Friday, January 16, 2009

Retail Memo - Breaking News: Portland's New Seasons Market and Whole Foods Market, Inc. Reach Agreement; New Seasons Will Provide Trade Secrets

FTC vs. Whole Foods Market, Inc. - and the Subpoenas

Portland, Oregon's New Seasons Market reached a compromise today with Whole Foods Market, Inc. to comply with its subpoena for New Seasons' proprietary sales, financial, marketing and other trade secret information, according to Brian Rohter, CEO of the nine-store independent natural foods grocer.

Below (in italics) is what Rohter said today about the agreement with Whole Foods in the New Season's Market Blog:

Friday, January 16, 2009

We're Finally Getting Back To Minding Our Own (Local) Business
Thank you, thank you, thank you. I'm always so impressed by the power of a united community. Because of all of the voices that chimed in from the Portland area and from all over the country, we've been able to bring the issue with Whole Foods to a resolution that works for us.

As you probably know, we've never taken a position on the dispute that Whole Foods has with the Federal Trade Commission (FTC) about their takeover of Wild Oats. We tried really hard to stay out of the crossfire of this fight, because it really has nothing to do with us. Obviously, we wish we weren't being forced to give any of our internal financial records to one of our competitors, but we're pleased that a compromise was reached. As part of the settlement, I promised not to disclose the actual terms of the agreement, but I can tell you that there is a big difference between what the original subpoena demanded and what we're going to actually turn over.

Thanks again for your help in protecting the future of New Seasons Market. We're excited about getting back to minding our own (local) business.

Whole Foods Market, Inc. co-president Walter Robb, who has a long time personal as well as professional relationship with New Seasons Market CEO Brian Rohter, had been negotiating with Rohter since about late November, 2008 about working out a compromise in which the Portland natural grocer could comply with Whole Foods' subpoena, yet still protect what it feels are its most sensitive trade secrets. We've reported this previously in the Blog.

The negotiations didn't go anyplace until about two weeks ago when Whole Foods, via Walter Robb, started to make some concessions in New Season's favor, Natural~Specialty Foods Memo has learned.

Obtaining the information from New Seasons Market has been key for Whole Foods Market because the Portland natural foods grocer, along with the southern U.S.-based Earth Fare natural food chain, are considered in the FTC case against the Wild Oats acquisition to be Whole Foods Market, Inc.'s two main regional competitors.

As we reported on Wednesday, January 14 in this piece [Retail Memo: Whole Foods Offers Carrot and Stick to Retailers That Have Yet to Comply to Subpoena For Trade Secret Data and Information] Whole Foods Market, Inc. decided to reach out to the numerous retailers, out of the 93-94 subpoenaed for their respective trade secrets, who have yet to comply with the legal demands, appealing to them using a carrot (positive and assuring) and stick (legal threat) approach.

It was this action, using mostly the carrot approach, which included a number of compromises by Whole Foods from the original demands in the subpoena, that led to the agreement between New Seasons and Whole Foods Market, which has now led CEO Rochter to comply with the subpoena and release the information to Whole Foods, based on certain stipulations and exclusions given him and New Seasons by Whole Foods Market, Inc.. Whole Foods' Walter Robb was the key back channel to Brian Rohter and New Seasons in the negotiations, we've learned.

It's our analysis that the agreement between Whole Foods Market and New Seasons will likely open the door further for the other subpoenaed retailers who've yet to comply to be more open to doing so. Whole Foods has now indicated its much more open to working out individual compromises with retailers on the matter. In addition, as we reported in the January 14 story, Whole Foods has asked the FTC to enforce the legal sanctions of non-compliance (the stick) in the subpoena. Those sanctions include possible fines, along with being charged with contempt of court for not complying with the subpoena.

Additionally, New Seasons Market has been to date the only retailer, out of those among the 93-94 that haven't complied with the subpoena, that has publicly fought (and lost) the subpoena and spoken out in public about doing so. Many of the subpoenaed retailers that haven't complied have been watching what New Seasons Market would do closely. Therefore, now that New Seasons Market has worked out an agreement with Whole Foods, we think some of the other retailers will be more open to doing so as well.

