Retail Memo - Exclusive: Supermarket Industry Investor Ron Burkle Looking For A Seat On Whole Foods Market's Board of Directors

Legendary supermarket industry investor Ron Burkle (pictured at left), who revealed in a filing with the U.S. Securities and Exchange Commission (SEC) on Thursday, January 8 that he had bought a 7% stake in Whole Foods Market, Inc. through his Yucaipa Companies investment firm, is looking for a seat at the table, specifically a spot on Whole Foods' corporate board of directors, sources close to Yucaipa Companies tell Natural~Specialty Foods Memo (NSFM).

Based on the level of Burkle's stake in Whole Foods, the 7% ownership, combined with the fact he has decades of experience in the supermarket industry -- he started as a grocery bagger for Southern California-based Stater Bros. Markets, became an executive vice president for the grocery chain, then left to start his investment firm, where over the last couple decades he done some of the biggest deals in the food and grocery retailing business, including his cobbling together of one of the largest aggregations of supermarket chains into a whole and then selling the company, Ralphs/Food-4-Less, to Kroger Co. in the 1990's for billions -- it would seem reasonable for Whole Foods to give him a seat on the board if that's what he desires.

After all, the Leonard Green & Partners private equity firm, which bought 17% of Whole Foods Market, Inc. in December, 2008 for $465 million, has placed three people on the Whole Foods board as part of its investment. They include two members of the firm and the CEO of specialty retailer The Container Store, of which the firm is the major investor. Burkle's 7% ownership stake is more than a third of Leonard Green & Partners' 17%, from a board member-for-board member numerical perspective -- three seats for 17% for Leonard Green & Partners. Therefore from a purely numeric position he should be entitled to one seat on the board for his 7%, similar to Leonard Green & Partners' three seats based on its 17% stake in the company.

Burkle, who has donated millions of dollars to organizations working in the areas of education, worker's rights and underserved communities through his Ronald Burkle Foundation, also is far from a stranger to the Whole Foods-Wild Oats Merger. He stepped in and bought an 18% ownership stake in then independent Wild Oats Market, Inc. a number of years ago when it was on the ropes in terms of surviving.

As part of his 18% ownership stake in Wild Oats, Burkle took a seat on its board. He then led a successful campaign to oust Wild Oats' then CEO and replace him with one Burkle wanted. He also played a major operational role in restructuring the company. Burkle also engineered a deal with Kroger Co. in which the mega supermarket chain, which he held significant stock in at the time because of his sale of Ralphs/Food-4-Less to Kroger, sold Wild Oats' private label natural and organic products in all of its supermarkets, which added a nice, new revenue stream for the natural products retailer. Finally, Burkle acted as the primary driving force from the Wild Oats' corporate and investment side in engineering the acquisition of Wild Oats by Whole Foods in 2007.

Yes, you could say Ron Burkle , who among other things has made millions of dollars for his close friend former U.S. President Bill Clinton by making him an investor in Yucaipa Companies and hiring him as a special advisor to the firm, is far from a stranger when it comes to the Whole Foods-Wild Oats merger.

Whole Foods Market, Inc. has no comment on the suggestion that Ron Burkle wants a seat on the natural grocery chain's board. A Whole Foods spokesperson told NSFM the company knows nothing about it. Burkle's office also isn't confirming, nor did it deny, that Burkle wants a board seat based on his 7% ownership stake in Whole Foods.

Ron Burkle , who is one of the largest donors to the Democratic Party and endowed the Burkle Center For International Affairs at UCLA, of which he is co-chairman of, is an activist not a passive investor. For two decades his method has been to acquire or make substantial investments in supermarket companies (and other businesses) and then take a hands on approach with those acquisitions or investments, as is the case with the creation of Ralphs/Food-4-Less and his experience with Wild Oats Market, Inc. leading up to the merger with Whole Foods.

Burkle isn't a quick turn-around investor. He's willing to take time and participate in the restructuring and strategic building up of a food and grocery retailing company. However, the end game, regardless of whether it's two years or ten, is to eventually create his own exit strategy -- that's how firms such as his and Leonard Green & Partners make money -- which has historically been to either lead or participate in a merger or acquisition regarding the companies he invests in.

History generally is a pretty good indicator of current and future behavior. And in the case of Ron Burkle, there's no evidence he plans to be a passive investor in Whole Foods Market, Inc. with his current 7% ownership stake, which he has the financial ability to increase at any time.

Although we are the first publication to report Burkle's desire for a seat on Whole Foods Market, Inc.'s board, we suspect you will be reading about it elsewhere soon.

Natural~Specialty Foods Memo (NSFM) Reader Resource

More on Ron Burkle From NSFM:

>Retail Memo: FTC Asks Judge to Force Whole Foods to Put Most of the Wild Oats' Genie Back in the Bottle Pending A Resolution of its Merger Challenge

>Food & Politics Memo: Billionaire Supermarket Industry Investor Ron Burkle Makes Millions For The Clinton's Post-Presidency

>Retail Memo: [Heard on the Street]: Will SuperValu, Inc. Be Supermarket Industry Investor Ron Burkle's Next Play

>More on Ron Burkle: Click here to read a piece from August, 2007 about Burkle and the Whole Foods-Wild Oats deal. As a note: NSFM has been the only publication we've found to date to suggest in the past we could see Burkle making a major investment in the combined Whole Foods-Wild Oats. He did just that on Thursday, January 8, 2009.

Retail Memo: Fresh & Wholesome Market Fears Not A Whole Foods Market Monopoly; In Fact Part of its Competitive Strategy is to Be the Anti-Whole Foods

Fresh & Wholesome Market's newest natural foods store (above) in Berkeley Heights, New Jersey is winning raves for its design, product selection and special features.

FTC v. Whole Foods Market, Inc.

In this analysis piece[Retail Memo: Natural-Organic Foods and U.S. Retail Marketplace Realities; Why the FTC's Case Against the Whole Foods-Wild Oats Merger is Pure Folly we wrote and published earlier today in Natural~Specialty Foods Memo (NSFM), we described why the U.S. Federal Trade Commission (FTC) is wrong in its legal argument and case that a combined Whole Foods-Wild Oats (Whole Foods Market, Inc.) is a monopolist retailer in the natural and organic foods retailing market in the U.S..

