Whole Foods to Launch WholePeople.com
Published: Friday, October 01, 1999
Armed with a four-page prepared script, made available on WFMI’s website after the call, CEO John Mackey outlined a series of investments that are currently anticipated to allow WholePeople.com to be launched in spring 2000. Specifically, Mackey said that:
n WFMI has signed letters of intent with a group of unnamed venture capital investors for $35 million, which represents an approximately 13.5% minority interest in the fledgling WholePeople.com. The investment puts an initial post-money valuation on WholePeople.com of $260 million;
n WFMI and WholePeople.com have jointly purchased a $20 million minority stake in American WholeHealth, a conventional and alternative medicine provider with 10 bricks-and-mortar health centers in the Boston; Chicago; Denver and Washington, DC, markets, and a website, WholeHealthMD.com. WholePeople.com will have an exclusive e-commerce license with WholeHealthMD.com. Current plans call for American Whole Health to open 50 new health centers adjacent to WFMI stores over the next five years; and
n That WFMI also has purchased a $3.6 million or 16.4% minority stake in publicly traded Real Goods Trading Co. (RGTC), a retailer of environmental and renewable energy products.
Mackey told listeners to the call that the new venture will be run out of Amrion’s 400,000-sq.-ft. manufacturing facility in Thornton, CO. The facility is scalable to 700,000 sq. ft., he said.
During the spin-off’s start-up phase, Mackey will serve as CEO of both WholePeople.com and WFMI. Current WholeFoods.com President Carl Morris will become VP of WholePeople.com’s online operations, and Amrion President Dave Robinson will be VP of marketing. Outside talent recruited to the effort includes former Manager of e-commerce at SGI Don Springer, who will become VP of Internet strategies; former Senior Editor of Netscape Janice Crotty, who will become VP of product development; and Tim Lefkowicz, formerly of PricewaterhouseCoopers Consulting, who will become VP of business development.
Mackey said that plans are to take the spin-off public within the next year.
The move is an attempt by the company to separate its under-performing businesses, Amrion and WholeFoods.com, from WFMI’s core retail business and, at the same time, position itself as a leader in a more broadly based business niche it has named the Whole Living Industry. The newly coined industry is one comprised of “products, information and services that support a healthy, positive lifestyle and the environment,” Mackey says.
WFMI estimates Whole Living is a $79 billion industry that serves about 44 million consumers. The more narrowly defined natural products industry is valued at about $26 billion.
By launch day, WholePeople.com will have 25,000-plus SKUs, including Amrion supplements, a more diverse selection of natural and organic foods than currently are available on WholeFoods.com, outdoor and wilderness activity gear, and adventure and food travel packages. Eco-friendly products, cooking and gardening products and books also will be sold on the site.
WholePeople.com kiosks will be placed in most Whole Foods stores to capture what WFMI says are its approximately 5 million customers.
“WholePeople.com is not intended to be just an online grocery site or an extension of our current retail business,” Mackey told listeners on the conference call. “We expect that within a short period of time, only a small percentage of our online sales will be from products we carry in our bricks-and-mortar stores.”
Mackey said WholePeople.com, therefore, is not a pure-play e-commerce company, but a hybrid that takes advantage of WFMI’s strong private-label brand and its large existing customer base. He expects the new venture to be profitable two years after its launch.
Until WholePeople.com is spun off, WFMI plans to report its core business and new venture financials separately, along with WFMI’s fully consolidated earnings.
Separating WFMI and WholePeople.com will impact WFMI’s FY00 EPS by between $.18/share and $.26/share, Mackey said, bringing new EPS projections down from between about $2.14/share and $2.10/share to between about $1.93/share and $1.88/share.
Apparently, the scaled-down earnings projections were the part of the announcement Wall Street was most uncomfortable hearing.
The day after conferring with investors and analysts, WFMI stock lost $3.47/share, on a trading volume of nearly 3 million shares, and ended the day on Sept. 25 at $33.09/share. WFMI stock has traded as high as $50.75/share in the past year.
“Numbers are coming down,” says Hambrecht and Quist analyst Bonnie K. Tonneson. “When they come down, it’s never easy to stomach. The announcement was very complex, and the tried-and-true retail investors are not necessarily sophisticated about online.”
It will take one or two quarters of solid core business performance to woo back those wary retail investors, Tonneson says. “It’s incumbant on Whole Foods to start educating,” she says.
Toward that end, WFMI plans to host a meeting for investors and analysts at its Thornton facility at the end of October.