The Whole Foods Rebellion | Vision Quest | 1
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Wondery Plus subscribers can binge all episodes of Business Wars The Whole Foods Rebellion early and ad-free right now. Join Wondery Plus in the Wondery app or on Apple Podcasts. Austin, Texas, May 1981. Hey, Mackie, it's for you. John Mackie puts down the playing cards in his hand and stands up. He's 27 years old with shaggy hair and a beard. And on this rainy evening, he's relaxing at a friend's house.

It's John. The store is Whole Foods Market. Mackie, Lawson, and two friends opened it last year.

It's a supermarket, but it's unique because unlike every other supermarket in Austin, it mainly stocks organic food. It's also located in a flood zone. Mackey tries to reassure Lawson. It'll be okay. We built that flood wall, remember? We're good. Unless it's a once in a hundred year flood. And if it is? It won't be. What are the chances? Our first year in business and a once in every hundred years flood happens? No, no way. If it gets worse, call me.

30 minutes later, downtown Austin. Mackie drives slowly through the waterlogged streets. Outside, it's dark. Across the city, the power's out, and the downpour's getting worse. He stops near Whole Foods at Lamar and Tent and steps out into the storm. He raises an arm to shield his face from the rain and pushes through the water towards the store, flashlight in hand. Renee? Renee! Renee!

The flashlight beam catches the figure of a woman ahead. Mackie hurries towards her. It's Lawson, and she's soaked from head to toe. "Are you okay?" "Yeah, but the store... the flood just smashed through the windows. I had to swim out." Mackie hugs her, but then pulls back, his eyes widening. "The money!" The income from Whole Foods' weekend sales is still in the back office. Around $100,000.

The floods just ruined the store and everything in it. If Whole Foods is going to survive this, it needs that cash. Mackie dives into the water and swims into the store through a broken window. Inside, apples and oranges bob in the water. He swims on past the submerged bakery counter and to the back office. To his relief, most of the money is still above water. He grabs a grocery bag and stuffs fistfuls of dollars into it.

With the money collected, he turns to leave, but when he reaches the office door, he notices a shadow move in the darkness. The shadow turns to him. "Hey buddy, anything good back there?" Mackie tightens his grip on the bag of cash. "It's a looter." Mackie shakes his head. "No, nothing here." Without a word, the looter vanishes into the dark. Mackie hugs the wet bag of cash, close.

The morning after, Mackey and the rest of the Whole Foods team survey the aftermath. The store is a shambles. Everything's covered in stinky sludge because the sewers overflowed. The windows are broken, shelves damaged, the freezer's beyond repair. They estimate they've suffered $400,000 worth of damage. The cash Mackey rescued from the flood won't be anywhere near enough to get them back in business.

One employee tries to look on the bright side as they pick their way through the chaos. At least the insurance will cover it. Mackey hangs his head. To save money, he didn't buy flood insurance. Now, everything's ruined. Whole Foods seems doomed, sunk, before it can even open a second store. And it will need a miracle to save it from oblivion. You know, managing your workforce can be exhausting.

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See, I live in Austin, the hometown of this trend-setting supermarket chain. And Whole Foods' story mirrors that of the city. You know, Austin used to be a medium-sized government town where the tallest building was a university tower. Then it became a trippy place where hippies and rednecks joined hands over rounds of nachos and a love of outlaw country music. Today, flashy buildings fill the skyline and locals joke that the official bird is the construction crane.

Whole Foods came out of Austin's hippie redneck era. And it, too, took pride in being anti-corporate and outside the mainstream. But like the city itself, Whole Foods has morphed over the years. It's now a multi-billion dollar brand. Depending on the angle you're looking at it from, that change could be for the better or for the worse. Maybe this is a happy tale of business success or how an idealistic founder made good on his dream of changing American food culture.

Equally, it's a story of what gets lost on the way to the top at its heart. Whole Foods' story is about the conflict between success, ambition, and idealism. Lofty goals often wilt in the harsh light of financial reality. What defines success never stops changing, and sometimes, ambition threatens that success.

But before we get started, I should let you know that both Wondery and Whole Foods are part of Amazon, but are run independently of each other. And with that out of the way, let's get on with the story, shall we? This is Episode 1, Vision Quest.

