiron.
2002:
The company opens a store in Toronto, Ontario, Canada.

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.

1997-2002: Centralization, Abortive Moves Beyond Grocery Business and Retrenchment

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, Coloradoin 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 Amrions 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 Amrions 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 Natures 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 companys Northern California presence to 12 stores. The 2001 acquisition of Harrys Farmers Markets for about $35 million brought Whole Foods to Atlanta. This purchase also contributed to what Chairman Mackey called the companys 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 Harrys 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 companys 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. Goochs 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 Joes 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. Dl, 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. Bl, 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 Dont 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 Kahns 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

update: Anne L. Potter

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Whole Foods Market, Inc.

Whole Foods Market, Inc.

601 North Lamar Boulevard, Suite 300
Austin, Texas 78703
U.S.A.
(512) 477-5566
Fax: (512) 477-1301
Web site: http://www.wholefoods.com

Public Company
Incorporated: 1980
Employees: 9,848
Sales: $892.01 million (1996)
Stock Exchanges: NASDAQ
SICs: 2833 Medicinal Chemical & Botanical Products; 5122 Drugs, Drug Proprietaries & Sundries; 5148 Fresh Fruits & Vegetables; 5499 Miscellaneous Food Stores; 5961 Catalog & Mail Order Houses

Whole Foods Market, Inc. is the leading chain of natural food supermarkets in the United States. The companys stores average 22,000 square feet in size and feature foods organically grown, free of artificial ingredients, and that have not been irradiated; no product is sold that has been tested on animals. 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 dramaticallyinto a chain of more than 75 stores in 18 states and the District of Columbia, in less than two decades. Much of the growth has been fueled by acquisitions of other chains of natural food stores, so that the companys stores operate under five different names: Whole Foods Market, Bread & Circus, Fresh Fields, Wellspring Grocery, and Bread of Life. Whole Foods also manufactures and distributes vitamins and nutritional supplements through its Amrion Inc. subsidiary acquired in mid-1997.

Founded by Hippie and Partners in Austin, Texas, in 1980

The company was founded in Austin, Texas, in 1980 when the first Whole Foods Market opened on September 20. The companys 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 huge12,500 square feetby 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 storesorganic 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 stores 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 floods 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.

Expanded to Eight Stores by the End of the 1980s

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 companys 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 Companys first store which 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 regiona salsa maker in Texas, a producer of pasta in Marche, Italywho 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.

Team Approach Clashed with Union Advocates in Early 1990s

From the beginning Mackey espoused a team-oriented atmosphere at Whole Foods, believing that management and staff should work together to attain the companys 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 antiunion, 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.

Company Perspectives:

Whole Foods Market is a dynamic leader in the quality food business. We aim to set the standards of excellence for grocers. We are building a business in which quality permeates all aspects of our company. Quality is a state of mind at Whole Foods Market.

We recognize that our success reaches far beyond the company by contributing to the quality of life renaissance occurring here on earth. We are willing to share our successes and failures, our hopes and fears, and our joys and sorrow with others in the quality food business. Moreover, we have a responsibility to encourage more people to join us in the quality food business, to adopt higher standards of excellence, and generally to contribute wherever and whenever it makes sense to the quality of life renaissance. The future we will experience tomorrow is created one step at a time today. The success of our business is measured by customer satisfaction, Team Member happiness, return on capital investment, improvement in the quality of the environment, and local and larger community support.

Our ability to instill a clear sense of interdependence among our various stakeholders (the people who are interested and benefit from the success of our company) is interconnected with our desire and efforts to communicate more often, more openly, and more compassionately. Better communication equals better understanding and more trust.

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 regions 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 was the firms largest to date, bringing 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 stores unusual product line: natural foods and wooden toys. The Harrietts subsequently opened stores in Cambridge, Wellesley, Hadley, and Newton, all in Massachusetts; and in Providence, Rhode Island. They also in 1991 relocated the Brookline store to Brighton, Massachusetts. When acquired by Whole Foods, Bread & Circus was the northeasts 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.

