Tuesday, December 16, 2008

Retail Memo: Whole Foods, Wild Oats and Boulder, CO...And the Rocky Mountain News' Editorial Take On FTC v. Whole Foods Market, Inc.

FTC v. Whole Foods Market - Whole Foods Market v. FTC

Prior to its acquisition in the summer of 2007 by Whole Foods Market, Inc., Wild Oats Market, Inc. called the Colorado city of Boulder, where the natural grocery chain was founded by Michael Gillian, its headquarters hometown. The company was among the city's biggest employers. Ironically, Gillian, who left Wild Oats long before the acquisition by Whole Foods, founded his fast-growing Sunflower Farmers Market chain, which is headquartered in Boulder, in the city just a few years ago. As a result, Boulder may have lost its Wild Oats' but it did gain a Sunflower.

Boulder, a city of about 100,000, is famous for spawning natural products companies. Along with famous names like Wild Oats and organic dairy company White Wave Foods, Boulder is home to numerous smaller but fast-growing natural products companies like popular new-age beverage maker IZZE Beverage Company (which food and beverage giant PepsiCo acquired in 2006) and Rudi's Natural Bakery, among over a score of others. [Check out a list of 55 Boulder-based natural products companies at this list alone: Food Companies in Boulder, Colorado (CO).]

Although Boulder did start out as a draw for the creation of natural products companies in what could be described as a most natural way -- it's geographical setting, the fact it has always drawn numerous people who are counter cultural thinkers, the region and city's focus on healthy lifestyles, for example -- over the last few years it's place as a center for the natural products industry has been aided by "Naturally Boulder," which is an economic development initiative supported by the city of Boulder, Colorado and designed to create new natural products companies in the Rocky Mountain city.]

"Naturally Boulder" was established in 2005 by the city of Boulder and the Boulder Economic Council to provide support to help grow area natural and organic products businesses, help retain existing natural products businesses, attract natural products companies to the region, mentor new business leaders, and promote Boulder as a center for the natural and organic products industry.

Among other activities and programs, "Naturally Boulder" hosts educational seminars in partnership with the city's Small Business Development Center, networking events, and publishes an e-newsletter focusing on natural product local and industry news. The newsletter is distributed via email free to interested individuals.

Each year since 2005, "Naturally Boulder" holds a multi-day natural products' entrepreneurs' conference in the city. The most recent conference was held recently October 29-30 in Boulder.

[You can learn more about "Naturally Boulder," it's programs and its annual conference at its Web site here.]

Since its acquisition of Wild Oats last summer, Whole Foods' has obviously closed the headquarters operation in Boulder. However it has kept a large presence in the "natural city," basing its Rocky Mountain division in Boulder, as well as operating all of the former Wild Oats stores the natural grocer had in the city except one, which it closed because prior to the acquisition it was in the process of building a new Whole Foods natural market, which is now open, just down the street from the Wild Oats Market it has since closed.

Whole Foods decided to go with a multi-banner store strategy in Boulder. It has removed the Wild Oats name in favor of Whole Foods, but it also is changing the name of one former Wild Oats store in Boulder to Alfalfa's, which was a popular natural foods chain Wild Oats' acquired many years ago.

Additionally, Wild Oats bought a popular independent natural foods store in Boulder many years ago, Alpine Ideal Market, and kept that name on the store. Whole Foods also is retaining that name and is remodeling the Ideal Market store.

There are four Whole Foods Market-owned stores in Boulder: two under the Whole Foods banner, the Alfalfa's banner market and the Ideal Market. That's plenty for a city of about 100,000, even if it is Boulder. For example, Whole Foods has four stores in San Francisco, California a city with about 800,000 residents.

Whole Foods' had planned to convert one of the four (the one on Baseline Road, a former Wild Oats unit) stores in the city into what it has said will be the prototype of a Whole Foods Express market, a small-format (15,000 or so square feet), convenience-oriented natural foods store with an emphasis on ready-to-eat, grab-and-go prepared foods, and ready-to-heat fresh, prepared foods items.