It's 1977, and Austin's a quirky hippie outpost in the Lone Star State. True, hippies are already a bit retro. Flower power and psychedelia peaked in San Francisco a decade before. But the youth movement still persists here. Long-haired folks wearing flared jeans and tie-dye shirts are a dime a dozen. Some even live in communes where they share the chores and their possessions. And in one such commune lives John Mackey.

He's 24 years old with wild curly hair and a beard to match. He's vegetarian, unapologetically drops acid, reads The Lord of the Rings, and is partial to New Age mysticism, all of which mom and pop don't get. They live in straight-laced Houston and hoped Mackie would turn out, well, just like them. Maybe he'd become an attorney, a banker, or even an accountant like his dad. ♪

Instead, he's a low-paid assistant in a natural food store. You know, the kind of place that smells like a hamster cage and lets customers scoop nuts, beans, and seeds straight out of the barrels. One evening, Mackey returns to the commune and tells his girlfriend, Renee Lawson, that he's had a lightbulb moment. Running a natural food store seems simple enough, so they should open one. Lawson likes the idea. It could also have a vegetarian cafe. That'd be groovy.

She suggests naming the store Safer Way. It's a play on the supermarket chain, Safeway. Mackie likes it too. He thinks people would be healthier if they ate an organic vegetarian diet. To him, the name's not a joke. It's a promise that eating the food they sell is the safer way. But they need money to start a business. So Mackie walks to the highway and hitchhikes his way to Houston to see his parents.

Once there, he asks Dad for $10,000 to start Safer Way. His dad is skeptical. He doesn't think there's much of a business in selling granola to broke hippies. But this is the first time Mackie's shown any initiative since he quit college, so his dad puts up some of the money, as do some of Mackie and Lawson's friends. Armed with a startup fund of $45,000, Mackie and Lawson rent a cheap Victorian house and start renovating it.

Her cafe will be upstairs, his natural food store downstairs. But then a man in a suit appears at the door. He's from city government and wants to see their permit. They don't have one. The man tells them they have to stop. They need a building permit to finish their renovations. So Mackie goes to the government office to ask for such a permit, only to be told it'll take months to get one.

He protests. They're already paying rent. They need the permit now or they'll run out of cash before Safer Way opens. The city official shrugs. That's just how long it takes. Mackey thinks it's all over. But then his landlord points out that city officials clock out after 5 p.m. If they renovate at night, they won't notice you've ignored the order to stop work. So Mackey and Lawson go covert.

They work at night to finish the store. Then, with that permit still pending, they open for business. Eventually, the permit gets approved. But by then, they've got bigger worries. Running a store is fun, but it's also hard. They're working 80-hour weeks. They're too busy to keep up with their chores at the commune. So they move into the store. And since there's no shower, they use the hose from the cafe's dishwasher.

Despite the frugal living and long hours, the business struggles. The food store makes thin profits. The cafe loses money. Mackie and Lawson start arguing. They realize they can't keep on living like this. Mackie concludes the problem is Saferway's too small and niche. They buy too little food to get the best prices from suppliers, so their profit margins are too small.

But they don't sell enough volume to turn those small margins into decent profits. That's the thing. And their customer base is limited to the hippie crowd. What they need to do is open a large organic supermarket instead. Now, in 1980, this is crazy talk. Few people are interested in organic food, and few farmers produce it. It's doubtful they could even stock a whole supermarket with organic produce, let alone attract enough customers to buy it.

But see, Mackie's a believer. He has faith that chemical-free food will break out of its hippie silo and go mainstream. And he wants his organic supermarket to spread the word by appealing to more than hippies. He wants to get ordinary folks shopping there. And that's why it'll also sell meat. The decision to stock meat is a big one. Mackie and most Safer Way customers are vegetarians. Some of his hippie pals think selling meat is selling out.

But Mackey sees it as pragmatic. If his supermarket's going to get more people eating natural foods, well, he has to sell food people want to eat. And most folks eat meat. As it happens, Mackey's willingness to dilute his ideals is right on trend for 1980. The last vestiges of tie-dye culture are about to give way to Ronald Reagan's America.

