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Meanwhile, the food industry's giants are expanding their organic efforts. Heinz plans to launch a premium-priced organic ketchup later this summer, and PepsiCo's Frito-Lay division is test marketing natural and organic versions of its snacks. The multinationals have also been snapping up small organic- and natural-foods firms, retooling their offerings and bringing more marketing and distribution savvy to the mix. Since Heinz bought a 19.5% stake in the Hain Celestial Group--a conglomerate that includes Celestial Seasonings teas and Earth's Best organic baby food--the ketchup king has pushed Hain products into Sam's Clubs and Costcos. Kellogg has had similar success with Worthington Foods, which it acquired for $307 million in 1999. Kellogg eliminated Worthington's money-losing lines and focused on its top brand, Morningstar Farms veggie burgers. The upshot: Morningstar's market share grew from 57% to 61%, with sales up 19%, to $150 million last year. Kellogg is extending the Morningstar brand to other packaged convenience foods, such as frozen meat-substitute "chicken" nuggets.
Traditional grocery chains, saddled with flat sales and shriveled margins, find they need to sell more gourmet-health fare to compete against the likes of both Whole Foods and Wal-Mart, the nation's largest grocer. Regional supers such as Pratt's Food Supermarkets--a chain in the Oklahoma City, Okla., area--are fighting back with more organic dairy, meats and dry goods. Kroger, the nation's No. 2 grocer, has carved out "natural food" departments in nearly a third of its 2,400 stores and is expanding its private-label organic brand, which includes cereals and potato chips, with soy milks and pasta.
Taking on Whole Foods directly, though, is starting to look as tough as going up against Home Depot or Wal-Mart. Wild Oats tried by rapidly acquiring stores in markets where Whole Foods operates. But Wild Oats could not execute; it overpaid for real estate, wound up in poorly trafficked neighborhoods and struggled with labor woes, according to analyst Scott Van Winkle of the Boston investment firm Adams, Harkness & Hill. Wild Oats has since shuttered 28 stores, and is planning, under new management, to grow by propping up sales at existing stores and expanding its branches. It squeezed out a slim operating profit in the first quarter, after losing money for the previous year, and the stock has rebounded.
Wild Oats may have to play catch-up for a long time. Whole Foods' sales have risen more than 20% for 10 straight quarters, and the chain has 21 new stores in development and plans for a total of 400 by 2010. The firm is steadily building its private-label brands, from bottled water to organic macaroni and cheese.
Mackey is a model CEO when it comes to bang for the buck. Last year he took home a relatively modest $350,000 in wages and bonus and $2.2 million from selling Whole Foods stock. (He owns only 1% of the shares outstanding.) The firm is running so smoothly these days that Mackey has all but disappeared. Since early April he has been hiking the Appalachian Trail; he intends to finish its entire 2,168-mile length by the fall.
--With reporting by Cathy Booth Thomas/Austin