In the second of a two-part series, WholeFoods continues its coverage of interviews with 10 influential industry members. The first five interviews were published in our February 2010 edition, and the remainder appear in this issue. Interviews for this part were conducted from November 2009 through February 2010.
Co-Founder and CEO, Whole Foods Markets*
The natural products industry is home to some incredible entrepreneurs. One of the biggest successes is none other than Austin, TX-based Whole Foods Market and its co-founder and CEO John Mackey. Boasting 54,000 employees and more than 270 locations worldwide, this natural products chain is one of the most powerful retailers in the industry. After all, “getting into Whole Foods” is what many young companies shoot for; the outcome can make or break you. Many independent retailers feel this way, too, as the expanding chain has caused some stores to close up shop or be acquired by the industry giant. Nonetheless, Whole Foods is a market leader, and its vision of the natural and organic industry has affected every aspect of the business.
Mackey fell in love with retailing and the world of organic foods as a part-time employee at a natural foods store called Good Foods. In 1978, he and his then girlfriend scraped together $45,000 with the help of family and friends to start the SaferWay food store on the first floor of an 1800s-era home. They also lived in the house—and ran a restaurant out of it. Mackey often speaks about these meager beginnings, particularly using the hose from their dishwasher to bathe because they didn’t have a shower (1).
Just two years later, this sharp business mind already was fixed on mergers and acquisitions. He convinced the owners of another small store to merge with his shop, and together they started the first Whole Foods Market. At 10,000 ft2, the shop (what was once a night club) was huge and they had the room to bring in everything from granola to wine. “The idea was to go beyond the movement’s old tofu severity, the air of judgment and self-abnegation. Their version of decadence seems Spartan now, but at the time it represented a cultural shift,” according to a recent profile on Mackey (1).
Mackey had his fair share of ups and downs while growing this business, but it wasn’t long before he and his colleagues opened new locations, expanded out of state and eventually took over other businesses like Bread & Circus, Mrs. Gooch’s, Fresh Fields and, most recently, Wild Oats Market. Throughout its history, the chain has been a leader in many aspects of natural products retailing. Choosing to offer only high-quality natural and organic products is first and foremost. In fact, the company’s Quality Standards team refuses to sell products that include items on its “unacceptable ingredients” list. In turn, many manufacturers use this list when considering new product formulations and even industry standards. In 2008, the firm launched its Premium Body Care seal, for example, which the company only puts on products after they have been scrutinized for safety, naturalness, efficacy, environmental impact and labeling.
Whole Foods was also one of the first visionaries to make food shopping “an experience” with beautiful displays of produce, cheese and grains. Likewise, it is known for its vast prepared foods section that makes shoppers come and stay a while.
From a management standpoint, Mackey’s grassroots beginnings helped create a unique culture at the company. Whole Foods places every employee on self-directed Teams (always capitalized by management), the lowest levels of which are rewarded for teamwork and given special responsibilities. Important financial information is targeted at staff members, as opposed to press or the public, creating an environment of trust and loyalty (2). This “empowering” work environment that values Team Member happiness and excellence, as the chain puts it, may be part of the reason why Whole Foods has been repeatedly featured as one of the “100 Best Companies to Work For” by Fortune.
Mackey has been in the news numerous times over the past couple years, most recently for his resignation as chairman of the board and for his controversial comments on healthcare reform. One can’t help but wonder what’s next for him and for Whole Foods. Earlier this year, Mackey stated, “I don’t have any plans to leave anytime soon, no matter how much the unions would like me to.” And what of the store? “Whole Foods has to continually evolve and get better or we’ll get passed up.” (1) And, continuing to be a pioneer in natural products retailing will certainly be part of hisfuture.
* Whole Foods Markets has a long-standing policy of not offering interviews or sharing information with trade publications because of competitive reasons, and thus declined our requests for an interview.
Deputy Secretary of Agriculture, U.S. Department of Agriculture
WholeFoods: The National Organic Program (NOP) recently voted to start enforcing its organic regulations in the personal care arena. What will be the challenges of implementing such a standard?