Hippies are morphing into yuppies, young urban professionals who wear power suits and drive BMWs. The New Age idealism of the 70s is making way for a new culture of business and ambition. But to open his supermarket, Mackey needs new premises and money to pay staff and buy stock. Time to visit Dad again. It's 1980 and Mackey's back at his parents' home in Houston. In the family kitchen, he's trying to convince his father to invest in his organic supermarket.

Safer way is getting more customers. It started to make a small profit. That's because you're only paying yourselves $200 a month. Mackie feels discouraged, but then he remembers Lawson's pep talk. She told him to just be himself and believe. So he takes a deep breath and makes the ask. Dad?

We need money to open a bigger store. What? Chemical-free foods are going mainstream. There's already similar supermarkets elsewhere. Mrs. Gooch's in Los Angeles, Bread and Circus in Boston. Now is the time for us to expand. If we wait, we're going to fall behind. What the hell are you talking about, son? I'm going to get it. What you're saying is making no sense to me. You don't take a failing business and expand it. We're not failing. Yes, you...

Okay, okay. You're not failing, but you're still learning. You need to make a success of what you're already doing first. Yes, we do need to do better, but we have to seize this moment. If we don't, we'll miss our shot. In two years, it'll be too late. Our small size is a competitive disadvantage. We need a bigger, better location now.

Bigger means more overhead. It also means more visibility, better prices from suppliers, and a greater product range for customers. People would be able to get all their groceries from us, not just specialty items. You don't know if ordinary people are going to embrace natural foods. And you don't know that they won't. You're not paying attention to the trends, but I am, and what I see is rising demand. We need to be where customers are going to be in two years' time, not where they are today.

Did you read that in one of the management books I lent you? Maybe. Okay, son. Well, tell you what, here's what I'll do. If you can find another major investor willing to share the risk, I'll put in more. How's that? A few weeks later, Mackie persuades a wealthy Saferway customer to invest $50,000. Mackie's dad makes good on his promise.

Armed with the new investment, Mackie leases a former nightclub in downtown Austin. But managing a 10,500 square foot supermarket is a big step. So he invites the owners of Clarksville Natural Grocery to come in on the venture.

Clarksville is another of Austin's natural food stores. Mackie admires its owners Mark Skiles and Craig Weller. Skiles has a knack for customer service. Weller has a sharp eye for detail. Their skills will be a big help, as will the addition of Clarksville's capital and customers.

Skiles and Weller agree to come in and merge Clarksville with Safer Way. But now the business needs a new name. Clarksville won't work because the new supermarket won't be in that part of Austin. But Skiles and Weller don't like Safer Way. Eventually, Mackie, Lawson, Skiles and Weller settle on something completely different. Whole Foods Market.

In September 1980, Whole Foods opens, offering the biggest selection of organic food in Austin by far. Even so, the limited supply of organic food is evident. Many of the shelves are filled with cartons of apple juice because it was the only organic product available in large enough quantities to fill the shelves. But the shoppers don't seem disappointed.

From day one, Austin's hippies flock to Whole Foods. They're thrilled at being able to meet all their natural food needs in a single shop. The store's downtown location also draws customers who are new to the natural food scene. In smaller stores, these people were put off by the dingy decor, clicky vibe, and unfamiliar foods. But Whole Foods resembles a regular supermarket. There's even an information desk where they can ask what tofu is without being made to feel stupid.

Within six months, Whole Foods is bringing up sales of $200,000 a week. Mackey, Lawson, Skiles and Weller have struck gold. But then, eight months in, the once-in-a-hundred-year flood strikes. The store is left ruined after being submerged under eight feet of water. The company has to fix $300,000 of damage, and it doesn't have anywhere near that much money.

And it has no insurance either. There's just one option left. To go to the bank and beg for a huge loan. But they doubt they'll get it. Because what kind of bank would loan a small fortune to a gang of hippie kids running a kooky supermarket?

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May 1981, Austin, Texas. John Mackey feels conspicuous in his suit and tie. He's more of a jeans and flannel shirt guy, but today he's doing his best to look like a regular businessman. Whole Foods Market is ruined, and there's not enough money to reopen it. So Mackey's come to First City National Bank seeking a loan of $100,000.

He walks bank representative Mark Monroe through the accounts. He stresses how well things were going before the flood. He points out how customers love Whole Foods so much, they're volunteering to help the team clean the place up. Monroe nods politely and offers sympathy, but remains noncommittal. He just promises the bank will carefully consider Whole Foods' loan application.