Minor and Major Acquisitions Marked the Mid-1990s

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 companys 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. Goochs Natural Food Markets, a chain of seven stores in the Los Angeles area with 1992 sales of approximately $85 million. Mrs. Goochs, which was the nations 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. Goochs 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. Goochs stores, which operated under the name Mrs. Goochs 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. Goochs brand products also.

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. Goochs 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 dropin a testament to customer loyaltybut 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/Baltimore, Philadelphia, New York/New Jersey/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 for the time being.

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 Amrion Inc.a manufacturer and marketer of nutritional supplements and natural medicináls based in Boulder, Coloradoin a stock swap that translated into about a $138 million purchase price. Amrion 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. Amrion 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 bjr!996 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 Amrions expertise in selling these items through catalogs and the World Wide Web. Following the acquisition, Amrion became an autonomous subsidiary of Whole Foods and Mark Crossen remained Amrions CEO and also joined Whole Foods board of directors.

Through the first half of fiscal 1997, overall sales for Whole Foods had increased 20 percent over the same period in 1996, and the company was well on its way to surpassing the $1 billion sales level for the year. The company set a new target of expanding to 140 stores by 2003, with most of the new stores coming through organic growth since Whole Foods had swallowed up most of its rivals. With Fresh Fields now in tow, the companys chief rival had become another Boulder-based company, Wild Oats Markets Inc., a 44-store chain of smaller (14,000-square-foot average) stores located primarily in the mountain states but also expanding into such Whole Foods territories as Los Angeles and San Francisco. In response to this challenge from Wild Oats (which Whole Foods had tried to purchase prior to the Fresh Fields acquisition but had backed away because the price was too high), Whole Foods planned to enter several markets dominated by the competitor, including St. Louis, Salt Lake City, Denver, and even Boulder itself. The company also wanted to eventually enter the fast-growing Northwest region of the country. Additional pressure was being placed on Whole Foods from conventional grocers, who responded to the burgeoning natural food market by increasing shelf space allotted to organic and natural foods within conventional supermarkets and by experimenting with stand-alone natural food stores of their own. Nevertheless, with an aggressive yet not overreaching approach to growth and with expertise in the natural food arena matched by no one else, Whole Foods Market, Inc. seemed well-positioned to meet the challenges of the early 21st century.

Principal Subsidiaries

Amrion Inc.

Principal Operating Units

Private Label Products; Texas Health Distributors; Florida Region; Mid-Atlantic Region; Midwest Region; Northeast Region; Northern California Region; Southeast Region; Southern California Region; Southwest Region.

Further Reading

Algeo, David, Whole Foods Buying Colo. Vitamin Maker, Denver Post, June 11, 1997, pp. 1C, 8C

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. DI, D7.

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.

Hammel, Frank, Green Goes Gourmet, Supermarket Business, April 1996, pp. 103-107.

Lee, Louise, Whole Foods Swallows Up Nearest Rival, Wall Street Journal, June 19, 1996, pp. Bl, 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. 112-113, 115.

Mackey, John, Beyond Unions: The CEO of Whole Foods Market Explains Why Workers Dont 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.

Saxton, Lisa, Leo Kahns 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.

David E. Salamie

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Whole Foods Market, Inc.

Whole Foods Market, Inc.

founded: 1980



Contact Information:

headquarters: 601 north lamar, suite 300
austin, tx 78703 phone: (512)477-4455 fax: (512)476-1069 url: http://www.wholefoodsmarket.com

OVERVIEW

Whole Foods Market (WFM) is the largest natural and organic supermarket chain in the world. In February 2002, it had 129 stores in 23 states and the District of Columbia. The company planned to open three to five stores in each quarter of 2002, about 25 percent of them in new markets such as Toronto and Las Vegas. Its stores are supported by regional distribution centers, bakeries, commissary kitchens that supply prepared foods, a seafood processing facility, a produce procurement and field inspection office, and a coffee roasting operation.