Merrigan: While the U.S. Department of Agriculture (USDA) has taken the lead on organic since passage of the Organic Foods Production Act of 1990, the realm of personal care products has traditionally been overseen by the U.S. Food and Drug Administration (FDA). Last fall, Congress passed an appropriations bill directing FDA to study the feasibility of regulating the use of the word “organic” in the marketing of personal care products. Congress directed that this review be done in consultation with the USDA and we plan on sharing our experiences and working with FDA to complete a robust analysis.
While I understand that there is significant public demand for regulating the term “organic” for personal care items, people should be aware that there are many hurdles to jump. First, as I reenter USDA, I am working to increase funding for the NOP, particularly to strengthen our enforcement of the standards. President Obama’s 2011 budget proposal includes a 45% increase for the NOP, which I hope Congress will endorse. These additional resources are necessary to do the work overseeing food—I can’t imagine the budget I would need to take on the personal care industry. We will cross that bridge if and when we come to it. The second challenge concerns company names. As many consumers know, there is a flood of personal care products with organic in the name of the company—Organic Soap Company is my hypothetical example. When I was working to finalize the NOP back in 2000, the Federal Trade Commission (FTC) said that products with the word ‘organic’ already in their name would be grandfathered in. If the FTC makes a similar determination today as it relates to personal care products, I fear that too many products would be excluded from regulation and consumers would be even more mislead than they are now. Hopefully, these are issues that will be addressed in the course of the study.
WholeFoods: Many consumers are confused by the term “natural” on food labels. Would the USDA ever consider creating a certification for using the term “natural”?
Merrigan: This question brings back memories. In 1988, when farmers first asked for my help in establishing a national organic certification program, I began by learning as much as I could about how the USDA Food Safety and Inspection Service (FSIS) regulates labels on meat and poultry. Back then and to the current day, FSIS approves the use of the term “natural” on meat and poultry labels on a case-by-case basis. In contrast, FSIS prohibited the use of organic on meat and poultry labels until 1999; today, we have a full set of organic livestock production standards that are transparent and widely supported.
But, the natural label remains controversial. For this reason, last September USDA issued an Advance Notice of Proposed Rulemaking (ANPR) to help FSIS better define the conditions under which it should permit a natural claim. More than 7,500 people provided comments on how to proceed with the natural program and we are in the process of analyzing those comments and figuring out next steps.
WholeFoods: The USDA announced in August that the NOP will be audited, which some say is necessary because the program has “relaxed its standards” (stated in The Washington Post article, “Purity of Federal ‘Organic’ Label Is Questioned,” July 3, 2009). Do you feel this review will address such concerns? What do you hope it will accomplish?
Merrigan: This audit is simply making good on a long-overdue promise. The Organic Foods Production Act of 1990 mandated a periodic peer review of the National Organic Program and this has never taken place. Peer review is something the organic community has been demanding for years as a way to improve operations and double-check USDA thinking. Last year, USDA enlisted a peer agency—the National Institute of Standards and Trademarks of the U.S. Department of Commerce, with expertise in standard setting bodies—to examine the NOP and provide feedback on ways to improve operations.
Even before the peer review concludes, we know there are ways to strengthen the NOP and we already have some significant new initiatives underway. For example, we are beginning to conduct market surveillance of organic labels to ensure that organic products are properly labeled and certified. We are requiring additional unannounced inspections by organic certifying agents. Unannounced inspections are a good way to maintain compliance with the standards. And, we are expanding the use of pesticide residue sampling to identify problems and improve organic integrity.
It’s great to be back at USDA and to have the opportunity to strengthen the NOP. As Deputy, I also plan on challenging other USDA agencies to engage in work to support the organic sector.
United Natural Foods, Inc. (UNFI)
WholeFoods: You took a small, entrepreneurial venture (Mountain People’s Warehouse) and turned it into the multibillion-dollar distributor known as UNFI. What kinds of challenges did you face while growing UNFI?
