CHICAGO—Whole Foods has grown from a single store for “hippies” into one of the most successful businesses in the U.S., with more than 400 stores. At its heart is a culture of “higher purpose” and “ethical responsibility,” and its CEO shared a message of how the company has grown and the lessons for financial services that will resonate with credit union leaders.
Below, John Mackey, the co-CEO of Whole Foods, responds to questions posed to him during the recent BAI Retail Delivery Show here about the business model and the bigger picture.
Q: What do you talk so much about being customer-centric?
John Mackey, co-CEO of Whole Foods, at BAI RDS in Chicago.
Mackey: Retail banking, retail foods, it all ultimately has to be customer-centric. You have to be thinking about that all the time. How can we create value for customers, and where are we not creating value? Where are we wasting customers’ time? Where are we harming that value? So you have to be constantly asking the ‘where are we creating value?’ question all the time.
Q: You spend a lot of time focused on hiring and your people. Why?
Mackey: We think of our employees as stakeholders. The retail food business is pretty easy in a way. Management seeks to hire the very best people we can find, and then make sure they are well trained, and then we work to make them happy. We have found that if they are happy, it makes the customers happy. And they spread positive word of mouth, and that makes the investors happy.
Q: In college, you took 120 hours of elective classes and no business courses. You didn’t get a degree. How was that an advantage?
Mackey: I’m not sure that is an advantage. But I didn’t have to unlearn anything. I didn’t know how we were supposed to do it, so that gave us the freedom to innovate. We thought outside the box because we didn’t know we were inside the box. But we also made a lot of mistakes and had to learn. Fortunately, I am a quick learner.
Q: How can you think outside the box if your career has been spent inside the box?
Mackey: I think the best thing you can do is to look outside your own business model. There is always group-think; it provides security in a way, but it’s also a trap. If you think your world is going to remain safe because it’s always been that way, that’s not going to be the case. At Whole Foods we not only look at other food companies, we look to the restaurant business, the technology business. We are always looking for new ways to do things.
Q: In your book you talk about ‘Conscious Capitalism.’ The word ‘conscious’ is very important to you. What is a conscious individual and a conscious business?
Mackey: Conscious means to be aware. Conscious capitalism is about being more aware. It’s about a higher purpose than just making money. It’s about managing the business to benefit all your stakeholders. It’s about trust, accountability, integrity.
Q: Talk to us more about purpose.
Mackey: It’s so extremely important to business, and it’s so misunderstood. If you go to a party and ask people ‘what is the purpose of a business?’ people would look at you oddly and then say, ‘The purpose is to make money.’ That’s an odd answer. If you ask people what the purpose of a doctor or a teacher is, the answer isn’t to make money. The point is these professions each have a higher purpose. Business is the greatest value creator in the world. Business is incredibly purposeful. I have known hundreds of entrepreneurs in my life and with only one or two exceptions none of them created their business to make money or get rich. They are driven by a dream, a higher purpose, a vision.
Rather than talking about the value creation of business, critics of business—and these are intellectuals who have always been the enemies of business—they fall into the trap that it’s all about money. And in no area of the economy has that been more viciously attacked than in banking. And yet we know there are few areas of the economy that are more important than banking. It has a very deep, higher purpose. And yet I never hear banking articulated, or bankers explaining the greater purpose of banking.
Q: Talk about the importance of interdependence of the various pieces of the supply chain?
Mackey: That’s the common belief, that the various pieces are separate. When we divide things up into their separate parts, we see them as separated, and yet business is not made up of separate parts, there is a ‘wholeism’ to it, there is a dependency to it. They are all interdependent. When I first realized this it was a huge breakthrough for Whole Foods. I realized they all need to flourish for Whole Foods to flourish. All the strategies we have tried to implement are win, win, win, win strategies, that all the stakeholders are benefitting. If you look for synergies, you will find them.
Q: You don’t view your competition as enemies. You view your competition as a source of ideas for you?
Mackey: It’s true. I’m not saying I love my competitors, but I do respect them, and we do learn from them. So in a sense we are on a joint quest for excellence. No one can help make your business reach a higher level of excellence like your competitors. They are allies for continuous improvement. They make us better, and we make them better.
Q: How much shopping the competition do you do? Is it a stealth operation?
Mackey: I think you can do some of it openly, and some of it isn’t spies in your competitors’ operations, but you can study them. I think you should do whatever is ethical and legal. Sam Walton has a great story where he talks about visiting Kmart more often than the CEO of Kmart. Whenever Kmart had a good idea he could take that idea and spread it through Walmart faster than Kmart could through its stores.
Q: Talk about how your customers can market for you.
Mackey: It’s just common sense. Word of mouth by people that you trust is far more impactful in getting people to change their behavior than advertising is. Ultimately, happy, satisfied customers will be the greatest marketers of your business, more so than anything else you do.
Q: You write that when you began Whole Foods you had many challenges. Customers thought prices were too high, stores were too small, employees thought they were not well paid. Talk about those?
