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Whole Foods fights back

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, which is building a store in the Northtown Plaza in Amherst, has created a nine-point turnaround plan aimed at making 2016 a better year.

Mackey spoke 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?

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.

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.

Instead of waiting for the executive team to talk everything through and decide what our response is going to be, we essentially deputized a small group of people to be right on it, so we can respond more timely. Part of our problem was not responding quick enough. Media is so 24/7, if you are couple days behind, then you might as well be a couple years behind.

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. Everybody is copying us.

So clearly, what we are doing is working. 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 sort of a short cut for lazy thinking because there are so many other factors that go into business success.

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: I don’t know where all these “going private” rumors come from. We don’t tend to comment on rumors, but that’s what those are, just rumors. We don’t have any announcements. We are not working on anything. I don’t want to say point-blank Whole Foods would never go private because that could be used against us if we changed our mind. But it’s ... just rumors.

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-points (plan). Some of the points that we emphasized there: We are cutting costs, we’ve cut a 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.

The narrative out there of “whole paycheck,” that’s ... why I think the asparagus water became national, why I think the (New York price errors) story became national, because that feeds that narrative. Produce contradictory information to that narrative, and it’s not well-received.

I read practically every week some journalist goes out, supposedly picks 30 random items from Whole Foods and 30 random items from Kroger or Trader Joe’s or H-E-B or Wegmans or whatever. I mean, 30 items? We have 30,000 items. If you can ... pick 30 (items) Whole Foods does the worst on, that’s a story you can publish. And I think that’s done again and again because of that particular narrative.

Q: Anything else you wanted to talk about?

A: I think that one of the things that ends up happening oftentimes in the media and Wall Street is they tend to exaggerate trend lines. Wall Street does it because they are very spreadsheet-focused.

They do spreadsheets, and then they map out your business based on spreadsheets.

Spreadsheets make assumptions that trend lines will continue and then that spreadsheet becomes more real for them than the business itself. And the media ... tends to sensationalize things. So one thing is going to happen in 2016 is a lot of these trends will reverse themselves.