As part of our argument in the piece we sighted a number of regional retailers in the natural foods retailing class of trade that are strong and solid competitors against Whole Foods Market, Inc. post its acquisition of Wild Oats. We also discussed how numerous natural foods retailers throughout the U.S. are expanding their businesses and in many cases going head-to-head competitively against Whole Foods, not by accident but by design.

One of the natural foods retailers we sited in the story in New Jersey-based Fresh & Wholesome Market, and innovative multi-store natural grocer owned and run by industry veterans Joe Eroio and John Giuliano.

Fresh & Wholesome Market opened its fourth store just a couple of months ago in Berkeley Heights, New Jersey. Despite being only 10,000 square feet, the natural and organics grocery market is getting rave reviews from consumers, local natural products industry watchers and the local press for its design, product selection, unique aspects like an on-site nutritionist and in-house chef, affordable prices and other features.

Fresh & Wholesome Market currently operates four stores, all in New Jersey. The owners say they are on a growth spurt and plan to grow their business and store count considerably over the next few years. So much for fearing a Whole Foods Market monopoly for these multi-store independent natural foods grocers.

In fact, here's what a shopper says in a story today in MyNewJersey.com, the local daily newspaper Web site for the region, about the new Fresh & Wholesome Market store in Berkeley Heights, New Jersey: "Thank goodness this (Fresh & Wholesome store) opened," says Lisa Burkitt of Summit, ordering from the prepared foods counter with her young daughter, Alison. "It’s great to have this nearby and not have to go all the way to Whole Foods in Union." (Ms. Burkitt is referring to a Whole Foods Market store in nearby Union, New Jersey, where she shopped prior to the Fresh & Wholesome store opening in Berkeley Heights.)

And read what Fresh & Wholesome Market's owners say about their stores in the article: Fresh & Wholesome’s owners see themselves as a contender against the natural foods giant (Whole Foods Market). “We’re probably the largest independent natural foods market in the state right now,” Eorio says. “But we’re still small enough to be flexible and listen to what people want.”

In other words, Fresh & Wholesome's owners not only aren't afraid of taking on Whole Foods Market, Inc. in New Jersey, the natural foods retailer is basing a part of its retailing strategy on being an alternative to Whole Foods Market, Inc. Interesting.

Read the complete story, "Natural selection: Fresh & Wholesome Market woos organic fans," at MyNewJersey.com here.

This is merely one of numerous examples of retailers embarking on similar strategies vis-a-vis Whole Foods. They believe in the marketplace, and it appears in the case of Fresh & Wholesome Market its working so far.

Retail Memo: Natural-Organic Foods and U.S. Retail Marketplace Realities; Why the FTC's Case Against the Whole Foods-Wild Oats Merger is Pure Folly

Analysis: FTC v. Whole Foods Market, Inc.

Natural~Specialty Foods Memo (NSFM) believes the U.S. Federal Trade Commission's (FTC) legal case and argument against the merger of Wild Oats Market, Inc. and Whole Foods Market, Inc., the friendly acquisition by Whole Foods of Wild Oats that the regulator has been fighting in court since the summer of 2007, is folly.

NSFM has no affiliation with Whole Foods Market. We have nothing to gain from the merger's holding firm. In fact we think part of the reason the FTC continues to so strongly oppose the deal, despite the fact its been over 18 months since it was done and is now near fully-completed in terms of integration, is because of the decade-plus public comments of Whole Foods' CEO John Mackey and a couple of other company executives about "dominating" natural foods retailing in the U.S.

We also think part of the reason for the FTC's resolve has to do with John Mackey's silly postings on Yahoo Finance message boards during the run up to the deal in which using an assumed screename he described Wild Oats essentially as a bankrupt company in need of a new owner; that new owner being of coourse Whole Foods Market, Inc. We happen to agree with Mackey that Wild Oats was basically that, as do most of the investors who were four-sqaure behind the deal with Whole Foods, but his method of communicating that opinion was less than stellar. Mackey was investigated by the federal government for the postings and was foound to have broken no laws.

However, neither of these are or should be valid reasons for the FTC to continue to challenge the merger, assuming as we suggest they might play a part in the regulator's doing so.

The FTC's central argument against the deal is that a combined Whole Foods-Wild Oats is a monopoly retailer in 29 U.S. markets in what the regulatory agency has termed the "premium natural and organic foods retailing segment." As a result the FTC says Whole Foods Market, Inc. presents an anticompetitive position vis-avis other retailers in the selling of natural and organic foods in these U.S. markets.

The creation of this food retailing segment by the FTC forms the entire central premise of its ongoing attempt to unwind the merger.

But the problem is the "premium natural and organic food retailing segment" is at best irrelevant and at worse a creative fiction in terms of the retailing of natural and organic foods and related consumer goods in today's U.S. market.

Instead, natural and organic foods retailing in today's America is what we call a multi-retailer and multi-format business.

At one end of this spectrum there are serious and strong regional competitors in the natural-organic retailing class of trade that are dealing a serious blow to Whole Foods Market, Inc. These retailers include such regional natural foods chains as Sunflower Farmers Market, Sprouts Farmers Market, Henry's Marketplace (which Whole Foods sold to Smart & Final, Inc. after acquiring it in the Wild Oats deal in 2007, Natural Grocers by Vitamin Cottage, PCC Natural Foods Co-op (Washington State) and New Seasons Market (Portland, Oregon Metro region) and a number of others in the Western U.S.

Elsewhere in the U.S. other fast-growing natural foods chains like Mrs. Green's Market (New York state region), which is owned by Canada's Planet Organic, Inc., Earth Fare (southern U.S.), Fresh & Wholesome (eastern U.S.) My Organic Market (Washington D.C./Maryland/Virginia region) and others are strongly competiting against Whole Foods in those and other U.S. regions.

Further, along with these small but in most cases fast-growing natural and organic foods chains, there are thousands of independent and co-op natural foods stores that competite head-to-head with Whole Foods stores in their respective U.S. markets.

Along with the natural foods class of trade described above, the biggest development in category retailing in the last decade has been the entry of supermarkets into natural and organic products retailing. This includes mega-chains like Safeway Stores, Inc. with its Lifestyle format supermarkets (1,750 in the U.S. and Canada and growing), Kroger Co., including its new "Fresh" format, as well as mega-regional chains like H-E-B in Texas, Publix in Florida, Raley's in Northern California, Wegemans on the east coast and so many others. These retailer's stores offer nearly as much variety of natural and organic food and grocery products as a Whole Foods market does and generally offer the category items at a lower everyday price that Whole Foods does.