Year 2001 store openings included Whole Foods Market's first foray into Manhattan, a 40,000 square foot store in Chelsea, which it reports has become one of its ten highest volume stores—along with new stores opened in Denver and Washington, D.C. Whole Foods Market is a Fortune 1000 company, ranked in April 2002 by Fortune magazine the 633rd largest U.S. company, ranked the 41st largest U.S. supermarket company by Supermarket News in 2001, and ranked for five consecutive years as one of the Top 100 Companies to Work For by Fortune magazine.

Whole Foods Market nutrition departments display a wide offering of vitamins, supplements, herbs and teas, homeopathic remedies, and information on alternative healthcare. Departments are staffed with team members having product knowledge and are organized and well-marked not only by product but by purpose, such as Joint Health, Stress Reduction, and Men's Health. Included with many brands are products under the Whole Foods and 365 labels.

In the Whole Foods Market 2001 Annual Stakeholder's Report, Board Chairman, President, and CEO John Mackey cited the company's mission, core values, and national quality goals, saying "We do not carry natural and organic products to help boost our sales. We carry natural and organic products because we believe that food in its purest state—unadulterated by artificial additives, sweeteners, colorings and preservatives—is the best tasting and most nutritious food available. We actively support organic farming because we believe it is the best method for promoting sustainable agriculture as well as for protecting the environment and farm workers. It is our authenticity as a wellness lifestyle brand that is our major competitive advantage. . .To understand and truly appreciate Whole Foods Market one must recognize that we are a mission-driven company. . .Our motto—Whole Foods, Whole People, Whole Planet—emphasizes that our vision reaches far beyond just being a food retailer."



COMPANY FINANCES

Whole Foods Market's net sales have been steadily increasing since 1998 and this was projected to continue through 2002. To illustrate, 1998 net sales were nearly $1.4 billion; net sales in 1999 were nearly $1.6 billion; 2000 net sales were approximately $1.8 billion; net sales in 2001 were nearly $2.3 billion; and 2002 net sales were projected to reach $2.6 billion.

Value Line, Fortune, and Stockgroup in company profiles describe World Foods Markets Inc. as the world's largest retailer of natural and organic foods, Fortune adding that WFM pioneered the health foods supermarket concept. Since its initial public offering on the NASDAQ at $8.50 per share in 1992, Whole Foods Market has twice announced a two-for-one stock split, the second coming in recession-plagued 2001. On April 4, 2002, its stock price was $44.58 with all cash dividends still being reinvested. It was classified by Value Line in February 2002 as a mid cap stock with a $2.3 billion market cap.



ANALYSTS' OPINIONS

On March 25, 2002, CBS MarketWatch reported its most recent analyst recommendations on Whole Foods Market stock: Bear Stearns rated it attractive, setting a $49 price target; REC Capital Markets rated it a top pick; and Merrill Lynch rated it an intermediate-term buy, setting a $50 price target.

Amy Schatz of Knight-Ridder/Tribune Business News reported on February 14, 2002 that Whole Foods Market profits for first quarter 2002 rebounded and were up 34 cents per share, or $20 million, due to stronger than expected sales. Her article indicated that this strong performance surprised analysts and was particularly significant because of WFM's failed ventures into mail-order vitamins and Internet sales leading to a loss of $49 million in 2000, and added, "The company's success at reaching beyond natural food junkies comes when its smaller competitors, notably Denver-based Wild Oats Market, Inc., have struggled."

