THE SHELF LIFE OF JOHN MACKEY Whole Foods' eccentric founder changed the way Americans consume food. Can he survive the Wall Street forces that now want to consume him? JUNE 2017

Editor’s Note: On June 16, 2017, Whole Foods agreed to sell itself to Amazon for $13.7 billion. This is the exclusive story that led up to that momentous decision for the Austin-based grocery giant.

Monday, April 10, was going to be a big day for John Mackey, but he had no idea how big it would turn out to be. The co-founder, CEO, and spirit animal of Austin-based Whole Foods Market was flying to New York to launch a tour to promote the publication of his second book, The Whole Foods Diet (summary: Go vegan, or mostly vegan). He was set to lead things off at the Lower Manhattan headquarters of Goldman Sachs, in a gleaming tower overlooking the Hudson River, as part of a speaker series at the powerful investment bank. Mackey was going to follow that event with a signing at a nearby Barnes & Noble, an interview on CBS This Morning, and a handful of other appearances.

As he stepped off the American Airlines flight at JFK (Whole Foods doesn’t own a jet, and Mackey flies coach), his phone lit up with urgent text messages and voice mails. A hedge fund in New York called Jana Partners had snatched up almost 9 percent of Whole Foods’ stock and announced that it would pressure the company to either overhaul its business or sell itself—perhaps to another grocery giant, such as Kroger, or to a less traditional player, such as Amazon. Mackey and other leaders might have to be replaced. A media frenzy ensued, and the PR team who had carefully staged what should have been a traveling celebration of their boss as a thought leader shifted into immediate crisis mode.

“From that moment on, I was drowning in it,” Mackey says, “including when I got to Goldman Sachs. The CEO of Goldman [Lloyd Blankfein] wanted to meet with me because, of course”—he adopts a sardonic tone, a tic that tends to make his handlers stiffen up—“ ‘Goldman Sachs would love to represent you. If you guys are going to be sold, we’d love to make one hundred million dollars doing that. Don’t forget your buddies at Goldman Sachs!’ ” (A spokesperson for Goldman says no such meeting occurred.)

Mackey tells me this story in a modestly sized corner office at Whole Foods headquarters, in downtown Austin, a couple of weeks later. It’s a warm late-April day, and the afternoon sun beats in through the windows, which frame a view of the West Austin hills unfolding gracefully on the horizon with the booming neighborhood that has risen around the Whole Foods mother ship in the foreground. “This used to be my office, but I learned it didn’t have good feng shui,” Mackey says with a slight twinkle in his eye (I can’t tell if he’s being serious).

It’s unbelievable timing, I note, that the Jana news would come out precisely as he was beginning his book tour—so unfortunate, because he presumably didn’t want to be out doing public events while controversy swirled around his company. “The timing was intentional,” Mackey says curtly. He tends to speak softly, and he presents himself like your rumpled, slightly kooky uncle until something snaps him to attention and a take-no-bull streak reveals itself. “They hijacked my book tour. It’s not that I think that they were trying to harm the book tour. It’s just like, ‘Okay, the CEO is going to be distracted. He’s not going to be able to give full attention to this.’ ” (Jana Partners declined to comment for this article.)

The PR team started canceling Mackey’s media appearances—“a lot of media,” he says. Gayle King and the crew at CBS This Morning wouldn’t promise to stick to happy veggie-book chatter and ignore the Jana drama, so Mackey’s staff even backed out of that plum booking.

“We were reeling,” Mackey says. “I hadn’t even had a chance to talk to my team. We didn’t have any bankers in place. These guys just—it was like kicking you below the belt. Usually when these things happen, you get fair warning. They let you know, ‘Hey, we’re going to be buying some stock. I want to meet with management.’ ”

I had asked to spend some time interviewing Mackey several weeks before the Jana Partners crisis erupted. The company had surprised the business world last November when it announced that 25-year Whole Foods veteran Walter Robb—who had shared the CEO role with Mackey for six years—would be stepping aside, making Mackey the sole CEO. Mackey, in the co-CEO role, had acted less as a traditional executive and more as a kind of spiritual leader, with Robb handling more of the day-to-day matters. By January, the founding-father-philosopher was running things alone, which made some investors nervous.

It had been an eventful two or three years leading up to the leadership change, which made his new position even more interesting. Whole Foods’ stock price topped out at $65 per share in late 2013, and shortly thereafter, Fortune published a cover story called “How Whole Foods Is Taking Over America.” The company had doubled its revenue and tripled its profits in the seven years prior, the article touted. The company was looking to triple its number of stores, from 400-something to around 1,200. It was basking in the feel-good glow of having opened a risky store in Detroit in 2013, at that city’s nadir, which led Cory Booker and Rahm Emanuel to ask the company to please, please open up in Newark and the South Side of Chicago, in the hopes that the halo effect of a Whole Foods store would give those areas a much-needed boost.

But by the time the company announced its leadership change, the mood around headquarters had sagged. The company faced challenges on all sides. In 2016, Kroger, the nation’s largest mainstream supermarket chain, passed Whole Foods in annual sales of natural and organic products. Trader Joe’s and Sprouts Farmers Market were attacking on another front with nimbler, cheaper, foodie-focused stores. Food costs were deflating across the industry, thanks to larger economic trends and a renewed focus on lower prices by Walmart. Amazon was nosing into the grocery business. Meal-kit start-ups such as Blue Apron were changing shopping habits. Two German supermarket giants, Aldi and Lidl, were planning an all-out assault on the U.S. market. And a pair of overpricing scandals in 2015 had given new life to Whole Foods’ longtime reputation for causing sticker shock in the checkout line.

