John Mackey talks about slowing same-store sales and how the company intends to improve its stores.
AUSTIN, Texas — Whole Foods Market co-founder and co-CEO John Mackey makes no bones about it: 2015 was one of the toughest years ever for the organic foods giant.
Now, Austin-based Whole Foods is rethinking its business and revamping its brand to do battle with a growing army of competitors. The retailer has created a nine-point turnaround plan aimed at making 2016 a better year.
Mackey sat down with the Austin American-Statesman to talk about the challenges the company is facing, and about what he expects the new year to bring.
Q: What was 2015 like for Whole Foods Market?
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A: It was a challenging year for us for sure. We saw our same-store sales continually slow down, quarter by quarter. I cannot remember any year we received this much negative media coverage. We felt like a lot of things were just blown way out of proportion.
The New York (City’s Department of Consumer Affairs) event (saying we overpriced items there), was making a mountain out of a molehill in the sense that every year in every city you are going to have weights and measures mistakes, and that’s true of every supermarket of America. Perfection is not quite possible there. And that one got national news coverage. And I mean — not to say we don’t take it seriously — but the fact that got national coverage was a surprise to us. (Whole Foods said Monday that it agreed to pay $500,000 to New York City to settle the overcharging allegations.)
Then, you have the infamous ($5.99) asparagus water. Do you realize … we only sold one bottle of asparagus water in one store that was mispriced? And the guy who did the pricing, it was his first day on the job. And it was national news. And I think trying to get that corrected, no one was interested. It was very frustrating for us.
Q: How do you think Whole Foods responded in these challenging moments?
A: It’s kind of like when you are accused of something, it’s very difficult to prove your innocence in the court of public opinion when people want to believe what they want to believe. So we made some changes going forward. … We created a crisis team who can respond quickly and be on point for this stuff.
Q: So, what Whole Foods is doing — is it working?
A: Sure, it’s working. We’re over $15 billion in sales, we have EBITDA (earnings before interest, taxes, depreciation and amortization) of $1.3 billion (for fiscal year 2015). We have great returns on investment capital. We have 91,000 team members.
The stock market is quite obsessed with one metric and that’s same-store sales growth. The fact that slowed down has caused the stock price to fall primarily.
It’s kind of the law of big numbers, it’s harder to compound at the same rate. And yet the market is kind of obsessed with that one metric, forgetting the fact that Whole Foods had double-digit same-store sales growth year after year after year after year. It’s just much harder to do that.
Plus, we’re the first to admit, we have a lot of competition because of our success. People are copying us. … We used to beg people to write articles about us. We were just seen as a bunch of hippies selling food to other hippies. So I’m kind of very proud of the fact that Whole Foods has really changed the world, that the whole-food industry has changed because of Whole Foods Market.
On one hand, we fulfilled our higher purpose of the company, changing the way America eats. But one of the consequences of our success is imitation and competition. That’s the way capitalism works. So we have to get better. We have to differentiate ourselves, we have to improve ourselves, we have to be more relevant on price.
Q: Reports of Whole Foods planning to go private have persisted throughout the year. What’s your take?
A: We don’t have any announcements. We are not working on anything. It’s rumor and speculation.
Q: What do you see happening in 2016 for Whole Foods?
A: I think the biggest thing that is going to happen for Whole Foods is the nine-point (plan). Some of the points that we emphasized there: We are cutting costs; we’ve cut significant amounts of money out of our cost structure already and we’ve pledged that by the end of 2017 we’ll have a run rate of $300 million reduced from the end of fiscal 2015. That’s a significant amount of money. And … some of that money is going to be invested in lower prices all through the store.
We are going to increase our differentiation. We are going to innovate more. We are going to do a better job of marketing or explaining and communicating those differentiations of our quality standards. … The world of marketing is changing so rapidly to the digital revolution and social media. So we are going to double down in our investments in those particular areas.
We are starting a new format that we are really excited about (365 by Whole Foods). The stores are smaller and they are going to be a curated product mix.
One of the things that hurts Whole Foods Market’s price image is that — because we are the highest quality food store — we have a lot of expensive items in the store. If you go down to our wine department, you can find $2.99 bottles of wine … but you can also find $500 bottles of wine. I have taken TV cameras in there and they go and they find the $500 bottles of wines. They are not interested in a $2.99 bottle of wine.
Produce contradictory information to that narrative, and it’s not well-received.
In addition, we are going to invest less capital and have lower labor costs, which will allow us to operate the stores more efficiently and that will enable us to have lower prices. So 365 stores will be far less expensive.
Q: Tell us about the hiring of Tien Ho to fill the new position of global vice president of culinary and hospitality.
A: One of the things that happens in business sometimes is that your company evolves in ways that you don’t anticipate it evolving. The very first Whole Foods Market … we didn’t have any prepared foods. We subleased out a smoothie juice bar to a company called the Martin Brothers (they have since ceased to exist), but we didn’t do it ourselves. And … the No. 2 store didn’t have any prepared foods at all. And now we look up and we’re doing $3 billion in prepared food sales.
We are operating some of the highest volume restaurants in the United States in some of our stores. And we have found that as we have just tried to meet market demands, that we are operating very successful restaurants and yet we are not as consistent there as we should be. The quality is not as good as it should be. Sometimes we have great prepared foods — I travel around — and sometimes not so great.
So the market is telling us they want us to be in this business and yet we think we have a lot of room to improve there.