Also in February 2002, Value Line raised its revenue estimates for Whole Foods Market based on its acquisition of the three Atlanta-area Harry's Food Markets perishable superstores. While cautioning that WFM's bottom line probably wouldn't benefit until at least fiscal 2003 because of Harry's recent negative comparable store sales and its former owner's financial inability to retain and attract customers, Value Line cited the Harry's acquisition as part of WFM's trend to larger-format stores, which shows strong sales performance. Value Line also expressed confidence in Whole Foods Market by increasing its estimate of the company's fiscal 2002 performance based on more than a ten percent increase in comparable store sales in 2001's faltering economy, the company's cautious setting of 2002 store growth at five to eight percent, and its increased recognition as a "lifestyle" brand by a loyal and economically stable customer base. Value Line ranked Whole Foods Market shares highest for year-ahead price performance and speculated that because WFM share earnings were near the top of their historical range, profit-taking might result.



HISTORY

In September 1978, John Mackey, Whole Foods Market Co-founder, Chairman, President, and CEO, opened SaferWay, a small health foods store in Austin, Texas; in 1979, the Clarksville Natural Grocery was opened in Austin by Craig Weller and Mark Skiles; and in September 1980, the three men joined forces to open the two stores as Whole Foods Market with a staff of 19.

Expansion began with the opening in August 1984 of a store in Houston and to April 2002 includes: the purchase of Bluebonnet Natural Foods in Dallas; the acquisition of three Wellspring Grocery stores in Raleigh, Durham, and Chapel Hill, North Carolina; the purchase of six stores from Bread & Circus, then the largest natural food retailer in the Northeast; the acquisition of Mrs. Gooch's Natural Foods Markets; the purchase of the San Francisco Bread of Life stores; the purchase of 22 Fresh Fields stores located in Washington, D.C./Baltimore, Philadelphia, New York/New Jersey/Connecticut, and Chicago markets; the acquisition of Florida Bread of Life stores; the acquisition of Amrion of Boulder, Colorado; the purchase of Allegro Coffee Company and Merchant of Vino stores; the acquisition of Nature's Heartland in Boston; the acquisition of Food for Thought in Northern California; the acquisition of three Natural Abilities, Inc. food stores in Sonoma County, California; and the merger of WholePeople.com with e-retailer Gaiam.com.

When Chairman and CEO John Mackey was asked about future growth, he said, "One of the concerns that has been expressed since we went public is: How big is this market? How big can it get? Seven or eight years ago, we didn't have any stores making $380,000 a week. Now that's the average. We're appealing to a broader range of customers. To me, this is all good news and it means we have a lot of expansion possibility ahead."



STRATEGY

In the mid-1990s, Whole Foods Market began to shift the purchase of products for retail sale from the store level to regional and national wholesale suppliers and vendors for better negotiation of volume discounts. In 2002, eight regional distribution centers distributed natural products, produce, and private label products to WFM stores in their respective regions. A Whole Foods Market seafood wharf, produce procurement center, specialty coffee roaster and distributor, and regional prepared food commissaries and bake houses also distribute products to stores.

In 1994 WFM's growth strategy turned to opening larger stores of between 30,000 to 50,000 square feet with expanded perishable departments, which in 2002 accounted for close to 65 percent of store sales. WFM believes that this larger store format with emphasis on high-quality perishables appeals to a broader customer base and is largely responsible for the strong new store performances it has been experiencing. The company also feels these larger stores are less vulnerable to competition over the longer term. In October 2001, to continue enlarging and improving its appeal to a more diverse customer base, WFM acquired three Harry's Farmers Markets—very large perishable superstores in the Atlanta area averaging more than 70,000 square feet each with approximately 75 percent of sales in perishables.

Because at year end 2001 Whole Foods Market regarded the natural foods retailing industry as highly fragmented into many smaller local and regional chains, its plan to open or acquire 15 to 20 stores in both fiscal 2002 and 2003 included the acquisition of smaller chains with desirable locations, markets, and experienced team members; relocation of existing stores; and new store openings. It also believed at that time that more future growth would come from developing new stores on premier real estate sites than from acquisition of existing stores.

FAST FACTS: About Whole Foods Market, Inc.