But the supermarket class of trade's major and fast-growing position in natural and organic foods retailing isn't all there is in terms of the competitive landscape today in the U.S. Huge mass merchandisers like Wal-Mart, Target, Wal-Mart's Sam's Club, Costco, B.J's Wholesale and other national mass merchandiser chains are in the natural and organic products retailing business in a major and serious way.

For example, all of the mass merchandisers mentioned above offer their own private label brands of natural and organic foods, selling the products a lower everyday prices than Whole Foods stores do. These retailers also offer organic foods and consumer packaged goods marketed by national and regional manufactuers (brands), as well as selling organic fresh produce, meats and other perishables in their respective stores.

On top of all this competition are what we call the discount and hybrid natural and organic foods retailers. This category includes the mighty Trader Joe's, which with about 312 small-format disount natural and specialty foods stores throughout the U.S. is a major force in natural and organic products retailing. Trader Joe's is a natural-organic category killer retailer and steals much market share away from Whole Foods throughout the country.

Examples of the hybrid category include Cost Plus World Market which sells lots of natural and organic food products in its nearly 300 combination specialty foods and imported consumer goods stores located throughout the U.S. In the last couple years Cost-Plus has created numerous natural and organic food products across all categories under its World Market store brand, becoming a competitor for share of stomach with Whole Foods Market and all of the other retailers in the U.S. that retail natural-organic category products in their stores, regardless of format.

Another hybrid is the fast-growing Fresh & Easy Neighborhood Market, which is owned by United Kingdom-based Tesco, the third-largest retailer in the World. (Wal-Mart is the number one global retailer and France's Carrefour is number two. In just a little over a year, Tesco has opened about 110 of its small-format Fresh & Easy combination fresh foods and grocery markets in Southern California, Nevada and Arizona, with more to come. Along with selling basic grocery items and lots of fresh, prepared foods, including organics, the stores offer a solid selection of natural and organic packaged foods, groceries and perishables under its fresh & easy store brand. The natural and organic items are priced below those at natural foods stores like Whole Foods Market and are designed to steal away business from Whole Foods and traditional supermarkets.

Another hybrid retailer is Beverages & More, which has numerous stores throughout the Western U.S. The stores are beer, wine, spirits and specialty and natural foods category killers, offering items in each of these respective categories at discount prices. Every package of organic cereal, bottle of Vitamin Water or jar of organic mustard bought at a Beverages & More store could have been purchased at the monopolistic Whole Foods, for example.There are numerous other examples of hybrids located throughout the U.S.

There also are what we call hybrid upscale/specialty/natural foods superstores. These retailers include regional chains such as Fresh Market in the southern and Mid-Atlantic regions of the U.S., United Supermarkets' Market Street chain in Texas, Supervalu, Inc.'s Bristol Farms in California and numerous others. They retail specialty, natural and fresh foods, along with basic groceries, in very upscale (every bit as upscale as Whole Foods) stores ranging from 30,000 -to- 60,000 square feet, putting an emphasis on most of the same categories and practices that Whole Foods focuses on.

But we aren't finished yet with our natural-organic category retailing competitive review. In addition to all of the competition we've detailed above, American consumers can today buy natural and organic food and grocery products at drug stores owned by huge chains like Walgreens, CVS and Rite Aid, at 99 cent and dollar stores, online through retailers like Amazon.com and others, and in the case of organic fresh produce at thousands of farmers markets across the U.S. Although these alternative channels offer limited item selections, taken with the retailers described above they add significantly the the competitive natural-organic retailing landscape in the U.S. today.

The point is, looking at natural-organic products retailing through the blurred lense the FTC is using -- its "premium natural and organic retailing segment (PNOS)" -- is like the old philosophical saying of failing to see the forest through the trees. Create a definition, PNOS, and then use that non-realistic definition of today's market as the basis for your argument against the merger is how we view what the FTC is doing in continuing to oppose the Whole Foods-Wild Oats merger under this framework.

But this is not merely our analysis or opinion. The marketplace agrees with us. For example, Sunflower Farmers Market and Sprouts Farmers Market both last year raised tens of millions of dollars to expand their respective businesses and store counts, which both chains have been doing aggressively. Both natural foods chains, as is the Natural Grocers By Vitamin Cottage natural foods chain, are going right at Whole Foods Market, opening stores in its home state of Texas, along with taking Whole Foods on in Colorado, California, New Mexico, Utah, Arizona, Nevada and elsewhere. Would these retailers really risk this if they believed Whole Foods held category retail monopoly power? Of course they wouldn't. Many of the states mentioned above are part of the 29 in which the FTC says Whole Foods Market, Inc. post-merger holds a monopoly, by the way.

Add to this market-based evidence Safeway Stores' march into the natural and organic foods retailing business over the last few years. The national supermarket chain, which has about seven times the annual gross sales of Whole Foods Market, Inc., has converted nearly all of its about 1,750 (Whole Foods has about 280 stores) supermarkets in the U.S. into its upscale Lifestyle format, which among other things puts a major emphasis on natural, organic and prepared foods, which are the three key merhcandising pillars of Whole Foods' business. Safeway has had huge success doing so.

For example, a little over years ago Safeway introduced its "O' Organics" store brand of organic food, grocery and non-foods items. Today the brand has over $500 million in annual sales and is growing fast. It's estimated 2008 sales will be about $700 million for the brand. O' Organics sales are growing so fast in fact that Safeway is in the process of marketing the brand to competitor supermarket chains in the U.S., along with marketing it globally. France's Carrefour is already selling numerous "O' Organics" brand items in its stores in Asia and Central America, for example.

Just over a year ago Safeway introduced its "Eating Right" store brand of healthy foods. The brand includes natural and healthy products across all categories, from dry grocery and dairly to fresh produce. Sales of the brand already are at about $300 million. Safeway says first year sales of 'Eating Right" were even higher than those of "O' Organics." The supermarket chain also is in the process of marketing "Eating Right" to competitor retailers, along with doing so to global chains outside the U.S.