Funk: One challenge we had was surviving the years of rapid growth when we didn’t have many financial resources or business experience early on. We all were kind of learning on the fly and I think to be able to survive and prosper with a staff that was passionate about natural and organic products and turn that passion into a successfully run company is very satisfying. To have grown to the size we are and still have retained, for the most part, the values of the beginnings of the natural products industry in the 1970s is a wonderful thing.
The business is certainly much more complex today. There are a lot more demands placed on us. We’re in a position of prominence where the natural products retailers depend on us to execute on a daily basis. And if we don’t, it affects everyone’s business. Every manufacturer, every broker, every retailer is relying on us today. There’s a tremendous responsibility to perform.
WholeFoods: Your inventory, too, has grown since your early days. UNFI says it’s “first to market with over 500 new products each month.” Given the size of your firm, how do you respond to industry trends so quickly?
Funk: One of our advantages is that we sell into all the channels of the natural products industry, so we sell into independents—our largest channel—and places like Whole Foods Markets and supermarkets as well as in all areas and regions of the country. This allows us to see trends that are developing right from the beginning.
It’s very challenging to handle all the new product requests. There are more new products coming in than we can process. So, we have to stretch ourselves, and we’ve improved our systems to be able to respond to new things very quickly. As we’ve grown, it’s been harder to get products introduced to all parts of the country as quickly as retailers would like us to. But, we recognize that it’s a key part of our business and retailers’ businesses…It’s what gives our industry new life. The natural products industry has always been about innovation; companies, in a sense, experiment with new ideas in the natural products space…being that our finger is on the pulse of businesses in all parts of the country, it gives us an advantage.
WholeFoods: Since you are on top of trends, can you tell our readers about some new categories on the horizon that could be tomorrow’s best sellers?
Funk: I would point out some things that have been doing well for which I don’t see any end in sight. Gluten-free products are huge. With the awareness of allergies, peanut-free products are big. Low-sodium foods seem to be an area of strong growth. Some of the ethnic items like Thai and Indian foods are showing a lot of strength. Salty snacks seem to be doing very well. There’s been more innovation in the chips, pretzels and snacks area; that’s driving some of the sales.
Raw foods have been a strong area, and even old staples like macrobiotics seem to be staging a comeback. Stevia is bringing a whole new introduction of sweetened products, which we expect to see a lot more of. Agave, along with stevia, is making it. The yogurt/kefir category continues to grow, particularly international yogurts. They show no signs of slowing down.
Of course, this past year—and we think this will continue—anything for cold/flu has shown tremendous growth with concerns about the swine flu.
As we look down the road, the economy has affected everyone to such a great degree. Its impact today and on the foreseeable future can’t be underestimated. I do think we’re in kind of a new era here where consumers’ concerns about price points are not going to go away, even when the economy recovers. That impacts a variety of things. It’s a reason why bulk foods are coming back and showing strong growth, as are anything to do with in-home baking.
WholeFoods: As a distributor, what is UNFI doing to ensure a green supply chain?
Funk: We have been very focused on this for the last several years. If we’re going to be in the business of selling food that’s making a positive impact on the environment, then we want to have the rest of our distribution mirroring the same mission of the natural products industry.
We use a lot of electricity in our buildings. We use a lot of fuel in our trucks. Those are the areas where we’re trying to reduce our greenhouse gas emissions. With the electricity, it starts with building more efficient warehouses. Our last several facilities have been LEED certified, which basically amounts to more efficient buildings that are built with more sustainable products (like sustainable lumber and recycled materials in the carpets, and low-VOC paints).
We’ve also been focused on renewable energy. In the past few years, we’ve built three large solar arrays in some of our facilities. We’re using renewable power in a few others. As we go across the country, our goal is to use renewable energy in all our facilities, whether it’s wind, solar or hydropower.
As far as the trucking and the transportation, the number one thing we’ve tried to do is to drive fewer miles, which means building out our network of warehouses. It also gives our customers better service to be closer to them. It allows us to stock more regional items in those facilities. We’re also staying on top of fuel efficiency. We’re trying to be at the forefront of the next generation of biofuels. Currently, the biofuels that are out there are mostly created from GMO soybeans, and it’s not something that we’ve wanted to support. So, we’re engaging with companies to be in a position to experiment with the next generation of biofuels like algae. We hope to have some prototypes of trucks running on some of that next-generation fuel over the next year to 18 months. And, we’re experimenting with hydrogen fuel cells to run our forklifts.
