Whole Foods Founder John Mackey on Disrupting a 50-Year-Old Industry

Last month, Motley Fool co-founder and CEO Tom Gardner traveled to Austin, Texas, to interview John Mackey, founder and co-CEO of Whole Foods Market (NYSE: WFM  ) .

Whole Foods has been a tremendous growth story since its start in 1980 as a single, small store; it's now a $17 billion organic and natural grocery store market leader, with more than 300 stores.

Watch the video to see how Mackey was able to carve a new niche by disrupting the staid grocery industry. (A transcript is provided below; running time: 4:24.)

Tom Gardner: What did you disrupt in the world of supermarkets and groceries? What was wrong that needed to be fixed?

John Mackey: Our disruption came from a number of different directions, in a way. The way the supermarket industry had evolved, it had evolved primarily in the, if you think about it, in the '50s and '60s, where we had the three television stations, where you had basically mass advertising.

The way people ate in America went through big shifts in the '40s, '50s, and '60s towards a mass consumer society with mostly processed foods that had been heavily advertised on television, and then supermarkets were selling the same brands, and so it was all about who could do it cheaper. And so it was all about productivity and logistics, of which Wal-Mart ended up being the best at that game.

But as we began to eat that diet, we moved away. We were disruptive because we came out of it and looked at it differently and said: The food these people are selling in these regular supermarkets, it isn't even really food. It's puff this and sugar that, and it was crap, it was junk. The food system itself had been so altered, and not just processed foods, but what we do with our produce and our meat -- it had all been about getting food cheap. And the quality of the American diet really began to descend.

So part of our disruption was getting back to natural, whole foods -- that is the core of our business. Organic, natural, whole foods that really nourish our bodies and make people healthy. We started out really small because that was just a little counterculture part of the society, but it turned out that there's a sizable segment of the American population, and perhaps based on our market capitalization at this point, I would say perhaps this is the way America is going to eat collectively ...

Gardner: How about the world?

Mackey: Collectively, and the world. They have to maybe go through their American phase, since a lot of the developing worlds are going in the opposite direction, towards the cheap, highly processed, industrialized food. That’s one form of disruption.

The second form of disruption was supermarkets, because they wanted to be as efficient as possible, generally give terrible service, and their stores were ugly. So you've just built these sterile, white stores that they did as cheaply as possible, and had minimal labor, so you didn't have to give any service because that provided -- it was a factory type of model. If you surveyed people, and we did, we found that most people going grocery shopping for a lot of people is like a chore, like taking out the garbage or doing the laundry, just something that they didn't look forward to doing. Think about that. What a weird answer that is, when you think about how fun eating is. Over our lifetimes, you can make a very strong argument that the most pleasure -- if you could quantify all the pleasure you've had in life -- food, perhaps more than even sex, would end up being quantitatively the thing in our lives that we enjoy the most.

Gardner: And if you can combine those two things ...

Mackey: That's a different story that we can talk about off-camera here. But we wanted to make shopping fun and eating fun, and to create environments where people really wanted to come be in. "Third place" is I think how Howard Schultz referred to Starbucks -- referred to Starbucks as a third place. Whole Foods is definitely a third place, because people can meet their friends, their family, and their neighbors there. People enjoy; that's one reason I don't think the Internet's going to disintermediate food retailing for many reasons.

One of the main reasons is that people actually really do enjoy coming to our stores. It's fun. Food is so sensual. You want to taste it, you want to touch it. We try to make the shopping experience so engaging for people and so pleasurable that they want to, they look forward to coming to our stores, and indeed many, many, many of our customers do. So that's a disruption; that's different than the supermarket model.

The Motley Fool owns shares of Whole Foods Market and Starbucks. Motley Fool newsletter services have recommended buying shares of Whole Foods Market and Starbucks and creating a diagonal call position in Wal-Mart and writing covered calls on Starbucks. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 daysThe Motley Fool has a disclosure policy.

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10/27/2016 4:00 PM
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