Does anybody really believe that a significant portion of this nearly $1 billion worth of annual sales in just these two Safeway natural, healthy and organic store brands didn't in part come out of the sales hide of Whole Foods? Of course it did. Shoppers who just a decade ago had to seek out Whole Foods and otehr natural foods retailers for such items can now find most all they need in the natural and organic categories at supermarket chains like Safeway.

Many of Safeway's newest Lifestyle format supermarkets look very similar in upscale design and product selection to a Whole Foods natural foods supestore. However Safeway's stores have the added benefit of selling conventional food and grocery products along with the natural-organic.

It's our analysis that the FTC either has failed to understand the dynamics and realities of how natural and organic foods are retailed today in the U.S. or that it intentionally has decided it wants to break-up the Whole Foods-Wild Oats merger for reasons other than actual real competitive ones. In looking at Whole Foods' performance since the deal was finalized in late 2007, there is zero evidence of a monopolist at work. Just some of the empirical and performance-based evidence that Whole Foods looks not like a monopoly but rather more like a struggling retailer:

>Whole Foods' income was down by about 40% in its last quarter. It had a similar drop in net income the previous quarter.
>Whole Foods' stock share price is off by about 70% compared to its high after the Wild Oats merger.
>In the last quarter of 2008 Whole Foods fired about 100 workers at its Austin, Texas headquarters in order to conserve operating cash on hand.
>In December, 2008 Whole Foods sold 17% of the company to private equity firm Leonard Green & Partners for a mere $465 million because it needs the cash. One year ago a 17% stake in Whole Foods was worth more than double that $465 million.

In addition to all the evidence we've presented in this piece, there's a far more simple and telling test as to why a combined Whole Foods-Wild Oats isn't a monopolist retailer of any sort. That test is that not one natural foods chain -- not Sunflower, not Sprouts, not Henry's -- or even an independent we've been able to find -- has spoken out publicly, saying that a combined Whole Foods-Wild Oats is a monopolist and because of it that retailer can't compete. Even when the merger was first announced, and when the FTC first issued its formal opposition to the deal in the summer of 2007, did we hear any natural foods retailers speak out and say they felt seriously threatened by a combined Whole Foods-Wild Oats. Instead there has been a deafening silence of concern from natural foods retailers over any real anti-competitive aspects of a combined Whole Foods-Wild Oats.

As we write this, Whole Foods Market, Inc.'s energy is being near-used-up fighting its legal case against the FTC, rather than in doing food retailing. Meanwhile, the combination of the severe recession and the competitive environment, in which all of the various format retailers we've discuss are in many cases offering natural and organic food and grocery products at prices considerably below Whole Foods, is taking a toll on the company.

For example, last week supermarket industry investor Ron Burkle bought a 7% stake in Whole Foods Market, Inc. through his Yucaipa Cos. investment and private equity firm, saying he believes the natural grocery chain is undervalued based on its problems with the FTC and in the current bad economy. The last time Burkle said something similar was when he bought an 18% stake in Wild Oats, and then as a powerful member of Wild Oats' board he played a major role in engineering the merger with Whole Foods. Could he have a similar plan in mind with his 7% Whole Foods stake? Investors think so. After Burkle disclosed his stake in Whole Foods last Thursday the company's stock rose by 23%. Its still down about 52% over a year ago though.

With Ron Burkle's 7% stake and Leonard Green & Partners' 17% stake in Whole Foods, that now puts 24% of the natural grocery chain's ownership in the hands of just two entities. Leonard Green & Partners also placed three people on Whole Foods' board as a result of its investment. A 24% ownership isn't a majority but its enough to play a major role in engineering an acquisition or merger should Burkle and Leonard Green & Partners, both of which are based in Southern California, decide to get together and talk potential deal creation.

We wonder if the FTC would cry monopoly for example if Safeway Stores, Inc. or Kroger Co. acquired Whole Foods? What about Wal-Mart or Target? After all, none of these mega- retailers, all of which are super-giants in terms of annual sales compared to Whole Foods Market, Inc., aren't technically players in the "premium natural and organic retailing segment." Therefore, adding a mere 280 stores and a little over $6 billion (Whole Foods annual sales) wouldn't, using the FTC's logic and argument against why a combined Whole Foods-Wild Oats is a monopoly, make any of these retailers monopolistic, not even Kroger which has about 12 times Whole Foods' annual sales or Wal-Mart, which has about 50 times Whole Foods' annual sales, right?

Therein lies the folly of the FTC's argument. It's created a fiction it calls the "premium natural and organic retailing segment," then used that non-market-reality-based definition to argue a combined Whole Foods-Wild Oats is a "category monopoly," leaving out the fact that the reality of natural and organic foods retailing today is what we've described it as -- a multi-retailer, multi-format, highly competitive business in which no one retailer, including Whole Foods Market, Inc., at present holds any type of monopoly. And in select markets where one retailer might monopolize category business to a certain degree, be it Wal-Mart, Safeway or Whole Foods, the effect is so minimal as to be irrelevant.

Even more significant is that nature of food and grocery retailing in the U.S. is so dynamic that something new -- think Sunflower, Sprouts, Tesco's Fresh & Easy -- all of which didn't exist in any significantly competitive way three years ago -- keeps coming along and changes the dynamics of the market. That's the true competitive reality of natural and organic foods retailing in the U.S. today.

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

FTC v. Whole Foods Market - As the Subpoenas Turn

Whole Foods Market, Inc. is offering those retailers, including Portland, Oregon-based New Seasons Market, that have yet to respond to its subpoena for sales, financial, marketing and other proprietary company information regarding the Austin, Texas-based natural grocery chain's battle against the U.S. Federal Trade Commission (FTC), a bit of carrot and a bit of stick, Whole Foods' executive vice president Jim Sud and others essentially said during a press teleconference yesterday.

The carrot: During yesterday's teleconference with reporters and Bloggers, Sud said Whole Foods Market, Inc. has begun sending written requests to those remaining retailers, of the 93 or 94 the natural grocery chain subpoenaed months ago but have yet to comply, for their trade secrets which the natural grocery chain hopes will show that it isn't a monopolist in what the FTC calls the "premium natural and organic retailing segment," but rather that there's plenty of competition to go around. We reported on Monday that the natural grocery chain had started sending the letters out to those retailers that have not yet complied with its subpoena. The deadline to do so was November 4, 2008.

