The Whole Foods Rebellion | Vision Quest | 1

0:09Austin, 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. He strolls over to the phone in the hallway. Outside, the storm's getting worse. Rain pounds the windows. Mackie reaches the phone. It's John. He hears his girlfriend Renee Lawson on the line. John, I'm at the store. The creek's rising fast. Should we be worried? 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.

0:59It's also located in a flood zone. Mackie 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.

1:25Thirty 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? 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.

2:11Mackie 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.

2:56But 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.

3:26The morning after, Mackie 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 freezers beyond repair. They estimate they've suffered$400 ,000 worth of damage. The cash Mackie 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.

4:10Whole Foods seems doomed. Sunk before it can even open a second store. And it will need a miracle to save it from oblivion.

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6:30From Wondery, I'm David Brown, and this is Business Wars.

6:55This season, we'll tell the story of Whole Foods Market, and for me, well, it's personal. See, I live in Austin, the hometown of this trendsetting 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.

7:32and it too took pride in being anti-corporated, 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.

8:17What 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.

8:45It'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.

9:30They live in straight-laced Houston and hoped Mackey 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 scoot nuts, beans, and seeds straight out of the barrels. One evening, Mackie returns to the commune and tells his girlfriend Renee Lawson that he's had a light bulb 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.

10:10That'd be groovy. She suggests naming the store Safer Way. It's a play on the supermarket chain Safeway. Mackey 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 Mackey 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 Mackey's shown any initiative since he quit college, so his dad puts up some of the money, as do some of Mackey and Lawson's friends.

11:00Armed with a startup fund of$45 ,000, Mackey and Lawson rent a cheap Victorian house and start renovating it. Her cafe will be upstairs, his natural food store downstairs. 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 Mackey 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.

11:44The 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.

12:28And 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. Mackey and Lawson start arguing. They realize they can't keep on living like this. Mackey 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.

13:07What 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, Mackey'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.

13:51Mackey 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.

14:36But to open his supermarket, Mackey needs new premises and money to pay staff and buy stock. Time to visit Dad again.

14:48It'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? What? Chemical-free foods are going mainstream. There's already similar supermarkets elsewhere. Mrs. Gooch's in Los Angeles, Bread and Circus in Boston.

15:28Now 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.

16:07It 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, Will. 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.

16:46How's that? A few weeks later, Mackey persuades a wealthy Safer Way customer to invest$50 ,000. Mackey's dad makes good on his promise. Armed with the new investment, Mackey 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. Mackey 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.

17:31Skiles 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, Mackey, 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.

18:15But the shoppers don't seem disappointed. From day one, Austin's hippies flocked 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 ringing up sales of$200 ,000 a week. Mackey, Lawson, Skiles, and Weller have struck gold.

19:00But 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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22:47May 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.

23:28He just promises the bank will carefully consider Whole Foods' loan application. Mackey 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 Mackey'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.

24:13Under 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 Mackey or the other Whole Foods co-founders what he did. Mackey only learned what happened years later after Monroe died.

24:56He 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.

25:18It'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 ropes. Nearby, another employee's 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. Uh, that's a Sarah Lee muffin. What? No, Barbara bakes everything herself.