After its high of $65, Whole Foods’ stock price had gradually lost more than half its value, and it has hovered around $30 for two years. The company had reported six successive quarters of declining same-store sales (a key measure of retailers’ health that compares existing stores’ sales with their sales a year earlier), and a 3 percent decline in store traffic in the same period (that’s roughly 14 million fewer customer visits, a Barclays analyst reported this March). In its February 2017 first-quarter-earnings call, Whole Foods walked back its plan to open eight hundred more stores.

The year 2017 was going to be a critical moment for Whole Foods and Mackey, so I was curious what life was like for him in this new reality, now that he was back solo in command. The company agreed it would be a good opportunity to tell his side of the story and decided to cooperate. Then, days before I was to start reporting, Jana announced its siege, offering a front-row seat to Mackey’s scramble to keep hold of his life’s work.

“These people, they just want to sell Whole Foods Market and make hundreds of millions of dollars, and they have to know that I’m going to resist that,” Mackey said to me at one point. “That’s my baby. I’m going to protect my kid, and they’ve got to knock Daddy out if they want to take it over.”

To understand the crisis facing Whole Foods, rewind past the recent slump, past the farm-to-table frenzy of the previous decade or so, and go all the way back to 1978, when then 25-year-old Mackey launched the store that would become Whole Foods Market. As with most iconic brands, the founding story of Whole Foods has entered the annals of business lore.

Mackey grew up in Houston’s well-to-do Memorial neighborhood eating the typical mid-century American diet of TV dinners, hamburgers, and mac and cheese. He didn’t care a hoot for health food until after college, when he moved into a vegetarian commune in Austin called Prana and became the resident food buyer, then took a job with a local health-food store called the Good Food Company. He’d attended the University of Texas at Austin, as well as Trinity, in San Antonio, shuttling back and forth between the two over the course of six years, taking classes in religion and philosophy and whatever interested him (certainly not business) but never ended up getting a degree.

One night, after he’d worked at Good Food for about six months, he came home, enraptured with his newfound fascinations with food and retail and approached his then girlfriend, Renee Lawson, about opening their own store. “It’d be so much fun,” he told her. They raised $45,000 from friends and family and opened a store called SaferWay in 1978, in an old Victorian house on Rio Grande and Eighth Street, not half a mile from today’s global headquarters of Whole Foods. When they got kicked out of their apartment for using it as a stock room, they moved in above the store and showered in a back room using a hose from the dishwasher.

Mackey’s studies and life in the commune had led him to a predictably progressive worldview. But as he worked to build his store, he developed a new, more business-friendly set of beliefs. He’d been reading a lot of Milton Friedman and other staunchly free-market economists. After about two years of running SaferWay, Mackey learned that building a successful health-food store might require some compromises on his ideals. SaferWay “was, like, a super-healthy store,” he remembers. “It was vegetarian. We didn’t sell sugar. We didn’t sell meat. We didn’t sell alcohol. And we didn’t do any business either. We were averaging about $10,000 a week in sales, and I began to realize that we needed a bigger store, and we needed to make our product mix a little bit less narrow.”

He persuaded Craig Weller and Mark Skiles, the owners of a competing store called Clarksville Natural Grocery, to merge with him and open a 10,500-square-foot natural-foods emporium on Tenth Street called Whole Foods Market. The store was two or three times the size of a typical natural-foods store at the time, and it blurred the lines around what such a store should or could sell. Whole Foods sold meat, alcohol, and sugar—and people, naturally, bought the stuff. It wasn’t just a place to buy a few sacks of bulk grains but an actual full-service grocery store that didn’t allow preservatives or artificial colors or flavors. Within six months, Whole Foods was the highest-volume natural-food store in America. “So we knew we’d hit on something that was a good idea,” Mackey says.

It was also the first time Mackey was accused of being a sellout. Among the co-op crowd, he suddenly looked like a craven capitalist—“Darth Vader,” some called him—even though he felt as though he was still an idealist. As he saw it, he had just added a dose of pragmatism to his vision. If people were going to buy meat and beer anyway, at least try to sell them good meat and beer. Maximizing the amount of money the store made wasn’t an end in itself; it was a means to achieving the store’s higher purpose.

Mackey calls this phase of his life an “awakening,” a realization that if your business motives are so pure that you can’t create a business around them, you’ll never accomplish your mission. And a corollary: Haters gonna hate. You have to persist in the face of them.

“Here’s the thing,” Mackey says today. “I’m just a guy. I’m an Austin, Texas, guy who built a business. It’s a lot bigger than I ever thought it would be. I’m a little older, I’m a little bit wiser, but I’m still the same guy. I just show up as who I am. I’m not trying to bullshit anyone. I’m just showing up in my authentic self. Some people love that. Some people don’t like the self that shows up. Ultimately, I don’t really care. I’m just gonna be who I am, try to be a good person, do the right thing, build a great company, and let the world think what it wants to think.”

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