Saturday, December 6, 2008

Retail Memo: Fast-Growing NF Chain Sunflower Farmers Market Responds to Whole Foods Market, Inc. Subpoena For Sales, Financial and Related Information

The FTC, Whole Foods Market and 96 Natural Products Retailers

Boulder, Colorado-based Sunflower Farmers Market, one of the fastest-growing natural foods retailing chains in the U.S., has submitted a response to the subpoena it received from Whole Foods Market, Inc. asking the natural products retailer for three years' worth of sales data, its strategic plans, market analysis reports and other related documents, including any that might discuss its plans to compete with Whole Foods, according to CEO Mike Gilliland, who just happens to be the founder of Wild Oats Markets, Inc., which Whole Foods acquired last year.

The U.S. Federal Trade Commission (FTC) continues to dispute the Whole Foods-Wild Oats merger, which is now pretty much completed, which is the reason Whole Foods Market, Inc. says it had to subpoena the sales and related information from 96 natural products retailers, including Sunflower Farmers Market.

The FTC is holding a hearing on the Whole Foods-Wild Oats merger in February of next year in order to determine the combined company's fate post-merger. Whole Foods' legal council has subpoenaed the records of these retailers in order to build and prove its case that the combined Whole Foods-Wild Oats does not represent an anti-competitive natural segment retailing force in about 18-29 markets where the FTC says that is the case.

Sunflower Farmers Market received the same subpoena that Portland, Oregon-based nine-store New Seasons Market and 94 other natural products retailers received from Whole Foods Market, Inc.'s lawyers.

As we've been writing about in a series of pieces over the last week, New Seasons Market CEO Brian Rohter is disputing the Whole Foods subpoena for his company's proprietary sales, financial and related records, and took the issue public on the natural grocer's company Blog.

See these posts from Natural~Specialty Foods Memo:

>December 1, 2008: Retail Memo: Whole Foods Wants A Court-Mandated Financial Records Dump from Portland-based New Seasons Market; it Says For its Battle Against the FTC

>December 2, 2008: Retail Memo: Whole Foods' Paige Brady Responds to Yesterday's New Seasons Market Piece; Lots of E-Mails; Issue Heats Up On the New Seasons Market Blog

>December 2, 2008: Retail Memo: Portland, Oregon-Based New Seasons Market CEO Brian Rohter Responds to Whole Foods Market's Paige Brady

>December 3, 2008: Retail Memo: More on the Whole Foods Market-New Seasons Market Subpoena Issue; FTC Holding Firm For February, 2009 Hearing

Sunflower Farmers Market CEO Mike Gilliland did not describe the content of the natural foods retailer's response to Whole Foods Market, Inc.'s subpoena.

It is well known within the natural products industry that Gilliland and Whole Foods Market CEO John Mackey don't like each other. They even avoid one another at industry trade shows and related functions.

Gilliland, the founder of Wild Oats, left the company long before it was acquired by Whole Foods last year.

A few years ago he founded Sunflower Farmers Market in Boulder, Colorado, the same city in the same state where he started Wild Oats, and where its corporate headquarters remained until merging with Whole Foods last year.

Gilliland is competing head-to-head in a number of markets against Whole Foods Market with Sunflower. He recently has opened stores in Whole Foods' home state of Texas, for example. Last year Sunflower Farmers Markets received a $30 million investment to expand the chain by opening numerous new stores over the next five years.

The Sunflower Farmers Market stores are much smaller than Whole Foods' natural foods stores are. They average about 15,000 or so square feet and are relatively no frills in design. They operate on an everyday low-price model which Sunflower says offers everyday low prices across all natural and organic products categories that are at least 15% less than Whole Foods'

The Sunflower format, which reminds us a bit of Gilliland's original model for the Henry's stores which Whole Foods sold to Southern California-based Smart & Final, Inc. after it acquired Wild Oats last year, puts a major emphasis on fresh produce, including organic, at low prices. The large produce departments are located in the center of the store like a farmers market in order to draw attention to the "fresh" aspect of the Sunflower stores.

New Season's Market CEO Brian Rohter says his company has been forced into the "crossfire" of the FTC's continued legal challenge to the Whole Foods-Wild Oats merger, the result being the subpoena for the natural grocer's sales, financial and related proprietary information.

New Season's lawyers filed a brief with the FTC last week to kill or limit Whole Foods' subpoena, saying in the legal brief it will cost New Seasons Market over $250,000 to comply with the subpoena's demands, along with arguing that disclosing the proprietary sales and related information will open the door for Whole Foods to engage in anti-competitive conduct against the Portland-based retailer because it will have this inside information.

Whole Foods Market, Inc. says the law does not allow its outside counsel to share any of the proprietress information obtained from the retailers via the subpoena with operational employees of Whole Foods at any level. It says the information is strictly for the lawyers use in arguing the retailer's case against the FTC.

The brief filed by New Seasons Market's lawyers also contains quotes it says have been made by Whole Foods Market, Inc. CEO John Mackey and other executives referring to its wanting to "crush," "punish" and "eliminate" competitors such as Wild Oats and Earth Fare, a 15-store chain on the East Coast.

As a result of this behavior... "New Seasons has no reason to believe that Whole Foods would not relish the opportunity to do to New Seasons what it did to Wild Oats and what it does to other competitors such as Earth Fare ..." the lawyers wrote in the brief to the FTC to stop the subpoena.

CEO Rohter also says the numerous postings Whole Foods CEO Mackey made using a fictitious screen name in various Yahoo Finance online message boards during the run up to the Wild Oats acquisition, postings in which he made comments about the incompetence of the then Wild Oats CEO for example, demonstrate a pattern of behavior in which Whole Foods is willing to do whatever it takes to crush and eliminate its competition.

Mackey was investigated by the U.S. Securities and Exchange Commission for the postings and was cleared of any illegal activity. However, numerous ethical and judgement questions have been raised about the behavior.

Whole Foods Market's social media director Paige Brady posted a company response to New Seasons Market's position in Natural~Specialty Foods Memo on December 2, following our publication the day before about the issue. [See the December 2 link above.]

Whole Foods spokeswoman Kate Lowery says Whole Foods was put in the position of having to issue the subpoenas by the FTC because the agency lumped it, Wild Oats, Earth Fare and New Seasons into the four-member class of groceries called "premium natural and organic supermarkets" during federal court proceedings last year.

It is in this natural products retailing market segment (which doesn't really exist in the minds of most people in the food and grocery retailing industry. The lines are far to blurred.) the FTC continues to argue the merged Whole Foods-Wild Oats presents a monopolistic and anti-competitive force in.

A federal court in Washington D.C. has twice ruled against this claim being made by the FTC and in Whole Foods' favor. Despite the ruling, the FTC reopened its administrative case on the merger after getting a green light from a court to do so. That is the hearing scheduled for February 16, 2009 in Washington, D.C.

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