Mackey: A lot of that is from when we were small. It’s hard for a small business to flourish and succeed. It has many handicaps, and you have to have better customer service and experience because you don’t have scale. But you can have that relationship to better connect with customers, which is what we tried to do when we were small, and we still try to do.
I won’t concede that we charge higher prices. If it has higher quality, it will have a higher price. It’s now a cliché, ‘Whole Paycheck.’ That was clever 15 years ago. Now it’s so boring. Let’s look at Chicago. We have a competitor here, Mariano’s; they are copying Whole Foods in a lot of ways, but have very good prices on produce. So we have been working to match their produce prices. If you have higher quality, you can have higher prices, to a point. Apple is an example of that. You’ve got to have higher quality and competitive prices, that’s the strategy Whole Foods is going for. The hard thing for Whole Foods now is that for a long time we were such a well-differentiated niche that no one cared about us. No one took us seriously. People thought we were hippies selling to other hippies. What happened is we have started to penetrate the middle class. Much of America is overweight and obese. So people are looking for healthier options. A lot of companies have copied our products and tried to underprice us. We don’t want a race to the bottom, but we are conscious of our competitors’ prices, and we are trying to match them where we can.
Q: What are the key tactics that make employees happy, engaged, passionate and inspired.
Mackey: I think two main things. First, is purpose. People want to feel that their work makes a difference in the world, although it doesn’t have to be grandiose. Great purpose makes for great companies. Employees want to see how that connects to adding value. I think most businesses do a very poor job of explaining how their work fits into the larger scheme of things. Employees don’t see it, so they’re not engaged. One Gallup Poll showed that just 30% of employees are engaged. Second, and this is equally important, people want to feel like someone cares about them. The average worker does not feel like anyone cares about them. I say that ‘love’ is not in the corporate closet. We always use war or Sports or Darwinian metaphors; it’s about killing and winning and what you must do to survive. And yet we know that caring is the single most important thing people want to experience in the workplace. So if you want low turnover, high engagement, good service for customers, you have to care about your employees. They have to feel loved.
Q: But that has to be authentic?
Mackey: As Americans we crave authenticity, but we don’t get it. In politics in my lifetime there has never been a president I trusted. All have been very skilled liars. And at companies many CEOs are the same. I have failed media training three times; I always want to give a truthful answer. I think we want our leaders to give us the truth, and you can’t have trust where you don’t have truth.
Q: What are you looking for when you hire people?
Mackey: Contrary to what people think, we don’t hire based on number of tattoos and piercings. Attitude is what we are seeking. It can’t be taught. We want people who want to give good service to customers. Bad attitudes can be poisonous.
Q: What about the importance of culture?
Mackey: One thing I spend a lot of time thinking about is culture. I try to root out any bad culture. If you have a vibrant culture, people flow along with it. We don’t have to make people learn things, the culture is constantly encouraging them to do so. Those who are part of it feel it, it exerts an invisible effect on them.
Q: How have customer changed since 1981?
Mackey: Well, we’ve got a lot more of them. They have changed in a lot of ways. In 1981, Americans still largely cooked. Particularly as women have entered the workforce, a lot pride themselves on not knowing how to cook. And men have not picked up the slack. So there is a lot less cooking going on, and we’ve seen the sale of raw ingredients decline, but prepared foods are doing much more business. It’s an open secret that our stores are some of the most successful restaurants around. Our first stores had no prepared foods at all, now it’s 25% of our volume.
Q: How does Whole Food Support and drive accountability at your 401 stores?
Mackey: We have 87,000 team members. We are very decentralized, divided into 12 geographic regions, and they are empowered to encourage experimentation. But we also put an emphasis on collaboration. A simple thing Whole Foods does that is very revolutionary but also very simple, is that each of the departments in our stores are teams. Each team has a labor budget. Let’s say that for a produce department we budgeted 10%, but it comes in at 8%. For most companies that would go back to the bottom line of the company. But at Whole Foods that differential is paid out to team members in the form of a bonus. Now the team members are self-managing. They are trying to keep labor costs down. It’s a complete shift, but it makes for total accountability. At every level of Whole Foods we have similar types of incentives.
Q: How do you go about selecting sites for your stores?
Mackey: We use density of college graduates as a proxy for levels of consciousness about eating better. But we are trying to address the food deserts (areas where there are no food stores), and our Foundation is attempting to provide access to healthy foods in these food deserts. We have opened stores in inner city Detroit and inner city New Orleans. Those stores are structured differently, but what’s interesting is how well both stores are performing.
Q: Banks are coming back from a financial crisis, with a reputation not where it needs to be? How do they weather that kind of crisis?
Mackey: Crises can be great opportunities. A crisis is a time when the status quo is shaken up. We know the saying ‘If it ain’t broke, don’t fix it.’ But a crisis upsets that, and it’s the best opportunity to evolve, to grow, to change. We always take advantage of crises to grow and to get better at Whole Foods.