The original date for the 93-94 subpoenaed retailers to comply was November 4, 2008. Only slightly more than half had complied by late December, 2008, as we've previously reported. At last Tuesday's press conference, Whole Foods' lead outside legal counsel Lanny Davis, a partner at the Orrick law firm in Washington, D.C., said the Austin, Texas-based natural grocery chain sent letters of compliance to "a couple dozen" of the retailers that have failed to comply. Our sources say there are more that two dozen (closer to about three dozen) that have yet to comply, but that Whole Foods is targeting those it needs the data and information from the most in order to build its case that there's plenty of competition against it in the 29 U.S. markets the U.S. Federal Trade Commission (FTC) argues Whole Foods holds a monopoly in.

Obtaining this information -- and fast -- is key for Whole Foods Market's outside legal counsel because it must analyze, compile and make sense of it before the scheduled April 6, 2009 FTC Administrative hearing/trail which will determine the fate of the merger. The competitive retailer information is going to be the backbone of Whole Foods' legal argument against the FTC.

For New Seasons Market it appears it's direct and time consuming involvement in FTC v. Whole Foods Market, Inc. is likely over, unless there's a breach of its trade secret information like happened in the past, of course. However, since one concession Brian Rohter got from Whole Foods involved some information the natural grocer thought to be its most sensitive, the risk even if such information did get released is much less now for Rochter and New Seasons. Let's just say CEo Rochter's comfort level has dramatically increased in the last two days.

Meanwhile, obtaining the key information from New Seasons Market is an important but small win for Whole Foods.

It's big challenge is till to come -- proving it's not a monopolist, as the burden of proof is on the natural foods chain to do so. And it appears the FTC, despite our analysis being that it's completely wrong in its argument that a combined Whole Foods-Wild Oats poses a monopoly -- for reasons we've laid out here -- seems determined to waste U.S. taxpayer's money, and use FTC human and material resources in a foolish manner, by continuing to pursue its legal case against Whole Foods Market, Inc., which is designed to unwind the combined Whole Foods-Wild Oats.

But at least New Seasons Market's Brian Rohter and his team can now get back to selling natural and organic foods and groceries and competing against Whole Foods Market in the Portland, Oregon Metropolitan market.

Natural~Specialty Foods Memo (NSFM) Reader Resources

Recent NSFM coverage and analysis on the Whole Foods-New Seasons Market subpoena issue:

>January 14, 2008: Retail Memo: Whole Foods Offers Carrot and Stick to Retailers That Have Yet to Comply to Subpoena For Trade Secret Data and Information

>January 12, 2008: Retail Memo - Breaking News: Whole Foods Press Conference Tomorrow; Objective: Get Retailers to Comply With Subpoena; Need: Urgent

>December 29, 2008: Retail Memo - Breaking News: New Seasons Market Doesn't Turn Over Trade Secrets to Whole Foods Market Despite Deadline to Do So Being Today

>December 28, 2008: Retail Memo: Web Site and Blog-Driven Viral Boycott of Whole Foods Market Stores in Portland, Oregon Region Going On; Could it Intensify?

>December 28, 2008: Retail Memo: Tomorrow Deadline For Portland, Oregon's New Seasons Market to Turn Over Trade Secrets to Whole Foods Market's Legal Counsel

>December 22, 2008: Retail Memo: Only Slightly More Than Half the 93 Natural Foods Retailers Issued Subpoenas By Whole Foods in its Case against the FTC Have Complied

>December 18, 2008: Retail Memo: 'This Isn't Over Yet' - New Seasons Market CEO On Judge's Decision the Natural Gorcer Must Turn Over Trade Secrets to Whole Foods Market

>December 17, 2008: Breaking News: Judge Orders New Seasons Market to Comply With Whole Foods' Subpoena and Submit Sales Data, Financial Records and Other Trade Secrets

>December 7, 2008: 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 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: 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: 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.

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