"This is not something we want to do. This is something we've been forced into because we're having to defend the merger in 29 separate markets,” Sud emphasised during the teleconference. This is something Whole Foods' co-president Walter Robb also has recently said is the case in previous discussions about the subpoenas.

In the letters to the subpoenaed retailers that haven't yet complied, Sud said "documents turned over to Whole Foods would be protected by a confidentiality order" agreed to by Whole Foods and the FTC. The order specifically bars Whole Foods Market, Inc. employees from reviewing the documents. It also bars the natural grocery chain's corporate general council form viewing the trade secret information, Sud said.

Only Whole Foods' outside legal council, which includes Lanny Davis, a partner at the Washington, D.C. office of the Orrick law firm and the the natural grocery chain's lead council in its legal battle with the FTC, and Paul Denis, a partner at the Washington, D.C. office of the Dechert law firm and the attorney who will argue the case at the April 6, 2009 FTC Administrative hearing/trail in which its possible the merger will be overturned at, will have access to the retailers' proprietary information, Sud said at yesterday's teleconference.

These assurances have previously been given to retailers like Portland's New Seasons Market, which fought the subpoena and lost, by Whole Foods Market, Inc. CEO John Mackey, co-president Walter Robb and the natural grocery chain's outside legal counsel. The assurances also are contained in the subpoena. However, New Season's Market CEO Brian Rohter has said he doesn't believe the assurances, and he has yet to provide the information demanded in the subpoena because in the past similar information his company submitted involving the FTC's challenge to Whole Foods' friendly acquisition of Wild Oats was posted on the FTC Web site. Additionally, he says some of that information was viewed by Whole Foods Market, Inc. employees.

Yesterday's press teleconference, along with the letters being sent to the retailer's that haven't complied with the subpoena to date, are designed by Whole Foods' to hopefully create greater comfort among the retailers so that they will submit the proprietary information to Whole Foods Market, Inc.'s outside legal counsel.

That is the aspect we are referring to as the "carrot" portion of the press teleconference.

The stick: At the same press teleconference yesterday, Whole Foods' lead outside legal counsel Lanny Davis, who appeared on CNN's Larry King show yesterday and today discussing his close friend Hillary Clinton's Senate hearing to be Secretary of State in the Obama Administration, said the company filed motions Tuesday (yesterday) to compel about two dozen companies, including New Seasons Market, that have refused to hand over proprietary information to submit the proprietary information demanded in the subpoena.

In the motioned filed by Whole Foods Market, Inc. yesterday, retailers who don't comply with the subpoena and submit the sales, financial, marketing and related proprietary information demanded in it, could be held in contempt of court and charged, along with being fined.

As we've previously reported, Whole Foods subpoenaed retailers in 29 U.S. markets where the FTC says a combined Whole Foods-Wild Oats now holds a monopoly in what the regulator calls the "premium natural and organic retailing segment."

Natural~Specialty Foods Memo (NSFM) argues that the FTC's segment definition is fiction because in the U.S. today natural and organic food and grocery retailing is a multi-format, highly competitive enterprise. It includes numerous fast-growing regional natural foods chains like Sunflower Farmers Market, Sprouts Farmers Market, Mrs. Green's, Earth Fare, New Seasons Market, Natural Grocers by Vitamin Cottage, thousands of natural foods independents and co-ops, supermarket chains (ranging from giants Kroger Co. and Safeway to scores of big regional chains and hundreds of smaller independents) and mass merchandisers like Wal-Mart, Target, Costco and others, and even online retailers like Amazon.com.

We suggest the "premium and organic retailing segment" is basically a fiction. It does not describe the reality of natural and organic products retailing in the U.S. today. Therefore, it's our analysis that the FTC's objection to a combined Whole Foods-Wild Oats is built on this fiction and as such is wrong and a waste of taxpayers money and U.S. federal government resources, particularly in the current climate in which other branches of the federal government are spending hundreds of billions of dollars of taxpayer money to bail out companies like Citi-Corp, which compared to Whole Foods are giants.

One merely just needs to look at the empirical evidence of Whole Foods-Wild Oats today -- a drop in net income of about 42% in the last quarter, Whole Foods' stock share price has dropped by 75% in the last year, the company fired over 100 headquarters employees in the fall of 2008 to conserve cash, it sold 17% of the company for $465 million a few weeks ago because it badly needs the cash, the current economic recession is resulting in lost sales, lower customer counts and reduce shopper market basket sizes in Whole Foods stores -- to see that not only isn't it a monopoly, it's a struggling retailer in big trouble.

The press teleconference yesterday, the letters to the retailers regarding the subpoenas and the court filing by Whole Foods Market, Inc. related to those subpoenas, comes on the heels of a move by the FTC to halt further integration of Whole Foods and Wild Oats, as we reported on Monday.

According to a brief filed Monday in the U.S. District Court for the District of Columbia by Matthew Reilly, assistant director of the FTC’s Bureau of Competition, the FTC is proposing an immediate stay of integration (no more converting of Wild oats stores to Whole Foods) as interim relief while the federal court case is pending and is asking Judge Paul Friedman to order Whole Foods to rebrand all former Wild Oats stores.

Whole Foods is fighting back against this move by the FTC. It says the merger is essentially complete, and it is, and that having to "put the toothpaste back in the tube," as legal Counsel Lanny Davis describes the process, would be extremely onerous, and pretty much impossible, since there no longer exists a Wild Oats entity. In other words, there's no tube to put the toothpaste back into.

For example, during yesterdays press teleconference, Whole Foods' co-president Walter Robb said about all that remains in the merger in terms of integration is hanging about six Whole Foods store signs on former Wild Oats stores. The rest are finished, Robb said in response to the FTC's request to judge Friedman to halt the process and to force the natural grocery chain to remove recently (in the six months to a year) installed Whole Foods signs off about 100 converted former Wild Oats stores and put the Wild Oats signs back up. (We wonder if the old Wild Oats signs even still exist. If not will the FTC ask Treasury Secretary Hank Paulsen to give Whole Foods some money out of what is left of the $700 billion financial institution bailout money so it can purchase new signs? It's only fair, isn't it?)

Robb also addressed what he said is the extreme importance of Whole Foods' outside legal council obtaining the proprietary information from the remaining retailers, those out of the 93-94 that haven't complied to date. Robb said Whole Foods Market, Inc. must prove that in each of those 29 markets where the FTC says the natural grocery chain holds a monopoly that it isn't the case. Rather, that competition is robust in each of those contested markets. "If we fail in even one market the case is lost," he said yesterday.