We also run a zero-waste program, where we recycle all our cardboard and plastic wrap as well as get our produce composted.
WholeFoods: How did you end up focusing on FDA law?
Emord: In my teen years, I became fascinated by American constitutional history…In law school, I became particularly interested in federal regulation of speech, focusing at first on Federal Communications Commission regulation of speech over the broadcast media. While I served as a vice president of the Cato Institute, I received a letter from Durk Pearson and Sandy Shaw. They had read a piece for Cato that I wrote entitled, “Contrived Distinctions: The Doctrine of Commercial Speech in First Amendment Jurisprudence.” They liked the article and agreed with my view that there is no sound basis for according commercial speech any less protection than political speech. They told me that they suffered restrictions on their right to communicate truthful nutrient–disease information about dietary supplements and wanted me to help them fight the U.S. Food and Drug Administration (FDA) to protect their right to communicate that information. I examined the issue,…[and agreed to] take up the fight for their speech rights upon reentering the private practice of law. So, I came into FDA law to vindicate free speech rights, a battle I continue to wage, but I now practice in all areas of food, drug, dietary supplement and medical device law.
WholeFoods: Can you talk a little about one or two of your most satisfying victories in court?
Emord: Each has been professionally and personally satisfying…Of the victories, I think without a doubt the 3–0 decision of the U.S. Court of Appeals for the D.C. Circuit in Pearson v. Shalala, ruling FDA censorship of nutrient-disease claims unconstitutional, was a glorious moment for me and, I think, for all freedom-loving Americans…I will never forget Judge Patricia M. Wald’s rejection of the notion given by government counsel that shoppers at Whole Foods would be unwitting victims of fraud if they were informed of the potential of antioxidant vitamins to reduce the risk of cancer…She remarked that she shopped at Whole Foods, that she found the consumers there remarkably intelligent, certainly intelligent enough to read a label and draw their own conclusions about the wisdom of ingesting antioxidant vitamins.
I am struck, even now a decade later, by that landmark decision, changing the course of FDA law in fundamental ways. Pearson v. Shalala is a powerful rejection of FDA censorship, a brilliant reminder that no FDA official high or petty who dares police speech can escape the strictures of the First Amendment. One of the four claims at issue in that case involved folic acid and reduction in the risk of neural tube defects. The Pearson decision (enforced in a second victory accorded us in Pearson v. Shalala II) forced FDA to permit the claim that folic acid in supplement form was more effective than food folate in reliably reducing the risk of neural tube defects. The folic acid claim had been censored by FDA Commissioner David Kessler (a pediatrician) for four years, resulting in an estimated 2,500 preventable neural tube defects each year the ban was in place. Allowance of the claim helped reverse those numbers, as CDC statistics document…
A second court victory that pleases me greatly is the Whitaker v. Thompson II decision by Judge Gladys Kessler of the United States District Court for the District of Columbia. Reacting to an FDA ruling that would not implement the constitutional mandate of the Court of Appeals in Pearson v. Shalala, Judge Kessler courageously took FDA to task, castigating the agency for its contumacious disregard of Pearson and demanding that FDA favor disclosure of nutrient–disease information over suppression.
WholeFoods: This year, you have brought several cases against the FDA. Why are these cases so important right now?
Emord: Two of the cases challenge renewed FDA censorship of scientifically backed selenium/cancer risk reduction and antioxidant vitamin/cancer risk reduction claims that FDA begrudgingly allowed following court orders to do so in Pearson v. Shalala and Whitaker v. Thompson II. A third case challenges FDA’s extrastatutory construction of the law to hold criminal adulteration present upon GMP record-keeping failures, and failures to satisfy criteria that are so inexact as to be incomprehensible to any reasonable person. Upon the outcome of those three cases rests whether this agency (and, indeed, any federal agency) must accept the supremacy of the Constitution and the Bill of Rights or can proceed as a rogue, as a law unto itself. The rule of law very much depends on the outcome of these cases…We must all then tremble for the survival of liberty. We have to hope that the federal courts will not let FDA get away with these abuses, but will force the agency to live within the limits of the law.
