Ask me to name a Foolish CEO, and the first name that jumps to my mind is Whole Foods Market's (Nasdaq: WFMI ) John Mackey. Not only has he made history by building an organic-grocery juggernaut, but he's a revolutionary thinker, too. Revolutionary business thinkers often build the best companies that nobody -- except maybe the savviest investors -- could have ever anticipated.
Creating a new niche
A few years ago, the organic- and natural-foods business could easily have been dismissed as a passing trend. In fact, many people did view it that way. In an interview with Fool co-founder David Gardner several years ago, Mackey reflected on how he was turned down for early financing by a venture capitalist who said the business would be a fad. Some fad. The company's well on its way to its goal of $10 billion to $12 billion in sales by 2010.
Part of the secret sauce is not just that the company's benefiting from healthier eating trends -- particularly among Baby Boomers -- although that is certainly a part of Whole Foods' success. Another important element is that the company functions as a lifestyle brand by pursuing the same kind of "third-place" mentality that Starbucks (Nasdaq: SBUX ) has mastered -- the "third place" being a special place where people like to spend time between home and work. Although some traditional grocers are trying to jazz up their stores to address current trends, places like Safeway (NYSE: SWY ) don't quite make that third-place cut.
Mackey's Whole Foods does many things right from a shareholder point of view, too. For example, the company focuses on economic value added, a financial metric that tracks long-term value creation and is therefore an extremely Foolish policy. Whole Foods also includes lots of detail in its same-store-sales data -- it breaks the information down by age of the stores and what kind of comps they can generate. Again, pretty Foolish stuff. And that data shows that Whole Foods is able to coax impressive comps from even its older stores, an extremely impressive achievement in the retail world.
The whole organic enchilada
Mackey built this innovative retailer with a far-reaching philosophy in mind -- one that has arguably propelled it to success. It's a holistic approach that embraces a company's role and responsibility with its customers, its workers, its shareholders, and its communities.
Among the principal differentiators is the way Whole Foods treats its employees. For example, the company has capped executive compensation at just 14 times the average worker's wage. (When I wrote about insane CEO pay last May, data indicated that the average pay for an S&P 500 company CEO was a whopping 430 times that of the average worker.) Furthermore, Whole Foods has a "shared fate" initiative, through which 93% of stock options granted are to workers who are not executive officers.
Whole Foods' holistic approach is also about the world at large. When it filed to go public, it vowed to dedicate a certain percentage of profits to philanthropy -- an idea that Google (Nasdaq: GOOG ) has emulated. Indeed, Whole Foods' latest 10-K said the company contributes at least 5% of its after-tax profits to nonprofit organizations. Its policies are heavily environmental in nature (consider its recent big move into wind power), in keeping with the spirit of the organic movement.
Some people might see such initiatives as shareholder-unfriendly. I think those people lack vision. Critics will say a company should care only about profits, but Whole Foods Market makes enough customers feel good about shopping at its stores to help make its sales soar. Critics might also say the difference lies just in the gourmet element and the presentation, but I'd say there's a sizeable social component in customers' interest in this company. Maybe Whole Foods has started a revolution.
The elephant in the room, of course, is Wal-Mart's (NYSE: WMT ) recent decision to go organic. That retail behemoth obviously saw that doing so makes good business sense. Consider, too, Wal-Mart's recent efforts to use its muscle for environmental initiatives -- such as pushing for energy-efficient lightbulbs and reducing its product packaging. Regardless of whether you think Wal-Mart's being particularly authentic -- and there is increasing proof these moves can benefit not only sales, but also the bottom line -- there's reason to believe that Mackey's philosophy is catching on.
Founder as philosopher
Conventional wisdom would hold that John Mackey was an unlikely candidate to start a highly profitable business. He participated in the counterculture movement of the '60s and '70s, didn't complete college, and never took a business course. After forming his first store, he began to embrace free-market theories and eventually became a libertarian. However, he's been outspoken in his stance that capitalism's "brand" has suffered in recent years -- a belief well-supported in that many people think capitalism is a result of, or even defined by, greed and selfishness.
His story makes sense to me, given my own left-leaning teenaged years and subsequent progression into libertarianism, but always with the view that the libertarian theory couldn't work without ethics and personal responsibility. I guess that's why Mackey's message resonates so strongly with me. And his belief that capitalism can be -- and should be -- good seems downright visionary, considering the growing importance of corporate responsibility among consumers and investors alike. In the aftermath of debacles like Enron, illustrating that unfettered greed and self-interest are not good, and in fact often become long-term risks, it seems to me that people -- shareholders, customers, and communities -- should expect nothing less than responsibility and good business practices.
Mackey's blog entries (available on the company's website) reflect a holistic worldview in which companies react responsibly to shareholders, customers, workers, and their communities. Regardless of whether one agrees with Mackey's overall philosophy, there's no question that it has worked extremely well for Whole Foods Market.
The Foolish checkout
Some of my respect for John Mackey obviously has to do with the fact that I agree with many of his philosophies on how businesses and individuals should conduct themselves, and thus, I'm pretty biased.
Regardless, though, Mackey peered outside the box to create a pretty amazing business. (After all, who thought a grocery retailer could boast high growth in this day and age?) And that's one approach that David and Tom Gardner have often said serves Fools well when they're researching potential investments: striving to discover good, solid businesses with strong, involved leaders or founders. It doesn't hurt when these founders break from conventional wisdom along the way, either, as Mackey has. Although people may argue about whether Mackey's a visionary or a philosopher -- some may dismiss him as nothing more than a lucky ex-hippie -- there's no arguing that he's built an impressive business for the long term, one that many people didn't even see coming. And for that, he's one heck of a Foolish CEO.
For related Foolishness:
- Holy Cow! Wal-Mart Really Goes Organic
- Taking a Bite of Whole Foods
- Insane CEO Pay
- The Wind Beneath Whole Foods' Wings