The FTC wants Judge Friedman to rule on its motion to halt the integration, rebrand about 100 stores back from Whole Foods to Wild Oats, along with a couple other issues contained in the motion, before he rules on Whole Foods' lawsuit, in which the company is asking the judge to remove the FTC from jurisdiction over the merger and to return it to his federal court for a final hearing and decision. Should Judge Friedman rule in Whole Foods' favor, that would legally stop the April 6 FTC hearing on the fate of the deal. However, the FTC can appeal the ruling, should it favor Whole Foods, in federal appeals court.

The next step in this legal saga should be for Judge Friedman to rule on a number of motions, both from Whole Foods and the FTC, including the latest one to stop the integration and rebrand the stores, as well as ruling on Whole Foods' lawsuit against the FTC, plus ruling on additional motions the FTC has filed in the case.

Meanwhile, all of the retailers that have yet to comply with the subpoena should receive the letter from Whole Foods by the end of this week. It will be interesting to see if the combination assurance carrot and legal stick turn non-compliance into compliance.

The natural grocery chain's outside legal team is in a race to get this information because they have to analyze it all, compile it, and figure out how to use it to make its case that the combined Whole Foods-Wild Oats is not a monopoly in those 29 U.S. markets by the scheduled April 6, 2009 FTC Administrative hearing. The clock is ticking in terms of the long passed deadline that the legal team wanted to have this data by. Stay tuned.

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

Reaching Out: FTC v. Whole Foods Market - and the Subpoenas

Whole Foods Market, Inc. will hold a press conference tomorrow (Tuesday, January 13) at 12 pm Eastern time, at which company executives will ask the nearly half of the 94 U.S. natural foods retailers it has subpoenaed for their confidential sales and related information to submit the trade secrets to its legal council in order to assist Whole Foods in its legal battle against the U.S. Federal Trade Commission (FTC).

Tomorrow's press conference, during which Whole Foods plans to offer verbal assurances to the subpoenaed natural foods retailers that their trade secrets will not be viewed by Whole Foods Market, Inc. employees, just members of its legal team, comes on the heels of a letter sent to the FTC today by company CEO John Mackey, in which he asks the members of the regulatory agency to offer assurances that the subpoena order, which states that only members of the FTC and Whole Foods' legal council can view the trade secrets, be enforced. The subpoena order states that if the information is viewed by other than authorized parties those doing so could be subject to a contempt of court violation.

Mackey also has sent a letter to the subpoenaed natural products retailers asking them to comply with the subpoena. In the letter he offers reasons for them to do so, along with offering assurances that the information will not be viewed by Whole Foods Market, Inc. employees.

Both Whole Foods and the FTC has previously assured the subpoenaed natural foods retailers that only the Whole Foods Market, Inc. legal team and FTC members and staffers are allowed to view the contents of the sales, financial and related trade secrets contained in the information submitted per the subpoena, according to its legal guidelines. However, despite those legal and verbal assurances, nearly half of the 94 natural products retailers located in 29 U.S. markets have not complied with the subpoena. The deadline for them to do so was November 4, 2008.

Whole Foods' executive vice president Jim Sud will do the briefing at tomorrow's press conference for the natural foods grocer. [we've suggested it would be a good idea for John Mackey to take a back seat in such public instances and instead have someone like co-president Walter Robb, or in this case Sud, handle the heavy lifting because there is bad blood between members of the FTC and Mackey. Perhaps Whole Foods and John Mackey agree with NSFM?] The lead outside legal counsel for Whole Foods, Lanny Davis of the Washington, D.C. office of the Orrick law firm, will participate in the press conference to address legal issues involving the subpoenas.

Whole Foods badly needs the trade secret data from the 94 competitors in those 29 U.S. markets in order to prove it isn't a monopolist in what the FTC calls the premium natural and organic retailing segment. The FTC says it is, and that argument forms the basis of the regulatory agency's continued objection to a combined Whole Foods-Wild Oats to this day, more than 18 months since the merger was completed.

The purpose of tomorrow's press conference is to ask the subpoenaed retailer's to help Whole Foods in its battle against the FTC in part for "the sake of the industry." The natural foods chain says its hand was forced by the FTC, which is why it had to subpoena the trade secrets from its competitors.

As we've been writing about extensively, one of those subpoenaed natural foods retailers, Portland, Oregon-based New Seasons Market, publicly fought the subpoena, submitting a legal brief to the FTC asking it to strike the subpoena down. An FTC Administrative Law Judge ruled in favor of Whole Foods last month and gave New Seasons until December 29, 2008 to comply with the subpoena and submit its sales information, financial data, strategic marketing plans and other trade secrets.

As we reported in this piece [Retail Memo - Breaking News: New Seasons Market Doesn't Turn Over Trade Secrets to Whole Foods Market Despite Deadline to Do So Being Today] on December 29, 2008, New Seasons did not comply with the deadline given to it by the FTC Administrative Law Judge. In addition, according to New Seasons Market CEO Brian Rohter, the nine-store Portland natural foods grocer has not yet turned over any information to Whole Foods per the subpoena.

According to our sources, as of today only about 55 of the 94 natural foods retailers have complied with the subpoena and submitted information to Whole Foods Market, Inc. Additionally, as we've previously reported, many of the retailers that have complied with the have self-edited the information demanded, excluding types of information they feared could be used against them in a competitive way.

Natural~Specialty Foods Memo (NSFM) has learned that one of the natural foods retailers that did just that is the fast-growing Sunflower Farmers Market chain, which was founded by and is headed by former Wild Oats founder Michael Gilliland. Gilliland left Wild Oats a considerable time before the Whole Foods acquisition.

According to our sources, Sunflower Farmers Market, as did a number of the other subpoenaed natural products retailers, omitted some trade secret information because of a lack of security about it not being read by Whole Foods Market, Inc. employees, which is a reasonable fear despite the assurances to the contrary.

Whole Foods has been talking privately with a number of the retailers who have yet to comply with the subpoena, including holding talks with New Seasons Market CEO Rohter and his legal counsel for the last couple weeks, attempting to assure them that the trade secret information will be kept confidential, along with trying to devise ways, including some possible compromises, to get these retailers to submit the information to Whole Foods' legal counsel, NSFM has learned.