Mackie isn't surprised. Banks expect loans to be repaid on schedule. They're often wary of novel, unproven businesses like Whole Foods. Sure, the store's been doing well, but this is 1981, and no one knows whether the interest in organic food's going to last. Could be just a passing trend. So Mackie's shocked when soon after, the bank approves the loan, and it's a lifesaver. The store can now reopen.

Mackey thinks he must have made a convincing case, but actually he didn't. Years later, the truth would come out. The bank rejected the loan. Under normal circumstances, Whole Foods' story would have ended there. But then a guardian angel came to the rescue. Unknown to Mackey and Whole Foods' other co-founders, the banker Mark Monroe himself intervened. He actually believed in Mackey and trusted him to repay the loan no matter what.

So Monroe told his bosses he would personally guarantee the loan to Whole Foods. He put himself on the line to save their business. And he didn't do it for the glory either. He never even told Mackie or the other Whole Foods co-founders what he did. Mackie only learned what happened years later, after Monroe died. He was the man who saved Whole Foods. And Whole Foods didn't even know it. Folks like Monroe are rare, but for the record,

He's not the only one. There are entrepreneurial guardian angels who still float among us, and I've actually met a few. It's a few months later, and at Whole Foods, Mackie leads Mary towards the bakery counter. Mary's a new employee, and Mackie's showing her the robes.

Nearby, another employee is putting that morning's delivery of blueberry muffins on display. Mackie points at them. Our customers go wild for these. They're made by a local baker called Barbara. People line up to get them whenever we have them. Here, try one. The new employee smiles as she takes a bite of the muffin. Her excited expression turns to puzzlement. She chews slowly, then raises an eyebrow.

That's a Sara Lee muffin. What? No, Barbara bakes everything herself. I'm telling you, these are Sara Lee muffins. No way. Barbara's supplied natural food stores in the city for some time. Maybe they're just as good as Sara Lee ones. Fine, I'll prove it. Mary marches out of the store. Five minutes later, she returns carrying a box of Sara Lee muffins. She puts it on the bakery counter. Go on, do a taste test.

Mackie isn't keen on eating a mass-produced muffin, but takes a bite anyway. He then tries one of Barbara's. Same texture, same taste, same size. The next day, Mackie makes an unannounced visit to Barbara's bakery. Inside, he finds a big stack of empty Sara Lee boxes. Barbara's busted. ♪

For Whole Foods, Barbara's repackaged muffins were a wake-up call. Barbara's con could have torched Whole Foods' reputation. If customers learned Whole Foods was selling repackaged Sara Lee muffins, it would destroy trust in everything the store sells. And it wouldn't matter one bit that Whole Foods got conned, too, because customers expect stores to know what they're putting on their shelves.

So after Barbara's deception, Whole Foods introduces regular checks on its suppliers to ensure everything's as it should be. But for the most part, the months after Whole Foods reopening go smoothly. Sales rebound fast and keep on rising. But soon, Mackie gets itchy feet.

He's not a business-as-usual guy, far from it. He's already thinking about what to do next, both in his personal as well as his professional life. He stuns Lawson by suddenly declaring he loves her, but since they're still young, he wants to date other people. A few days later, Mackey decides he's made a huge mistake, but it's too late. Soon after, Lawson leaves Whole Foods.

Mackie distracts himself by masterminding a plan to open a second store, and he wants this one to be in a suburban shopping mall in North Austin. The remaining co-founders, Mark Skiles and Craig Weller, aren't sure about this plan. They think people who live in the suburbs are far less alternative than those downtown. But as Mackie sees it, if they build it, people will come. What's fascinating here is Mackie's commitment to his own idealism.

Cynics would call it hypocrisy because he's growing his business. Is this really people over profit? But Mackey's driving goal at this point is to convert more people to eating natural foods. That goal has become his anchor. But while an anchor's great when you need to weather a storm, it can also hold you back. It's fall 1982, and in his backyard, Mackey's drinking beer and playing ping pong with Whole Foods co-founder Mark Skiles.

Darn it! Again? Sure. You ready? Yep. Whoa, what's gotten into you? Whoa.

