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.

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

Whole Foods Market, Inc., the FTC and New Seasons Market

Earlier today, we published a written response, "Retail Memo: Whole Foods' Paige Brady Responds to Yesterday's New Season's Piece; Lots of E-Mails; Issue Heats Up On the New Seasons Market Blog," from Paige Brady of Whole Foods Market, Inc. to our story yesterday (December 1), "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 ."

Whole Foods' Paige Brady also posted the response to Natural~Specialty Foods Memo's piece on the New Seasons Market Blog, which we quoted and linked to in our piece yesterday.

Below, Brian Rohter (pictured above on the left in the blue shirt in one of the New Seasons Market stores), CEO of Portland, Oregon-based nine-store New Seasons Market responds to the response by Paige Brady of Whole Foods Market, Inc.

Brian Rohter's response: December 2, 2008

Paige Brady from the Whole Foods corporate office has posted here on our blog explaining their perspective on this situation. We appreciate her gumption and are thankful for her kind words about our company and our customers.

Also, Whole Foods just put out a press release, saying most of the same things as Paige and assuring us that we have nothing to fear if we’re forced to turn over all of our private information to them. I have to say that I disagree with their point of view.

Whole Foods says, “ . . . all responses are subject to an FTC-issued protective order. The protective order precludes any of this information from being shared with any WFM employee, including in-house counsel. Only outside counsel and their consultants can see this information.”

Sorry, but they’re leaving quite a bit out of that statement.

Just take a look at the history of Whole Foods actions. Last year, in the first round of this dispute, private information was subpoenaed from a bunch of grocery stores. All of those stores, including us, received the same promises of confidentiality—“only outside counsel will see these records, no employees of Whole Foods will ever see them, etc., etc”.

Then in the middle of that process, Whole Foods went to court to try to get all those same documents and files sent to their corporate headquarters in Austin, Texas so their in house counsel (the same one they’re talking about above that "will never see the private files") could look through them. Whole Foods position was, even though this attorney was an employee of Whole Foods and was on their “Leadership Team”, it was okay for her to see everyone else’s private data because she wasn’t engaged in “competitive decision making”.

Sound unbelievable? You can see for yourself at the FTC website. The link is http://www.ftc.gov/os/caselist/0710114/070620response.pdf You’ll find it on page 3. Why should we believe they won’t try that again?

And those “consultants” that Paige refers to above? Once they’ve looked through our information they’re not going to “unlearn” it. The very nature of their job means they carry things they’ve learned from one job to another. Will they ever work for Whole Foods again?

And that protective order? There’s no real penalty for violating it.

In their press release Whole Foods says, “It is important to understand that no competitor will be disadvantaged by complying with the subpoena . . .”

Sorry again, but that’s incorrect. Aside from the issues we’ve already talked about, our lawyers are telling us that it may cost us between $250,000 and $500,000 to comply with all the requirements of the Whole Foods subpoena. That may not be a huge amount of money to a company the size of Whole Foods, but to us it is a fortune.

So as much as we’d like to just say, “No worries. Let’s all just get along”, in this instance we don’t see how we can do that. Whole Foods has the ability to make this problem go away. We hope they do.
December 02, 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

Our story from yesterday, "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," has drawn a written response from Paige Brady at Whole Foods Market, Inc.

Additionally, we've received numerous e-mails today from readers of Natural~Specialty Foods Memo about the story and issue.

The issue also is heating up over on the New Seasons Market Blog. For example, when we published our story yesterday, citing the News Seasons Market Blog post by company CEO Brian Rohter, there were 10 comments on his post. At present, there are now 54 comments on his post here.

Below is the written response from Paige Brady of Whole Foods Market, Inc. to the New Seasons Market subpoena issue piece we wrote and published yesterday (it's also in the comments section of our story from yesterday):

Paige said...

Hey, Whole Foods Market here. We want to share our point of view with your readers. We are reading and listening to your concerns so we hope you’ll be open to reading ours.

The last year has been something of a nightmare for the administrative team members here who have been jumping through hoops to meet requests from the FTC. While our customers, our competitors’ customers, industry insiders and merger experts all seem to agree that customers have not been adversely affected by the Whole Foods Market/Wild Oats merger, the FTC continues to press their case forward.

While we would love to see this whole issue go away, we have no option but to defend ourselves against the FTC's ongoing effort. We know that New Seasons and many other fine natural foods stores are serving their customers well and that those customers, like ours, continue to have ample choices even after our merger with Wild Oats. Since the FTC insists that we have harmed these markets, we have to defend ourselves by showing that these markets are doing well. Part of our defense is based on gathering information from third parties through subpoenas, mostly from competing retailers but also from some vendors who supply Whole Foods Market.

We have not singled out New Seasons. Rather they are one of 96 companies (stores and vendors) that our outside legal counsel has subpoenaed. Why so many? The FTC has targeted Whole Foods Market in 29 different markets, and we must now defend against the claim that we do not face substantial competition from other supermarkets in all of these markets.

If we could defend ourselves without gathering information from competitors, we would. We don’t appreciate being put into this situation by the FTC. This is absolutely NOT an attempt to look into competitors’ information. In fact, no one inside Whole Foods Market will look at this information at all – only our outside counsel and their consultants are authorized to see the information gathered due to the FTC’s protective order. For those non-lawyers reading this, subpoenas and protective orders are a standard part of litigation practiced in virtually every antitrust case in the United States. The protective order prohibits any of this information from being shared with any Whole Foods Market team member, including in-house legal counsel. And while we understand that some of you will have trouble trusting the government system of protective orders, we give you our word that Whole Foods Market will not breach that trust.

We find it very unfortunate that the FTC’s ongoing pursuit to affect our merger (which was consummated more than a year ago) continues to be burdensome to Whole Foods Market, other stores like New Seasons, and U.S. taxpayers. We know the New Seasons and Whole Foods Market customers are a dedicated, caring group of people. We thank you for your concern for your local stores. Know that while we may not always see things eye to eye, we are working toward the same goal – making the world a better place through food choices.

(Posted by Whole Foods Market team member Paige Brady.)

December 2, 2008 5:37 PM

Natural~Specialty Foods Memo will be writing more on this issue tomorrow. Stay tuned.