WholeFoods: In your book, The Rise of Tyranny, you said, “FDA maintains a pervasive censorship over therapeutic claims for foods and dietary supplements to ensure that the drug industry enjoys a federally enforced monopoly on the right to communicate treatment information.” What would it take to see some meaningful change at the agency?
Emord: Unfortunately, FDA is a captive of the drug industry. When Big Pharma says, “jump,” FDA asks “How high?” The political managers in the Center for Drug Evaluation and Research are all largely beholden to the leading pharmaceutical companies and their lobbyists. FDA’s Associate Director of the Office of Drug Safety, Dr. David Graham, and several FDA medical reviewers, have testified before Congress that FDA is so committed to serving the interests of the drug industry that it has approved unsafe drugs for market over the objections of FDA’s medical reviewers. Drug review panels are notoriously biased in favor of drug approval (often comprised of members who have conflicts of interest)…The solution lies in removing from FDA the power to approve drugs and creating a statutory scheme that grants qualified academic departments in the universities the authority to review drug safety and efficacy, a system that would be free of conflicts of interest and would be blinded (keeping from the university reviewers the identity of the drug sponsors and keeping from the drug sponsors the identity of the university reviewers). I describe this alternative in The Rise of Tyranny. There will be no meaningful change until FDA is stripped of the power to approve drugs and an independent scientific and non-political university based system of review replaces the agency.
President, Chairman of the Board, Jarrow Formulas, Inc.
Chairman of the Board, Jarrow Industries, Inc.
WholeFoods: Tell us about the past and future of Jarrow Formulas, Inc. (JFI). How did you come to found JFI and what plans do you have for its future?
Rogovin: I founded the company in September 1977, as a sole proprietorship with three products. The original name was “Brawn.” It was changed to Jarrow International and then Jarrow Formulas. We incorporated in March 1988. Jarrow Industries, Inc., our manufacturing arm, was founded in 2000. The story of the founding is a long one, but I was in the right place at the right time. I was introduced to a private labeler by Jim Heflin, who had bought out Beverly International, a muscle head line, just a little earlier. Also, growing up, my family was always interested in good nutrition.
What we have planned for the future is a whole article in itself if we disclosed plans. I can say we are interested in technical development. For instance, we hold the patent on using d-limonene, an essential oil from orange peel, to enhance the bioavailability of coenzyme Q10 and we are going to enforce it. Our Q10 has demonstrated the highest absorption of Co-Q10 by a long shot. We are also starting work on obtaining approval for a better sun block molecule. We like science.
WholeFoods: Given this emphasis on good research, what do you feel are some of the most interesting developments in nutrition research?
Rogovin: Ironically, one of the most important and interesting is one of the simplest: vitamin D. This area was suppressed by a combination of factors…Now, vitamin D immediately raises the issue of reducing the risk of catastrophic diseases, but for years it seemed just too simple. A lot of thought was that it was the more active hormonal forms that were needed. Instead, dosing (a forbidden word!) was simply too low. Vitamin D was right under our nose for 50 years.
We are also sponsoring a lot of coenzyme Q10 research and having a lot of fun doing it. We sponsored two of the most important papers ever on Co-Q10 and we have studies coming up on heart bypass and angioplasty patients. It’s great stuff! We will also see a lot of developments with probiotics happening. We are a pioneer of probiotics and I was the founder of the International Probiotics Association (IPA).
A lot of “nutrition research” will also concern shelf life, absorption and effective “amounts” versus potentially harmful levels. These are big areas and unfortunately most of the industry is clueless about it—to be blunt.
WholeFoods: You have recently spoken about the Food Safety Bill, SB 510 Section 306(c)(5). What do you feel is at stake? Should the industry be concerned about this piece of legislation?