However, as we've previously reported, Whole Foods has had a lease renewal problem with the owner/landlord of that store which has delayed its conversion into the Whole Foods Express store prototype. Meanwhile, with all the problems Whole Foods is having, the natural grocery chain has pretty much put the whole Express format store concept on hold as it attempts to regain sales, income and stock value in the current recession, along with its focus on fighting the U.S. Federal Trade Commission (FTC), which is trying to overturn the Wild Oats' acquisition, as we've been reporting on and writing about extensively the last two weeks, as well as regularly since last year.

Whole Foods has made an extensive effort to keep close ties to Boulder post the Wild Oats' acquisition, both for logical (its Wild Oats' former headquarters city) and political (there was much concern in the city about losing Wild Oats' headquarters) reasons.

Additionally, because of Boulder's strong natural products company and consumer setting and environment, it makes good business sense for Whole Foods to keep as close of ties as it can to what can perhaps be described as Whole Foods Market, Inc.'s second headquarters city.

Further, Whole Foods' has always had ties with many of the Boulder-based natural foods companies since they are key suppliers to the retailer.

Keeping all of the above in mind, we read with interest an editorial today in the Rocky Mountain News by Vincent Carroll, who is the editor of the Colorado daily newspaper's editorial pages.

In the editorial, Carroll opines on John Mackey and on Whole Foods Market, Inc,'s lawsuit against the FTC. Since Boulder, Colorado is a city so closely intertwined with the Whole Foods-Wild oats merger, as well as with the natural products industry as a whole, we wanted to bring our readers a voice from the region regarding the FTC-Whole Foods issue.

Below (in italics) is Vincent Carroll's editorial from today's Rocky Mountain News. The recent (this week) quotes from John Mackey in the editorial, and Vincent Carroll's editorial argument, both sound very much like the arguments Natural~Specialty Foods Memo has been making against the FTC's case for many months now.

Rockey Mountain News - Colorado
Editorial Page: Wednesday, December 16, 2008
Some 'monopoly'
By Vincent Carroll

John Mackey has a point. The CEO of Whole Foods wonders why, if his company is the fearsome monopolist the federal government imagines, that sales haven't soared since its merger last year with Wild Oats.

In fact, he says, same-store sales are down.

"How can a monopolist have negative same-store sales?" Mackey asks. "The whole thing is ridiculous.

"There's only one place Whole Foods has a monopoly, and that's in the imagination of the lawyers at the Federal Trade Commission."

Whole Foods this month sued the FTC over its continued efforts to unravel a merger with Boulder-based Wild Oats - a merger that a trial judge originally approved. That ruling should have ended the matter. Instead, the FTC - propelled by a surreal belief that Whole Foods threatens to corner the market on premium organic food in cities such as Denver and Boulder - pursued the case, and an appeals court unexpectedly sided with the government.

The upshot: Whole Foods might be forced into the costly exercise of trying to untangle - or at least abort - the integration of two grocery chains that is substantially complete.

And for what? Supposedly so that customers won't be hostage to the "higher prices, reduced quality and fewer choices" that the government implausibly predicted would follow the merger. Yet with so many grocery options available to the public, Whole Foods would have to be crazy to think it could treat customers with disdain once it gobbled up a rival.

Alas, it is too much to expect a federal agency to entertain second thoughts about punishing a first-rate company at a time when consumers are trying to economize and, according to The Associated Press, "the rotten economy is eating into sales of organic foods." To the contrary. The FTC has scheduled the Whole Foods case for an administrative trial in February.

At least the company isn't deluding itself. Its lawsuit compares the FTC to the Queen of Hearts in Alice in Wonderland, who famously declared, "First the sentence, then the evidence."

Maybe the judge will award Whole Foods points for gallows humor.

[Vincent Carroll is editor of the editorial pages at the Rocky Mountain News . Reach him at carrollv@RockyMountainNews.com.]