Whole Foods may offer up some of those compromises at tomorrow's press conference as a way to encourage the retailers to comply with the subpoena.

Whole Foods Market's legal counsel needs the information right now as its needs to prepare for the April, 2009 administrative trail before an FTC Administrative Law Judge. With only about half of the information in, and incomplete at that, Whole Foods' lawyers don't currently have near enough data to use in defending the FTC's anti-competitive argument against it.

We will be covering tomorrow's press conference. Stay tuned for our report tomorrow.

Natural~Specialty Foods Memo (NSFM) Linkage: FTC v. Whole Foods:

January 12, 2008: Retail Memo: FTC Asks Judge to Force Whole Foods to Put Most of the Wild Oats' Genie Back in the Bottle Pending A Resolution of its Merger Challenge....

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 29, 2008: Independent Grocer Memo: Natural-Organic, Local, Fresh and Premium Keys to Pacific Northwest USA's Haggen Foods; Now Adding Value....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 24, 2008: Christmas Eve Memo 2008: 'Twas the Night Before Christmas' - FTC v. Whole Foods Market, Inc. Version....December 24, 2008: Independent Grocer Memo: From Mrs. Gooch's to the Auto Body Business, Then Back to Retail, Chris Kysar is On A Healthy Organic Foods Retailing Roll....December 24, 2008: Retail Memo: It's 'Deja Vu All Over Again' - Judge Paul Friedman to Whole Foods Market, FTC: 'What's My Role Here?'....December 23, 2008: Retail Memo: FTC Postpones Scheduled February 16 Administrative Hearing on Whole Foods-Wild Oats Deal Break-Up Until April 6, 2009....

December 23, 2008: Independent Grocer Memo: National Grocers' Association Asks President-Elect Obama to Look Out For Independent Grocers When He takes Office in January....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 22, 2008: Retail Memo: Whole Foods Market Wants to Depose and Obtain Internal E-Mails From FTC Commissioner, Suggesting Possible Conflict of Interest Situation....December 22, 2008: Retail Memo: At Hearing Today Judge Tells FTC to Provide Road Map of How Whole Foods Could Take About Merged Companies Should Ruling Go In its Favor....

December 19, 2008: Retail Memo: Whole Foods' Lobbying Effort Baring More Fruit - House Committee Leaders Send Letter to FTC Chair Similar to One Sent By Senate Leaders....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 18, 2008: Retail Memo: The 'Whole Primary Source Scoop' -- FTC and U.S. Federal Court Documents on the FTC v. Whole Foods Market, Inc. Case....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 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....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, including pieces about mass market and natural foods class of trade retail competitors.

Retail Memo: FTC Asks Judge to Force Whole Foods to Put Most of the Wild Oats' Genie Back in the Bottle Pending A Resolution of its Merger Challenge

FTC v. Whole Foods Market, Inc.

The ongoing legal battle and saga between the U.S. Federal Trade Commission (FTC) and Whole Foods Market, Inc. took a serious turn today when the FTC filed a brief asking U.S. Federal Judge Paul Friedman to order a complete halt to the integration of Wild Oats into Whole Foods (and more), a process that after more than 18 months since the 2007 merger is nearly completed. Whole Foods-Wild Oats: Two peas in a pod no more if the FTC gets its way from the judge.

The FTC says in its motion it wants the federal judge to force Whole Foods to stop any further integration activities while the multiple disputes between the regulator and the natural grocer over its acquisition of Wild Oats is handled in court. Judge Friedman is currently preparing to rule on motions filed by the FTC regarding the acquisition/merger, along with ruling on Whole Foods' lawsuit against the FTC in which the natural grocery chain is asking that the entire issue be removed from FTC jurisdiction and settled in Judge Friedman's federal courtroom.

The FTC said in its legal filing that the request is "appropriate, and reasonable" to preserve the assets of Wild Oats until the conclusion of the hearings.

This is the trifecta of pain the FTC wants to put Whole Foods Market, Inc. through: It wants the judge to order Whole Foods to rebrand (change the signs on the stores) the about 100 Wild Oats stores it's converted to the Whole Foods banner back to Wild Oats. It's legal filing also asks the judge to order Whole Foods to stop converting any remaining Wild Oats banner stores into Whole Foods. There still are a few left to be converted. Lastly, and most ominous for the natural grocer, The FTC wants former Wild Oats stores now operating as Whole Foods locations to be put in the hands of a third party, and their original signs returned, until its challenge to the merger is resolved.

The federal regulatory agency said in its filing today that if the judge rules that it has a strong enough case, it's likely it will attempt to unwind the entire merger and force Whole Foods Market, Inc. to establish Wild Oats as a standalone company and operate it that way.

The FTC has set a trial for April before an agency-picked Administrative Law Judge in which the fate of the deal is to be determined. Whole Foods' lawsuit before U.S. Federal Judge for the District of Columbia Paul Friedman asks, among other things, for that hearing to be cancelled and the FTC to be removed from determining the legal status of the merger. Instead Whole Foods wants the judge to hear the case and decide on the deal once and for all.

It appears to Natural~Specialty Foods Memo that the dramatic legal move today is the FTC's response to Whole Foods' lawsuit, which it filed in early December, 2008, as well as the natural grocer's high-profile lobbying and public relations campaign against the FTC, which we've reported on and written about extensively.

In other words, the gloves are now completely off on both sides.

Whole Foods Market CEO John Mackey shot back at the FTC today through a spokesperson and through his legal counsel, calling the FTC's request "absurd" and saying the process of integrating Wild Oats is done.

"They want us to put the toothpaste back in the tube," lead Whole Foods Market, Inc. attorney, uber-Washington, D.C. lawyer, and friend of the (Bill and Hillary) Clinton's Lanny Davis said in a statement late today. "How can you halt something that is already done?"

If the judge rules in the FTC's favor and orders Whole Foods to change the 100 or so stores back to the Wild Oats banner, stop any further integration of the few remaining stores, and to place what was Wild Oats in the hands of a "third party" as requested in the regulator's court filing today, it's our analysis that doing so would basically be the death of Whole Foods Market as you know it, a retailer that's already near death's door in so many ways.