Ownership: Whole Foods Market, Inc. is a publicly owned company traded on the NASDAQ Stock Exchange.

Ticker Symbol: WFMI

Officers: John Mackey, Chmn., CEO, Pres., and Co-Founder, 48, $265,000; Glenda Flanagan, EVP and CFO, 48, $215,000; A.C. Gallo, EVP, 48, $220,000; Walter Robb, EVP, 48, $224,000; James Sud, EVP, 49, $215,000


Employees: 23,000

Principal Subsidiary Companies: Through mergers and acquisitions, Whole Foods Market owns and operates some stores under the following names: Wellspring, Fresh Fields, Bread & Circus, and Harry's Farmers Market.

Chief Competitors: Whole Foods Market, Inc.'s top competitors include other natural foods supermarkets, conventional and specialty supermarkets, other natural foods stores, small specialty stores, and restaurants. Fortune magazine in April 2002 named GNC, Trader Joe's Company, and Wild Oats Markets, Inc. as Whole Foods Market's three top competitors.




New stores are generally located in high-traffic shopping areas, often in urban high-population locales, and are either free standing or in a strip center. Site selection is through internal analysis of potential markets based on criteria such as education levels, population density, and income levels. In 2002, about 95 percent of existing stores were located in the top 50 metropolitan areas.

A part of its mission and a major component of its growth strategy is the company's use of what it calls a "team approach" to store operations to promote a strong company culture, which it believes empowers employees much more than traditional supermarket operations. Whole Foods Market stores employ "team members" who are organized into up to 11 teams, each led by a team leader. There is also a store team leader (manager). Each team is responsible for a different product category or aspect of store operations. In this decentralized team approach where many personnel, merchandising, and operating decisions are made by teams at the individual store level, Whole Foods Market emphasizes that an effective store team leader is critical to the success of the store. Store team leaders are paid a salary plus an Economic Value Added-based bonus and are eligible to receive stock options. There also is a gainsharing program rewarding a team's labor productivity. Team members are eligible for stock options through seniority, promotion, or at the discretion of senior regional or national leadership. Team members can purchase restricted stock at a discount through payroll deductions. WFM stock is an investment option within the company 401(k) plan.

In fiscal year 1999, Whole Foods Market, Inc. adopted an Economic Value Added (EVA) management and incentive system. EVA is equivalent to net operating profits after taxes minus a charge for the cost of capital necessary to generate that profit. WFM corporate management credits EVA with improved business decisions across the company's decentralized culture, where decisions are made at the store level, close to the customer, and considers it one of WFM's strongest competitive advantages. Says Chairman and CEO John Mackey, "Rather than taking decision-making authority away from local areas as we grow, we instead are developing tools for our team members to use to help them make better decisions. As a result, EVA is strengthening financial discipline in decisions made throughout the company." At fiscal year-end 2001, more than 350 leaders throughout the company were on EVA-based incentive plans that cover senior executive leadership, regional leadership, and the store leadership team in all stores.

Whole Foods Market says it spends less on advertising than conventional supermarkets, instead relying primarily on word-of-mouth recommendations from customers. Stores spend most of their marketing budgets on in-store signs and other printed material and store events such as taste fairs, classes, and product samplings. WFM promotes a natural and organic lifestyle by customer education initiatives beyond the store, including proactive public relations programs. WFM also seeks generation of customer appreciation and loyalty through in-store education about natural and organic foods, health, nutrition, and the environment as well as on its corporate Web site.

CHRONOLOGY: Key Dates for Whole Foods Market, Inc.


