Joel next turned his sights on Resis- quisitions. At $57 million, VaTex' of the Washington, Mo.

-based Lan-
tol. A venerable western hat company long-term debt is 92% of total capital. genberg Hat Co. But he adds: "As the
from Garland, Tex. that was bought There is no immediate dangerpre- market has contracted, some people
by Levi Strauss in 1980, Resistol had tax earnings currently cover interest have been too big [to be profitable!.
bought Hat Corp. of America's brand on debt by a factor of close to two Can that happen to Mr. Joel? If the
names in 1972. But by the time Joel but even a mild sales slowdown could business goes from $75 million to $35
became interested, Resistol was los- change the picture dramatically. million, I guarantee it will happen."
ing millions for Levi Strauss, which "If the oil patch improves or we get Irving Joel does not disagree, but he
gladly sold it to Joel in 1985, a hot movie about cowboys, the mar- is sure the fashion cycle will tum to
Joel used the same strategy at Resis- ket could go to $100 million, and Mr. his advantage. "It's a crapshoot," he
tol that he had used at Miller Broth- Joel will be a very successful indivi- agrees cheerfully, "but I like the
ers. He quickly cut Resistol's ex- dual," says Roy Langenberg, president odds."
penses (by $5 million a year) and lifted
Resistol's pretax earnings (to The Up & Comers
$300,000 in the first year).
From Resistol, it was on to the best-
known western hat maker: the bank-
rupt John B. Stetson Co,, whose hat
Merchandiser
division Joel bought last December
for $13.5 million. Again Joel slashed
administrative staff, from around 80
John Mackey and his Whole Foods Market
to under 20. chain is another vivid case of how a young
With AJD at the low end. Miller
Brothers for the Sears and l.C. Penney man who wanted to do good has created a
middle market, and Resistol and Stet-
son for the high end of the western business that is doing very well.
and dress hat markets, Joel now has
all price points covered.
VaTex is turning out over 3 million
hats a year. Note, however, that half
of those are sold to the western mar-
Good food,
ket, which attracts only around 10%
of the population. That means that
VaTex has a great deal of market po-
tential in the dress hat segment.
great margins
That's where Joel intends to promote
aggressively the Stetson name.
He has a long way to go in convinc- He tends to show up for work in T
ing haberdashers that men's dress By TooiHack shirt and hiking shorts. He likens the
hats are coming around again. Dress OOKING LIKE ONE of the Beatlcs cir- structure of his company, Austin-
hat sales have yet to recover from
their 1960s slump. Retailers are so
L tca their Sgt. Pepper's Lonely Hearts based Whole Foods Market, to the
Cliih Hand album, John Mackey, 35, United Federation of Planets in Star
reluctant to carry hats that Joel has to wears his longish hair in tousled Trek (a confederation of largely auton-
fight to win shelf space from shirt, tie brown curls and sports a mustache. omous planets/stores]. He says things
and other men's apparel makers.
Sales of western hats, meanwhile,
have been virtually flat since 1981,
when the "urban cowboy" craze
spurred by the John Travolta movie
fizzled out. The oil glut, too, has hurt
a lot of Joel's western hat customers,
"Our core [western hat| marketTex-
as, Oklahoma, Louisianais an eco-
nomic disaster," Joel says. "If it had
been good, God knows what we'd
have done."
So Joel has his work cut out if he is
to persuade American men to buy
dress hats as they once did. Can he do
it? If so, how? Joel plans a fall adver-
tising blitz in magazines like I'eople
and Neivsweek and on Cable News
Network. But VaTex, with expected
hat and cap sales of over $70 million
this year, will be able to spend only $ 1
million on promotion. That doesn't
amount to many full-page ads. \K/'' :i,- I :' r- ':.'. , '-uf KwcittiivJohn Mackey. atop an Atistin sl(jr.
Meanwhile, a debt clock is ticking. "I was a hippie. But I'd had the naturalj'ootts conversion."
Joel borrowed heavily to make his ac-

112 FORBES, OCTOBER 17, 1988

 like, "We're trying to build a company
based on trust and love."
It is easy to dismiss Mackey as a
flake. Easy and wrong, Ask the ven-
ture capitalists who have fed him $4.5
million over the last few months.
Like Celestial Seasonings, the herbal
tea company now owned by Kraft,
Mackey's Whole Foods started as a
hippie outfit with a missionto get
people to eat organic foodand stum-
bled upon a big, fast-growing market.
Mackey now has six Whole Foods gro-
cery stores, which offer such products
as free-range, hormoneless chickens,
fresh bran muffins, organically grown
kumquats and packaged goods with
such brand names as Hain Naturals
and Health Valley.
The items are expensive. Free-range
fryer chickens, for example, go for
$1.39 to $1.99 a pound at the Whole
Foods Market in Houston, compared
with 89 cents a pound for a Holly
Farms fryer at the Kroger store a few
blocks away. But Mackey has discov-
ered that lots of folks are willing to
pay large sums of money to feel both
virtuous and self-indulgent at the
same time.
"I don't even pay any attention to
what the prices are," says George
Hrdlicka, 57, a Houston attorney who
shops with his wife, Judy, 48, after
they jog and work out at their local
health club on Sunday mornings. Like
many patrons, they drive several
miles, past other grocery stores, to
shop at Whole Foods.
Those high-priced items produced
an estimated $45 million in sales for
Whole Foods Market in the fiscal year
that ended m September. With the
addition of a Palo Alto store and an-
other in a Dallas suburb, fiscal 1989
sales are projected at $65 million.
Mackey won't disclose profits, but his
stated goal is a net margin of 3% to
6%a fat improvement over the
1.3% to 1.4% net margins that super-
markets usually average. Says Rich-
ard Smith of Houston's First Inter-
state Capital Corp., part of First Inter-
state Bancorp, "John couples social
concern with a keen understanding of
profitability." First Interstate Capital
has invested $2 million in Whole
Foods Market.
Mackey, who left the University of
Texas a few credits short of his philos-
ophy degree, is an example of what
one sees over and over in successful
small businesses: a young man who
got into business not to make a lot of I
money, but as a way of expressing
deeper personal concernsand to en-
joy himself. "I was a hippie," Mackey
happily acknowledges. "I just hung
out and played basketball, But I'd had T Y L E OF

