The Story of T. Rowe Price’s Longtime Investment in Whole Foods Market

I recently interviewed Whole Foods Market (NASDAQ: WFM  ) co-founder and co-CEO John Mackey in front of a live studio audience at Motley Fool headquarters. Mackey just published Conscious Capitalism: Liberating the Heroic Spirit of Business with co-author Raj Sisodia, and stopped by our Alexandria, Va., offices on his book tour.

Mackey and Sisodia make a compelling case for moving away from so-called shareholder capitalism, which posits that the one and only aim of a business is to create value for its investors, toward a multi-stakeholder model in which a business should serve customers, employees, suppliers, local communities, the world, and, yes, shareholders.

The company that can satisfy all those constituents will make its investors very happy, they argue. Whole Foods is a case in point, up more than 2,700% since its IPO in 1992.

I asked Mackey how public companies can keep their shareholders patient and focused on the long term when it seems like most investors' attention spans last three months (if that long). In the book he details his experience with longtime Whole Foods investor T. Rowe Price (NASDAQ: TROW  ) -- which has been invested in the grocer since that 1992 IPO -- and in the clip below, Mackey elaborates on the partnership. (The run time is 3:21; there's also a lightly edited transcript below):

Brian Richards: In the book you tell a story about one of your biggest investors, T. Rowe Price, and the relationship you guys had with T. Rowe when --

John Mackey: And still do have --

Richards: And still do have -- when the stock price went from the mid-$70s down to around $10 a share. Could you share that story, and tell us how long you built that relationship with the team at T. Rowe?

Mackey: Well T. Rowe invested in our IPO, so in one form or fashion, T. Rowe's been an investor in Whole Foods for -- we went public in January 1992, so 21 years they've been investors in our company, and some of the portfolio managers are still there that were on the IPO.

I remember when the financial crisis hit and we watched our stock just melt down. I watched it go from a high of $69 down to I think it got as low as $7 one day. We were trading at two times our cash flow. It was really a once-in-a-lifetime buying opportunity.

And Leonard Green came in and made a private equity investment to shore up our liquidity, it was the best investment they ever made and they've now, my estimate, they've made, over $435,000 investment, they've made over $2 billion dollars before they cashed out and of course they're a hedge fund or private equity fund which means that they get 20% of the gain to keep and they divided that among their five partners. It's not a bad payday for people that stepped up and invested when everybody else was panicking and selling.

T. Rowe has been amazing, and when we were down, I would go visit those guys, and of course lots of the other institutional investors are beating you up -- because I always like to say when the stock price is up, people consider themselves to be brilliant investors, and when the stock price is down they think the CEO's an idiot and why are you managing your company like everybody else is managing it, they start second guessing everything you do.

So the investors are easy to please when the stock is up. When it's down, they can get on your case, but T. Rowe is different. We would go meet with them and they would say, We just want you to know we think you have a great company, we've been investing since the very beginning, this is a very weird time that we're in right now but this is going to pass, so don't do anything stupid. Stay the course, they were basically telling us to keep working for the long term; you've got a great business model, you've got a great business franchise, great brand. This'll pass and the stock'll go back up again, and we're going to weather this with you.

It was amazing, particularly after you go around and you just keep getting beat up, and you come in here and it was like a safe harbor. I'll never forget it, and I'm so happy that T. Rowe's made a ton of money investing in Whole Foods. It's been a very good investment for them.

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