1980:

Two Whole Foods Market (WFM) stores open in Austin, Texas

1984:

WFM's first expansion outside Austin with store opening in Houston

1991:

WFM launches its Whole Foods premium private label

1992:

Whole Foods Market, Inc. goes public and is traded on NASDAQ; WFM purchases six Bread & Circus stores—the then largest natural foods retailer in Northeast

1993:

WFM stock splits two for one

1997:

WFM adds its 365 Every Day Value product line

1998:

First of five consecutive years that Fortune magazine names WFM one of its Best 100 Companies To Work For; WFM launches Whole Kids product line

2001:

WFM opens first store in Manhattan; Whole Foods Market stock splits two for one again




INFLUENCES

The success of Whole Foods Market, Inc.'s corporate strategy was described by Chairman and CEO John Mackey in the company's 2001 Annual Stakeholder's Report: "We believe that much of our success to date is because we remain uniquely mission driven. We are highly selective about what we sell, we believe in providing an empowering work environment for our team members and are committed to sustainable agriculture. Our motto is Whole Foods, Whole People, Whole Planet. We obtain our products locally and from all over the world, often from small, uniquely dedicated food artisans. We strive to offer the highest quality, least processed, most flavorful and naturally preserved foods. We recruit the best people we can to become part of our team. We empower them to make many operational decisions, creating a respectful workplace where team members are treated fairly and are highly motivated to succeed. We look for team members who are passionate about food but who are also well-rounded human beings who can play a critical role in helping to build our stores into profitable and beneficial parts of their communities." Mackey went on to say: "We believe companies, like individuals, must assume their share of responsibility for our planet. On a global basis, we actively support organic farming, which we believe is the best method for promoting sustainable agriculture and protecting the environment and farm workers. On a local basis, we are actively involved in our communities by supporting food banks, sponsoring neighborhood events, compensating our team members for community service work, compensating our team members for community service work and contributing at least 5 percent of our after-tax profits in cash or products to not-for-profit organizations."



PRODUCTS

Whole Foods Market stores sell an average of 20,000 food and non-food items with a heavy emphasis on perishable foods designed to appeal to both natural, organic, and gourmet shoppers. Most products are natural or organic, but a limited selection of conventional national brands that meet Whole Foods Market quality goals are also sold. Product categories include produce, grocery, meat and poultry, seafood, bakery, prepared foods, beer/wine/cheese, nutritional supplements, body care, pet products, floral, household products, and educational products such as books.

WFM product quality goals and standards include evaluating every product sold; carrying featured and prepared foods free from artificial preservatives, colors, flavors, and sweeteners; a passion for great tasting food and for sharing it with each other; a commitment to foods that are fresh, wholesome, and safe to eat; using no genetically-modified organisms in WFM private-label products; seeking out and supporting sources of organically-grown foods; maintaining that seafood, poultry, and meat are free of added growth hormones, antibiotics, nitrates, or other chemicals; and featuring grains and grain products that have not been bleached or bromated. WFM does not sell food that has been irradiated and sells only household and personal products that have been proven safe through non-animal testing methods.

NATURAL/ORGANIC FOODS: WHAT ARE THEY AND WHO BUYS THEM?

Whole Foods Market defines natural foods as "minimally processed, largely or completely free of artificial ingredients, preservatives and other non-naturally occurring chemicals, and as near to their whole, natural state as possible." Organic is defined as a production management system based on minimal use of off-farm inputs and practices that restore, maintain, and enhance ecological harmony.

In April 2002, Julie Huntemann, Director of Business Development of The Hartman Group, a consumer research and consulting firm, said that in a Spring 2001 study asking 4,942 representative households what motivates their organic food and beverage purchases, 67 percent said reasons of health and nutrition, 38 percent said taste, 30 percent said food safety, and 26 percent said concern for the environment. Participants could choose more than one reason. These findings had been consistent for 10 years, prompting the conclusion that people are buying organic for health rather than environmental concerns.

Patrick Rea, Rgbesearch Director of the Nutrition Business Journal, a natural and organic foods trade journal, said that in 2001, estimated U.S. natural and organic food sales amounted to $12.9 billion, $6.95 billion organic and $6.25 billion natural. He stated that U.S. organic fruit and vegetable sales were $2.7 billion in 2001 or 40 percent of total organic food sales, explaining that many people purchase only organic produce to help sustain the planet through reduction of pesticides and commercial fertilizers.

