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Mackey: That question kind of assumes I knew what the heck I was doing back then. I mean, I had just turned 25 when we opened Safer Way. My girlfriend who co-founded the company with me, Renee, was 21, and we didn’t have any grandiose plan. We thought opening our own store would be fun. We could make money to support ourselves and we’d be providing food that would nurture and help people be healthier.
Safer Way was a vegetarian store; we didn’t sell any meat. We sold a lot of bulk foods, produce. We had a little vegetarian cafe on the second floor. We had an office on the third floor which also served as where Renee and I lived because the office couch was a futon that we could fold out at night. So we literally lived above the store, and it was fun.
reason: What were the guiding principles or ethics as they evolved in the first couple of years?
Mackey: We were selling food that you couldn’t find in conventional supermarkets back then. We were selling lots of organic produce. We did a huge business in bulk foods in the early days. We had tofu. I mean, nobody sold tofu in Austin, Texas, in the 1970s.
We sold bulk honey and maple syrup. You have to remember that in the late ’70s the industrialization of the food process was pretty well complete, and most people just ate foods out of frozen dinners, TV dinners, and macaroni and cheese out of boxes or cans. The whole idea of eating a whole food natural diet was kind of a revolutionary act back in the late ’70s and early ’80s.
Now that’s changed as we’ve become more successful. All our competitors picked up a lot of the foods that we sell, which forces us to innovate and come up with new value propositions for our customers.
reason: How do you decide to site a store?
Mackey: Well, there’s no more important decision that you’re going to make than where you locate a store. If we’re going to invest, depending on the size of the store, anywhere from $8 million to $20-plus million in capital for a new store, and sign a lease of usually 20 years or longer, we’re making a long-term commitment and putting up a lot of capital. So we spend a lot of time and energy sorting through that. We do site analysis. We analyze our competition in an area. We look at the demographics of who’s living there. We look at education levels, income. There’s a whole bunch of variables, but I think by far the most important variable is the number of college graduates within a 16-minute drive time.
reason: Why is that?
Mackey: I don’t know exactly why. I can tell you that about 80 percent of our customers have college degrees. I can speculate that our customers, on average, are better educated and better informed. And a college degree, while not a perfect proxy for that, is the best we have in terms of demographic data that we can get. If people are going to change their diets and become more health conscious, they need to be generally better informed. Otherwise, you tend to eat the diets that you ate when you were a child. Most Americans don’t eat diets that are particularly healthy, so it takes conscious effort to alter your diet and your eating and shopping patterns. And that correlates with education.
reason: You recently completed a merger with Wild Oats, another national chain of organic stores. You had to go through the Federal Trade Commission, and they blocked it. Why?
Mackey: The FTC argued that Whole Foods Market had a monopoly position in a narrow market, which they called the “premium natural and organic supermarket market,” and that if Whole Foods and Wild Oats merged, there really would be hardly anybody left in that category. And of course our position was that we don’t compete against just stores in the premium natural and organic supermarket market; we compete against everybody retailing food. We compete against Safeway and Kroger, Trader Joe’s, Wegman’s—we’ve got more competition than we’ve ever had before. So it’s all about how you define the market. They chose to define it in a very narrow fashion, and we define it in a much larger fashion, and that was what the argument was about. We’ve done a lot of mergers in our history, and this is the first time we’ve ever had one challenged.
reason: Isn’t that a sign of success, when you finally get challenged?
Mackey: Is it a sign of success when the government starts hassling you? I don’t know. I guess so. I mean, it was a bizarre experience. It’s not one I want to go through.
It wasn’t a good experience, I’d have to say. We received a lot of negative publicity about it. They downloaded all my emails and a lot of stuff I’d prefer that nobody read, particularly the government lawyers, and they basically treated us as if we were criminals or guilty of some horrible crime for just being successful. So it cost us tens of millions of dollars in legal fees and countless hours of management time. We had to prepare millions of documents. It’s not possible that they could have read all those documents.