CEO of the Year: Mike Gilliland

Mike Gilliland walks – limps, actually – through the produce section of the newly opened Sunflower Farmers Market in Lafayette at 8:30 in the morning, shaking hands and saying hello to a few employees next to neatly stacked peppers and tomatoes. Gilliland seems to know them all, and they know him, probably because they’re part of the team that is deployed to get new stores up and running, and there have been a lot of those, an average of eight a year.

Gilliland, the 2010 ColoradoBiz CEO of the Year, launched Sunflower Farmers Markets in 2002 with a no-frills feel and the slogan “Serious Food … Silly Prices.” Since then the Boulder-based grocery chain has grown to 32 stores in six Southwest markets, including 12 in Colorado, with plans to enter California, near Sacramento, in early in 2011. (Watch a Fox News video about Gilliland.)

Up until 18 months ago, Sunflower’s same-store sales were in double digits. That’s slowed to low single digits amid the recession, some cannibalization with Sunflower stores vying with each other, outside competitors such as Sprouts moving in, and traditional supermarkets dropping prices on produce to compete.

Still, largely on the strength of new-store growth, Sunflower’s sales increased about 50 percent from 2008 to 2009 and are up 35 percent this year over 2009. Sunflower President and Chief Operating Officer Chris Sherell expects sales to increase another 20 percent to 25 percent in 2011.

On this early Monday in November at the Lafayette store, about half an hour passes before Gilliland explains that his slight limp is the result of a hike into the Grand Canyon with a buddy a few days earlier. “Three hours down and five hours up,” he says.

That Grand Canyon descent and re-emergence doesn’t exactly mirror Gilliland’s 25-year career in the natural-foods business, but it’ll do as an analogy. Gilliland and then-wife Libby Cook got into the natural-foods retail business in the mid-’80s somewhat accidentally, buying a convenience store on University Hill in Boulder they found while browsing the “Opportunities” section of the newspaper.

“I was just looking for something I could run,” he says. “We found a little convenience store, and it started from there. I didn’t have any predisposition toward the food business or the grocery business before that.”

{pagebreak:Page 1}

The Gillilands and their business partner bought a few more Boulder stores, with varying degrees of success. In 1987 they acquired Crystal Market, which specialized in natural foods, and out of that emerged the natural-foods grocery chain Wild Oats.

They eventually took Wild Oats public and built it into a $2.2 billion company with more than 100 stores. But the growth by Gilliland’s own account was haphazard and unwieldy, built largely on acquisitions that made it hard to give the stores a consistent culture and brand, and Wild Oats was never able to match the success of rival Whole Foods. Gilliland left in 2001.

Sherell, who has worked for Gilliland 17 years going back to their Wild Oats days, says Gilliland wanted to model Wild Oats after Henry’s Market, a farmer’s market-style grocer that Wild Oats had acquired, and brought the idea to the board.

“They certainly didn’t see eye to eye there, and that’s when he kind of left,” Sherell says. “He loved the concept. He wanted to make it affordable for the masses. He didn’t like the high-priced image of Wild Oats and wanted to make the lifestyle available to 80 percent of customers, not 20 percent that the Whole Foods and Wild Oats demographic is. So when we left, we certainly took the Henry’s concept and added to it, tweaked it, changed it around a little bit, and here we are 32 stores later.”

By his own admission, Gilliland has never quite fit the natural-foods entrepreneur hippy-turned-businessman stereotype, though he often refers fondly to the early days of the natural-foods industry, when kinship was easier to come by among competing business owners, and he could go to a rival like Whole Foods CEO John Mackey for advice on real estate or other business matters.

“Most people start with a passion for the business or it fits their lifestyle,” says Gilliland, 52. “That wasn’t us when we first started. “But we immediately fell in love with the whole culture. Especially back in the old days, everybody in the business was a character.”

Gilliland has always been one of those characters. Originally drawn from the Midwest to Colorado by the Air Force Academy and his ambition to become a pilot, Gilliland left the academy after two years – “I always say I was glad I went and glad I got out; the authority thing is definitely tough to swallow sometimes” – and spent a year in France. There, along with meeting Cook, he got the idea for his first retail food business that he put into action upon his return home to Chicago.

“I bought a horse trailer and remodeled it into a mobile crepe stand,” he recalls. “It was red, white and blue with little flower boxes on the side.”

Gilliland drove the retooled horse trailer from Chicago to New Orleans. Along the way, he says, “I picked up a kid on a work-release program. He was my first employee. And then I picked up two hitchhikers in St. Louis, and we drove to New Orleans and opened it during Mardi Gras.”

Was it profitable?

“No, it sucked,” Gilliland says, laughing.

Later he had a parasailing business in St. Croix. He and Cook wound up moving to Boulder because, he says, CU was the only school that would admit both of them. Gilliland earned an art history degree at CU, and she earned her law degree there.

Then came their foray into the retail grocery business that for Gilliland persists 25 years later with his aim to provide natural foods at low prices, particularly produce, which is 25 percent of Sunflower’s business.

“Part of it’s just keeping the overhead lower,” he says. “We run a fairly lean operation. We only spend $2 million a store, which is quite a bit less than any of our competitors. So the return-on-investment requirements aren’t as tough as they might be if you’re building a $10 million Whole Foods or whatever. And we self-distribute. We have a 120,000-square-foot warehouse that will probably handle 95 percent of our produce, so we’re able to go direct, and we’re able to buy on the spot market. It helps, too, that we’re a limited-assortment store. We don’t have 15 kinds of olive oil. We have four or five. We have a big focus on private label.

“I think it’s a good place to be,” he says. “Back in my Wild Oats days when we were competing with Whole Foods, we were both going after that kind of top-10 income level. I think this new approach gives us access to a much broader customer base. In fact, our five worst stores are in our five highest-income markets.”

These days Gilliland splits his time between Phoenix and Longmont, where he is developing a 40-acre property dubbed Sunflower Organic Farm that he plans to use to showcase organic farming and give tours, complete with a petting zoo for kids, and to provide some produce for Sunflower stores. The farm includes the restoration of a 3,500-square-foot Victorian farmhouse.

“I didn’t realize how much work that was going to be – and how much money,” he says. “But I have a new level of admiration for organic farmers. It’s been a fun project.”

The retail grocery business on the other hand, he’s used to. But it, too, has been a different challenge. “It feels like a startup, even though I’ve been doing this for eight years,” he says. “It’s just fun to build a business. About 80 percent of the management are people … we used to work together at Wild Oats. It’s kind of fun to assemble the ‘dirty dozen’ and start again. Also, I just like food and retail, and it’s hard to get away from it if you really like it.”

{pagebreak:Page 2}