Rogovin: I have, as you know, and thank you for asking. Section 306(c)(5) of the Senate version of the Food Safety Bill directs the Secretary of HHS to develop a “plan” for “harmonizing” food safety regulation with Codex. The language was potentially problematic since the FDA would be drafting the language and they tend to go off campus. I could easily see the Agency trying to use this to bootstrap language concerning supplements. As a result of my efforts, our Washington lobbyist Dan Wexler, American Association for Health Freedom and I believe the NPA, Senator Tom Harkin read into the record legislative intent language that the bill did not concern supplements. We are not going to get what is called a legislative record created that would be stronger and more directive, but I think that Harkin’s intent language is helpful. Also, it depends on whether the House version or the Senate version is adopted. The House version is silent on Codex...I’ve also heard that the Senate version is maybe exempting supplements. I think this one will probably come out all right for us. Some sort of food safety legislation will pass, but I think Congress would be wise to tone down its regulatory zeal overall. The voters are angry at jobs being destroyed and the cost of doing business becoming prohibitive.
WholeFoods: In your opinion, what can industry do to protect itself from the threats to DSHEA that have surfaced over the past year or so?
Rogovin: I am very worried about DSHEA. Senator Henry Waxman is now chair of the powerful Energy & Commerce Committee and he’s fanatically anti-supplements. He said on the floor of the house they are not foods, that they are drugs. Literally. He is obsessed with the subject and is playing dirty. The Adverse Event Reporting (AER) bill was just passed and instead of waiting for data to come in, he acted in utter bad faith. He had Senator John Dingell, Senator Richard Durbin and Representative Bart Stupak cosign a letter to the Government Accounting Office (GAO) asking them to evaluate whether the FDA has the tools it needs to regulate the safety of supplements. Despite the new FDA commissioner stating during her confirmation hearings that DSHEA was adequate to ensure public safety, the Agency gave contradictory responses to the GAO “investigation” cooked up by Waxman and the other anti-supplement fanatics. First, the FDA changed the definition of an adverse event from the one Congress establishes in the bill: Anything can be an “adverse event” and that the real number was not 500 as reported, but 50,000 in the FDA’s view. We sent a Freedom of Information Act (FOIA) request to the FDA for documents relevant to last year’s GAO report. We found in their second document production wave a memo from FDA to GAO rebutting substantial portions of the report as well as refuting its own nonsensical claim of 50,000 adverse events. In particular, the FDA objected to lowering reporting requirements because doing so would hamper the agency’s ability to identify and act on real problems. This memo also undermines Senator John McCain’s rationale.
The FDA is taking nutrients off the market in bad faith, they are denying New Dietary Ingredients (NDIs) using spurious arguments, and I am very concerned about post-1994 nutrients. At the behest of Senator Herb Kohl of Wisconsin, the GAO has launched an assault against post-DSHEA nutrients. The GAO is acting outside of the scope of its authority and sending intimidating letters demanding information they are not entitled to. The GAO is acting contrary to Section 8 of DSHEA by challenging pre-1994 herbal extracts. The threat is clear.
The industry needs to have a clear program and focus. We also need to be able to file suits against some of the regulating going on. So far, the response has been non-existent…As a result, the industry is being chiseled away. The AER bill passed, but then Waxman launched a collateral attack using the GAO that only my company responded to… He contrived the GAO report because he knew if he waited for AER data, it wouldn’t support increased regulation. So, he breached the understanding with Congress that with the passage of the AER bill, no action would be taken unless warranted by the data. Waxman is fanatically obsessed and ruthlessly dishonest when it comes to supplements.
The industry has virtually no ability to respond to issues raised by state legislation or regulation. I tried to interest the NPA in hiring someone to handle California and other states. We need to put Waxman—and now McCain—on the defensive, but little is happening…We have hired our own lobbyist and we will be approaching some of the more serious companies I know to ask them to contribute to the cost.
I appreciate your asking for my thoughts. It’s a propitious time given that the economy is largely crippled and the government is out of control.
Published in WholeFoods Magazine, March 2010