Boulder and the Denver, Colorado market region are among the 29 or so U.S. market regions the FTC claims Whole Foods Market, Inc. has a monopoly in, in what it calls the "premium organic retailing" segment. With four natural foods markets, one could argue that could be true at least within the city limits of Boulder. In fact, we think Whole Foods is overstored in the city and needs to probably either close one of the four stores or convert one to the Whole Foods Express prototype like it said it would do last year, then see how it does.

But Boulder resident Michael Gillian, the founder and CEO of Boulder-based Sunflower Farmers Market, doesn't think Whole Foods Market owns Boulder or the Denver Metro region...or the state of Colorado, or Arizona, New Mexico, Utah, Texas and elsewhere in the western and southwestern U.S. where the fast-growing natural foods chain is opening new stores. But then he's a Boulder natural products' industry entrepreneur, not a member of the FTC. Fast-growing Sprouts Farmers Market has the same opinion as Sunflower, having recently opened two new stores in Colorado, with more to come, as it is doing throughout the west.

FTC v. Whole Foods - Whole Foods v. FTC: Recent Natural-Specialty Foods Memo linkage:

December, 15, 2008: Retail Memo: Eight Members of U.S. Senate Judiciary Committee Send Letter to FTC Chairman Regarding FTC's Legal Case Against Wild Oats' Acquisition.... December, 13, 2008: Retail Memo - Analysis & Commentary: More On FTC v. Whole Foods Market, Inc. and Whole Foods Market, Inc. v. FTC.... December 9, 2008: Organics Category Memo: Wither Organics? Organic Food & Grocery Category Sales Down; But Double-Digit Growth Still Likley With Mass Market Lift....

December 9, 2008: Retail Memo: Whole Foods Markets' 'Whole Legal Paycheck:' Three Top Washington, D.C. Law Firms Teaming Up On The Natural Grocery Chain's FTC Lawsuit....December 9, 2008: Retail Memo: Whole Foods Market CEO John Mackey and Team Launch First Aggressive Attack Against the FTC's Legal Case at Press Conference This Morning....December 8, 2008: Retail Memo: Mr. Mackey (and the Whole Foods Market Troops) Goes to Washington....December 8, 2008: Retail Memo: Breaking News - Whole Foods Market, Inc. Files Lawsuit Against the FTC; Argues the Regulator Violated the Company's Due Process Rights....

December 7, 2008: Retail Memo: New Seasons Market CEO Brian Rohter and Whole Foods Market Co-President Walter Robb Discuss and Debate the Subpoena Issue Online....December 7, 2008: Retail Memo: New Seasons Market CEO Brian Rohter Speaks Out Again Today on the Whole Foods Market, Inc. Subpoena of His Company's Data....December 7, 2008: Retail Memo: Whole Foods Market Retains Top Washington D.C. lawyers and Politically-Connected Lobbyists to Plead its Case Against the FTC....

December 6, 2008: Retail Memo: Fast-Growing and Scrappy Sunflower Farmers Market Ventures Deep in the Heart of (Whole Foods Country) Texas....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....December 3, 2008: Retail Memo: More on the Whole Foods Market-New Seasons Market Subpoena Issue; FTC Holding Firm For February, 2009 Hearing....

December 2, 2008: Retail Memo: Whole Foods Market, Inc. Closes $425 Sale of Stock to Private Equity Firm; Adds Members of the Firm to its Board of Directors....December 2, 2008: Retail Memo: Portland, Oregon-Based New Seasons Market CEO Brian Rohter Responds to Whole Foods Market's Paige Brady....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 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.

FTC v. Whole Foods: Linkage from the Natural~Specialty Foods Memo archives:

Click here, here and here for stories about the FTC-Whole Foods issue from our archives.

1 comment:

Anonymous said...

You are on a roll.
JP Morgan just seriously downgraded "Whole Paycheck". See the AP story.
Ouch, nobody believes anymore.

Anon. Seattle