I checked the new store's sales figures last night. They were ugly. Mackie gulps. The second Whole Foods opened a few weeks ago, and it's kind of quiet. We all knew North Austin would be a harder market to crack. The sales per transaction aren't good. People are just buying a few specialty items to get the rest of their groceries elsewhere. We need them filling carts. It's only been a few weeks. It's a marathon, not a race. Sales are down at the downtown store, too. Oh, okay.

"'They are?' The downtown store was still growing until we opened the second one. "'Mackey, we had a good thing going. We could retire on what the original store was making. You're screwing this business up.' Mackey's hackles rise. "'I am not. But I want Whole Foods to be a great company, not just a great store. It could become massive. We could have stores all over Texas. We could change the way people eat in Texas. Maybe nationwide.'

Skiles checks his watch. Look, I gotta go. All I'm saying, Mackie, is I don't want your grand visions running us off a cliff, alright? Mackie watches Skiles leave. Lawson's already gone. Now, cracks are appearing in his relationship with Skiles. Skiles wants to consolidate their gains. But Mackie wants more.

He's already thinking of a third store, of expansion beyond Texas, of making Whole Foods the happiest place to work in the world. And it's becoming clear that this ambition is about to put him on a collision course with Skiles.

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Today, terms and conditions apply. Credit products subject to lender approval. See nerdwallet.com for details. 1985, Austin, Texas. In Whole Foods' head office, Mackey and Skiles are staring each other out. Since their ping-pong match four years earlier, their relationships continue to sour.

Mackey spent that time pushing the company into opening new stores. The company's annual sales have now hit about $20 million a year. There are now four Whole Foods stores, three in Austin and one in Houston. And a few months ago, it also opened a natural foods restaurant called the Wildflower Cafe. Mackey thought the cafe would take Austin by storm. Instead, the company lost almost $90,000.

Meanwhile, Skiles has been trying to block Mackie's hunger for expansion. He doesn't buy into Mackie's talk of creating a workplace based on love and changing people's diets. He's happy owning a business that makes him good money. But right now, Mackie's screwing that up. Skiles glares at Mackie. The new store in South Austin's taken 20% of the downtown store sales overnight. We're losing money for the first time since the flood.

Mackey pushes back as the rest of the Whole Foods board members sink lower in their chairs. The new stores need time to build up. It's clear that the big sales from day one we got at our first store were a one-off. It's normal for stores to build up sales and customers over time. Look at the North Austin store. It's breaking even now. After four years? Mackey, this is a disaster. We should never have opened these new stores. You keep talking about creating the happiest workforce in the world.

Well, the way it's going, we won't even have a workforce. And it's all because you think it's more fun to start new things. What you're missing is the stores are growing. You need patience. No one but you got us into this mess, Mackie. Look, it's on you. Mark, I get it. I'm not happy with the financial results either, but we need... Mackie, you're a terrible CEO. Mackie blinks in shock. The other board members sink even lower in their chairs.

Mackie feels his anger rising. As far as he's concerned, Skiles has crossed a line. It's now clear that his and Skiles' contrasting visions of where the business goes next are incompatible. And unless they can reconcile those differences, one of them will have to go. Skiles and Mackie's differences aren't unusual. There's no guarantee that people who start a business together will stay in sync as it grows.

When they first joined forces, Skiles and Mackie were as one. But now that they're five years in and have had some success behind them, well, their goals are no longer perfectly aligned. Mackie wants Whole Foods to change the world. And the bigger it gets, the more likely it is to achieve that. That's how he sees it. But Skiles wants a company, not a cult. He wants it to fund a decent life now. And if Mackie wasn't trying to expand the business all the time, it would be.

There's no right or wrong here. It's a question of what do the owners want their company to do for them. The problem is, you can't do both. Something's got to give. And that's what happened. Over the next six months, Skiles and Mackey try to find a way forward without success. So Skiles sells his stake in Whole Foods for around $300,000. With Skiles now gone, Mackey owns the majority of the shares.

He's finally free to run Whole Foods his way. He steps up the expansion. In 1986, Whole Foods buys Blue Bonnet, an organic supermarket in Dallas. It was losing money at the time, but within six months, Whole Foods steers it into profit by lowering overhead and ironing out its supply chain issues. The move also ensures Whole Foods is the dominant natural food supermarket in all of Texas.