'- T O S H D J I GIFT OF BEEFEATtR I N THE U.S. CALL 1900 338 7 3 ( W O WHERE P0.
\W PROOF 1D0% GRAIN NEUTRAL SPIRITS IMPOflTED FROM ENGLAND. THf BUCKINGHAM Wll
FORBES, OCTOBER 17, 1988
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the natural foods conversion."
Eager to convert others, he coaxed
$45,000 out of family and friends and
opened a small health food store
called Safer Way in Austin in 1978.
Two years later he merged it with
another to form Whole Foods Market.
A natural foods store is considered
large at 4,000 square feet. Today's
Whole Foods markets range up to
20,000 square feet and carry some
10,000 items. "I've found that many
people initially come to us for the
gourmet products [pt, radicchio,
balsamic vinegar and the like] and
then get interested in healthier eat-
ing," Mackey says.
It's hard to fault his merchandising
sense. Organically grown produce is
prominently marked, and low-fat,
low-sodium, high-fiber foods are
tagged "Heart's Delight." Each store
has an information booth, and em-
ployees are well versed in their area of
the store. Mackey's store clerks, usu-
ally health food nuts themselves, fre-
quently lead health-eonscious shop-
pers on tours of the stores' products.
"Customers find out that the people
who work here aren't nearly as weird
as they might look," says Mackey. A
bimonthly in-house publication
called Iligblighis educates patrons
about unfamiliar products like Herbal
Animal's Insect Shoo and Lundberg
Tasty Brown Rice Cakes.
In effect, Mackey hopes to do to the
organic food business what Safeway
and A&P did to the greengrocery busi-
ness a half-century ago. "The organic
market is littered with inefficien-
cies," he says. So he formed his own
wholesale operation to buy produce in
bulk and sell to his and other stores.
This helps Maekey cut the high prices
on organically grown foods. Organic
Red Delicious apples sell for 79 cents
to 85 cents a pound in season at
Whole Foods, versus 99 cents at other
health food stores. Plain Red Deli-
cious apples in ordinary stores might
go for 69 cents.
Mackey has made his share of mis-
takes. In 1985 he opened a restaurant
that cost Whole Foods $880,000 be-
fore it closed, and he built a second
Austin store so close to the first that
it cannibalized sales. But he's learn-
ing. The new Dallas store is a spa-
cious 10 miles from the other.
Venture capitalists now own 34%
of the company. Mackey has 14%,
and his father, Williamwho was
chief executive of Lifemark Corp. un-
til American Medical International
bought it four years agoowns 13%.
"1 talk to him several times a month,"
says the son. "The venture guys say,
'Well, maybe John inherited the good
FORBES, OCTOBER 17, 1988
Earn to blow people away
'the product' team al an Austin Whole l-'oods marke!
Beach balls, yoat's milk and team spirit.
T o the casual eye, it's obvious
that Whole Foods Market's em-
ployees are happy and well moti-
vated. Thank Chief Executive lohn
Mackey's team scheme. Each store
departmentproduce, meat and
seafood, and so onhas a team of
workers. While buying at big
chains is centralized, at Whole
Foods each team does its own buy-
ing, on the theory that team mem-
bers know their customers best.
That's good for moraleand prof-
its, Mackey awards bonuses based
on gross margins.
Teamwork boosts productivity,
too. If a team spends less than its
labor budget, members get to keep
the savings as bonuses. Whole
Foods saves nothing on wages but
much on such indirect costs as
benefits, since higher productivity
means fewer employees. Teams
weed out the lazier workers by vot-
ing on whether to keep new em-
ployees after a probation period of
four to six weeks,
FORBES sat in on a 7 a.m, month-
ly meeting of the Houston Whole
genes.' " Other early investors and
employees own the rest of Whole
Foods Market.
Mackey has just sent a team of 20 to
develop a California division of four
or five outlets, starting with the Palo
Alto store. He wants to top $100 mil-
lion in sales in two to three years,
when he hopes to take Whole Foods
public. By 1995 he'd like to have 30 to
Foods Market's grocery team, cov-
ering dairy items, bulk foods like
granla and most packaged goods.
About 1S team members were
dressed as for worki.e., mostly in
jeans and shorts. One member
brought his 2'/2-year-old daughter.
For a time, members tossed a beach
ball around. After working on spe-
cific problems, such as a dearth of
goat's milk, the team discussed
general concerns. Herewith, a few
comments. [Note: No one knew
the visitor was a reporter.)
"Everybody should be looking
out for tbe whole store. We're all
responsible for the entire store."
"You've just got to have that
attitude,"
"If you start something, finish it.
There's nothing worse than things
being done half-assed."
"If we got more efficient, the
store would look better, our bonus-
es would be better, and we'd just
feel better."
"If people have a problem with a
product, open it up and let 'em try
it. That blows people away."T.M.
40 stores.
"My greatest fear," says Mackey
the businessman, "is that the market
will grow so fast that the major play-
ers [big chains like Kroger and
Safcwayj will step in." But then, re-
membering the convictions that got
him interested in organic eating in the
first place, Mackey adds; "It's also my
greatest hope,"
115
SNOOPY: 1958 United Feature Syndicate, Inc. 1988 Metropditan Life Insurance Co.. NY, NY
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