Rea said further that the $12.9 billion in natural/organic U.S. food sales represented 2.5 percent of the total U.S. food sales of $503 billion in 2001. However, he indicated, organic/natural foods are a small market that is growing between 9 and 12 percent each year versus total food market growth of between 1 and 4 percent annually. He attributed the larger organic/natural growth rate to increased consumer awareness about health issues, rising worry about the integrity of the conventional food supply and available disposable income, adding that more conventional food manufacturers like General Mills have started to introduce and sell organic products to increase their growth above 1 to 4 percent.

In 1991, Whole Foods Market launched its Whole Foods premium private label of products made by small producers with a regional focus and a reputation for authentic and flavorful food. There are more than 400 Whole Foods premium brand products, including organic chocolate from Switzerland, apple butter made by one of the last small cider mills in Pennsylvania, organic pastas from Italy, and an organic micro-brewed beer. Other Whole Foods Market product lines include 365 Every Day Value, which are all-natural commodity products that meet company quality standards; Whole Kids, the country's first organic product line developed just for kids, with a kids pre-production tasting panel to address the risk of toxic pesticides in the country's vegetables and fruits; the Lex Alexander Handpicked Selection line of international products; and the Allegro Coffee Company line of specialty and organic coffees, teas, and brewing equipment.




CORPORATE CITIZENSHIP

In March 2001, Business Ethics magazine ranked Whole Foods Market one of the country's "100 Best Corporate Citizens." To create good will and maintain a high profile within its community, each store has a separate budget for making contributions to a variety of philanthropic and community activities, contributing in 2001 at least 5 percent of after-tax profits in the form of cash or products to not-for-profit organizations.




GLOBAL PRESENCE

Whole Foods Market, Inc. makes global purchases for its Whole Foods premium private label food products. In 2002, its first store outside of the United States was scheduled to open in Toronto.




EMPLOYMENT

Whole Foods Market believes that many of its team members regard their job as an extension of their personal philosophy and lifestyle—that they are contributing to the good of others by selling clean and nutritious foods and contributing to long-term sustainable agriculture by promoting a pesticide-free and healthier environment. WFM provides paid time off to team members for working with qualified community service organizations.

SOURCES OF INFORMATION

Bibliography

"analysts information, whole foods market, inc.," 25 march 2002. available from www.cbs.marketwatch.com.

"upgrades/downgrades, whole foods market, inc.," 25 march 2002. available from www.cbs.marketwatch.com.

2001 whole foods market, inc. annual stakeholders report. austin, tx: whole foods market, inc., 20 december 2001.

schatz, amy. "profits rebound, rise 34 percent for austin, texas-based whole foods market." austin american statesman, texas knight ridder/tribune business news, 14 february 2002.

van liew, nils c. "whole foods market." value line, 8 february 2002.

"the 2002 fortune 500," 7 april 2002. available at http://www.fortune.com.

"company information, whole foods market, inc.," 7 april 2002. available at http://www.fortune.com.

"the street likes whole foods market, inc," 8 may 2001. available at http://www.stockgroup.com.

"whole foods market at a glance," 4 april 2002. available at http://www.cnnmoney.com.

"whole foods market, inc. quarterly financials," 7 april 2002. available at http://www.hoovers.com.

whole foods market reports first quarter fiscal year 2002 results: comparable store sales increase over nine percent for the fourth consecutive quarter. austin, tx: whole foods market, inc., 13 february 2002.


For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. whole foods market's primary sics are:

5411 grocery stores

5499 miscellaneous food stores

also investigate companies by their north american industry classification system codes, also known as naics codes. whole foods market's primary naics codes are:

445110 supermarkets and other grocery (except convenience)stores

445299 all other specialty food stores

446191 food (health) supplement stores

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