Then, Mackey turns his attention to the San Francisco Bay Area. The hippie trend might have started there, but in 1986, it still lacked a big organic supermarket. Instead, the Bay Area's hippies have held fast to the 60s ideal of small natural food stores run by non-profit cooperatives.

Mackey realizes that if Whole Foods moves in quick, it could capture the Bay Area market. And given the city's high concentration of natural food fans, it could form a powerful base for further expansion. But to open multiple stores there would cost millions of dollars. Whole Foods doesn't have that kind of cash lying around, and it's too small a business to get a bank loan that big. So there's only one option left. Venture capital.

That's right. The kind of investors you see on TV's Shark Tank. Venture capitalists are a vital source of funding for young companies. They invest in businesses with high growth potential. And in return, they take a stake in those businesses and get actively involved in the running of that business. See where this is headed? Their goal is to get businesses to a stage where they can be sold or floated on the stock exchange so they can exit the business with a huge profit. It's a bit like a farmer fattening up a cow to sell at the market.

You know, for slaughter. Before Mackey left for California, his dad warned him he can't trust venture capitalists because they only care about the exit. But they both know there's no alternative. If Whole Foods is to expand fast, it needs money, and therefore, it needs venture capital. So in 1988, Mackey heads to Palo Alto, California and makes his way to Sand Hill Road, the street that most Silicon Valley venture capitalists call home.

The reception is cool to I see. The Sand Hill Road crowd is pumping money into personal computers, microprocessors, and online networks. The chain of granola grocers seems small in comparison. They all pass. But he does meet the folks at Oak Investment Partners who put him in touch with their retail investment division in Minneapolis. Eventually, Mackey gets $4.5 million of venture capital from Oak and two Texas firms.

It's enough to make his move on the Bay Area. In 1989, Whole Foods begins its Californian expansion by opening a store in Palo Alto. The following year, the company adds private label products to his shelves, starting with Whole Foods Natural Apple Juice. It's the same juice the company's already been selling, only now it's got a Whole Foods label on it.

that repackaging boosts profits. First, it gives Whole Foods more influence over the production process, potentially reducing costs and increasing profit margins. It also entrenches customer loyalty because shoppers can't buy Whole Foods apple juice just anywhere else. It also uses its own brand products to promote its brand message that Whole Foods is all about additive-free foods.

Within weeks of adding its apple juice to stores, Whole Foods is selling private label yogurts, tortillas, and maple syrup. But it doesn't take long before Mackey's father's warnings about venture capitalists starts to come true. They push Whole Foods into hiring a new president, an outsider who previously ran a supermarket chain in Phoenix. But on the day the guy was supposed to start work, he dies from a heart attack.

In the aftermath, Mackey and his dad reassess the situation. They suspect the venture capitalists hoped their man would replace Mackey as CEO. They also notice that their first store in California is already outperforming expectations. So Mackey's dad suggests they use this quick success to push for an early initial public offering or an IPO on the stock market.

An IPO would give Whole Foods the funds it needs to keep expanding. And it would also give the venture capitalists the payday they crave. Without Mackey losing control of the business, at Whole Foods' next board meeting, Mackey proposes they go straight to IPO. The venture capitalists object. They want the company to go through another round of financing first.

But that extra round of investment would dilute Mackie's stake in the business to less than half. And if that happens, well, he'd no longer be in control. So the moment the rest of the board leaves the room and the door shuts behind them, Mackie's dad turns to him. Son, we got to get those f***ers out of this company before they take over. On the next episode, Whole Foods learns through acquisition, Mackie battles unions and activists, and

And a rival on the inside moves to seize control of the business. From Wondery, this is Episode 1 of the Whole Foods Rebellion for Business Wars.

We've used many sources for this season, including The Whole Story by John Mackey. A quick note about recreations you've been hearing. In most cases, we can't know exactly what was said, those scenes or dramatizations, but they're based on historical research. I'm your host, David Brown. Tristan Donovan of Yellow Ant wrote this story. Research by Marino Watson. Sound design by Kyle Randall. Fact-checking by Gabrielle Drolet. Voice acting by Chloe Elmore. Produced by Tristan Donovan of Yellow Ant.

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