Another milestone for Whole Foods
Source: Austin American Statesman
by Michelle Breyer

Another milestone for Whole Foods
Homegrown grocer's new headquarters hailed as investment in a heathly Austin

By R. Michelle Breyer
AMERICAN-STATESMAN STAFF
Friday, June 6, 2003
Bulldozers have begun moving mountains of dirt to make way for Whole Foods Market Inc.'s new corporate headquarters tower and the largest store in the company's history.
It is an event with implications far beyond the dusty tract at downtown's western edge.
The development signals the intentions of one of the area's largest and most successful companies to expand in Austin at a time when corporate relocations and expansions have been nearly nonexistent.

When the development opens in early 2005, Whole Foods will have more than 900 employees downtown, becoming downtown's largest private employer, with employment forecast to grow to 1,200 over the next decade.
City leaders say the project represents the type of economic development they want to encourage.

"They're dedicated to good, healthy food," said City Council Member Betty Dunkerley. "It's a homegrown company. They're exporting a little bit of Austin to a lot of different places. I think the most important thing to them is contributing to and being in this community."
"Whole Foods could go anywhere in the country," she said. "Having them stay here is so important, both symbolically and because of the real impact they're going to have here."

The project's earth-moving phase began three weeks ago. The 80,000-square-foot store and 200,000-square-foot office tower at West Sixth Street and North Lamar Boulevard will go up less than than a mile from where Whole Foods got its start 25 years ago as a tiny health food store. It is now the dominant company in its industry, with $3.2 billion in annual sales and 143 stores in the United States and Canada.

"This is actually our fourth metamorphosis," said Whole Foods Chairman John Mackey, looking more like a beach bum in his Hawaiian shirt and khaki shorts than the head of a company that is on target to crack the Fortune 500 list next year. Thursday night he was named Entrepreneur of the Year in the annual competition sponsored by the Ernst & Young accounting firm.

In 1978, Mackey, then 25, started a health food store in an old Victorian house at Eighth and Rio Grande streets. The Safer Way Natural Foods headquarters was a third-floor room where Mackey slept on a futon.
Two years later, Safer Way morphed into Whole Foods Market Inc. in a former nightclub at 914 N. Lamar Blvd. The headquarters consisted of rented offices across Shoal Creek.

In 1992, the company started selling stock to the public. Three years later, Whole Foods, then a chain of 40 stores, moved to its current location at the northeast corner of Sixth and Lamar. Mackey and other executives work in modest offices above the 36,000-square-foot store.
The past eight years have been a period of meteoric growth for Whole Foods. The company has bought up other natural and specialty food chains and moved into high-profile markets such as New York City. Last year the company went international, opening a store in Toronto, with plans to open a store in Vancouver, British Columbia, next year.
The company has prospered by building stores that combine natural and organic foods with gourmet products and a wide variety of perishables -- produce, meat, seafood, baked goods and prepared foods.

Even as many traditional supermarket chains are fighting sales slumps, Whole Foods sales have risen.
"We think Whole Foods is actually taking market share from larger, more conventional grocers," said Mark Wiltamuth, an analyst with Morgan Stanley who follows the food and drugstore industries. "Because they've made the store experience more inviting, they're picking up more mainstream shoppers. They've established an interesting niche, and they're exploiting it."
Whole Foods has celebrated milestones and faced challenges over the past year.

Last year, workers at its Madison, Wis., store voted to unionize, and union officials say other stores may follow suit.

Second-quarter sales didn't meet the company's expectations, and sales at stores open more than a year -- a benchmark for retailers -- rose only 7 percent -- high by food industry standards, but on the low end for Whole Foods.

Whole Foods stock hit an all-time high of $62.24 a share in early May but fell sharply after the company said sales this year will be at the low end of its forecasts. On Thursday, the company's shares closed at $50.75, down $1.92.

"From our standpoint, we don't think the growth story is over by any means," said Carole Buyers, managing director of equity research for Denver-based RBC Capital Markets, who has followed Whole Foods for seven years. "But we do think it's taking a little bit of a breather."
Mackey projects that his company will grow to 300 stores and $10 billion in sales by 2010. But to maintain that kind of trajectory, Whole Foods must continue to innovate and take risks.
"Our core values have remained the same, but everything else has changed," said Mackey, 49. "You have to get better or you get left behind. The new (Austin) store is a reflection of that."

In 2001, Whole Foods was looking at ways to remodel the 7-year-old store and was searching for a site to build a prototype for a much larger store. The company also had outgrown its nondescript headquarters above the store.
Mackey, known for his flashes of inspiration, looked across the street one day at the empty lot, and an idea began to form.

In December 2001, Whole Foods officials began talking to Schlosser Development Corp., which had been trying for nearly a decade to develop a retail and entertainment complex on the land. The project had hit repeated roadblocks, and many downtown observers were questioning whether it ever would happen.

For developer Brad Schlosser, signing a deal with Whole Foods meant discarding his original vision but gaining a tenant with the financial strength and the cachet to make his long-delayed project a reality. Schlosser will own the building and will also take over the current store, which he plans to redevelop.

After getting the nod from its board, Whole Foods signed a letter of intent in January 2002, and the deal was finalized three months later.
From his office across West Fifth Street, Schlosser has happily listened to the construction din over the past three weeks.

"It's hard to convey how elated we are," Schlosser said about the groundbreaking. "There have been a lot of ups and downs, a lot of naysayers, a lot of difficult times internally. There's no doubt there's some vindication there."

That's not to say it's been all smooth sailing since Schlosser and Whole Foods joined forces. In recent months, the project has been caught in the crossfire of a controversy over city incentives for the development, which then included Borders Books and Music.

A group called Liveable City, with "Keep Austin Weird" as its rallying cry, organized to fight incentives for a development that the members viewed as a threat to nearby, locally owned businesses such as Waterloo Music and Book People. In April, Borders pulled out of the project. Dunkerley said Whole Foods has not asked for incentives.
Mackey said he was frustrated that his company got sucked into the dispute, which he says has nothing to do with his project. And he was surprised by the negative comments lobbed at his company. "We're an original weird business," Mackey said.

The project also has been slowed by design changes, including reducing the height from seven to six stories and adding plazas and walkways.

The final design by HKS Architects of Austin will include a community and education center for meetings and cooking demonstrations, indoor and outdoor eating areas and a 25,000-square-foot roof garden and plaza with an amphitheater.

Rainy weather has postponed the formal groundbreaking, scheduled for today, until July 10. In the meantime, the backhoes and bulldozers will keep working on a project that many civic leaders hope will be a symbol of a reviving economy.

"Whole Foods is so important to Austin," said Charlie Betts, executive director of the Downtown Austin Alliance, a coalition of downtown property owners. "Having their world headquarters in downtown Austin is a big deal. Having their flagship grocery store downtown certainly makes residential development even more attractive. This is one we want to celebrate."

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