Those ways include: a loss of income of about 42% in its last quarter; a drop in the value of Whole Foods Market, Inc. stock of about 75% in the last year; an ongoing erosion in sales, customer counts and store customer market basket purchase sizes because in the current, severe recession shoppers are trading down; and growing competition from discount-priced natural foods retailers like Sunflower Farmers Market, Sprouts Farmers Market and others, as well as increased competition from mass merchandisers like Wal-Mart, Costco and Target and supermarket chains, all increasingly selling natural and organic foods, in most cases for less than Whole Foods Market does.

We see the FTC's demands as both unrealistic -- the merger is near completed for heavens sake -- and draconian -- the financial cost of doing what the FTC is asking in this severe recession and financial/credit crisis environment amounts to basically wishing a bankruptcy filing on Whole Foods Market, Inc., or at best forcing the company to fire hundreds or even thousands of employees as a way to conserve cash; cash it will need to do the expensive things contained in the FTC's filing.

We don't like to make predictions but we must: Judge Friedman has shown himself to be a fair and even-handed judge throughout the FTC-Whole Foods legal saga since the summer of 2007 when the case was assigned to him. Therefore, it's our belief that the judge will deny all or most of the requests being made by the FTC. However, we think he might grant one, which is that Whole Foods cease any further integration of remaining Wild Oats stores into Whole Foods. But even doing that would be difficult. Why? there's no Wild Oats entity anymore. It exists essentially only in FTC world.

Of course, we could be wrong. And if we are, and if the judge were to rule completely in favor of the FTC on its filing today, we expect a drop in Whole Foods' stock share price that will be so dramatic that it could likely render the value of the retailer so low that its new, major stockholders -- supermarket industry magnate Ron Burkle, who like Lanny Davis is a BFF of the former first family (particularly Bill Clinton), and the private equity firm Leonard Green & Partners, L.P., get together and engineer some sort of an acquisition of Whole Foods Market, Inc.

Leonard Green & Partners acquired 17% of Whole Foods Market, Inc. for $425 million on December 2, 2008.

Legendary supermarket industry investor Ron Burkle, who as a major investor (he held an 18% stake in Wild Oats at the time of Whole Foods acquisition) and board member was the driving force from the Wild Oats corporate side behind the merger with Whole Foods in 2007, revealed in a filing with the Security and Exchange Commission last Thursday that his Yuciapa Companies investment firm, which counts among its investors the once poor-as-President but now multi-millionaire (thanks in part to Burkle's efforts on his behalf) former President Clinton, bought a 7% stake in Whole Foods Market, Inc.

Burkle, a billionaire, is an activist investor. He made his fortune over a two-decade period primarily by buying supermarket chains and combining them, resulting in his ultimate deal, which was the sale of his huge supermarket holding company to Kroger Co. in the 1990's for billions of dollars.

Private Equity firms like Leonard Green & Partners and activist shareholders like Ron Burkle (his Yuciapa Cos. is essentially a private equity firm) both play the same endgame -- they acquire stakes in company's, get involved in how those companies operate, and eventually look for an exit strategy that makes them a substantial profit. This most often involves a merger or acquisition.

Mark our words, with Leonard Green & Partners and Ron Burkle now holding a combined 24% ownership stake in Whole Foods Market, Inc., the natural foods grocery chain, whatever the outcome of the FTC legal case, will not end up being the same company a couple years from now (or in less time) than it has been historically or is today. After word got out on Thursday that Burkle took a 7% stake in Whole Foods, the natural grocer's stock shot up by 23% above its previous day's share price.

Meanwhile, FTC v. Whole Foods Market, Inc. continues. Stay tuned.

Natural~Specialty Foods Memo (NSFM) Linkage:

>In this story [Retail Analysis Memo: Growth and A Tale of Two Retailers-Tesco and Whole Foods Market: Is One Ripe For Acquisition and the Other Ripe For Acquiring?] on August 16, 2008 we suggested Whole Foods Market, Inc. could (then) be ripe for an acquisition. Nearly five months later, and in much more dire straights, we think the probability is even higher that it is. The only limiting factor: Does anybody want Whole Foods in Today's economic climate? Not to mention it's little FTC problem as well.

>Linked below are a couple past stories from Natural~Specialty Foods Memo (NSFM) about billionaire supermarket industry investor Ron Burkle:

~Food & Politics Memo: Billionaire Supermarket Industry Investor Ron Burkle Makes Millions For The Clinton's Post-Presidency

~Retail Memo: [Heard on the Street]: Will SuperValu, Inc. Be Supermarket Industry Investor Ron Burkle's Next Play

>More on Ron Burkle: Click here to read a piece from August, 2007 about Burkle and the Whole Foods-Wild Oats deal. As a note: NSFM has been the only publication we found to suggest in the past that we could see Burkle making a major investment in the combined Whole Foods-Wild Oats. He did just that on Thursday, January 9, 2009.

Supermarket chains v. Whole Foods: The FTC is so "1986" when it comes to understanding the food and grocery retailing industry in the U.S.:

>Our argument regarding why the FTC is wrong in its legal case in which it is claiming that a combined Whole Foods-Wild Oats is a monopoly in what it calls the natural and organic premium retailing segment basically boils down to this: such a classification by the FTC is a fiction because it is irrelevant to the reality of the retailing of natural and organic products in the U.S. today in which retailers of all types and formats -- from Wal-Mart, Target, Costco, Safeway, Kroger Co., Trader Joe's, regional supermarket chains, independents and even Amazon.com, to fast-growing natural foods chains like Sunflower Farmers Market and Sprouts Farmers Market and many others -- all are battling it out in the category arena.

In August, 2007 we wrote this piece [Will the Big 3 Supermarket Chains Challenge Whole Foods in its Niche? Our answer today: Yes, in the 17 months since we wrote the piece the "Big 3" have increased their merchandising in the natural and organic foods categories significantly. For example, at the end of 2008 sales of Safeway Stores' "O' Organics" organic products store brand was over $500 million in its 1750 supermarket in the U.S. and Canada. Four years ago the brand didn't even exist.

Additionally, on the market for just a bit over a year, Safeway's "Eating Right" healthy foods brand has over $200 million in annual sales. Such sales doesn't come only from new customers. Rather, most of it comes from stealing other retailers' and manufacturers brand sales. A significant share of these new stomachs for the Safeway brands comes from consumers who used to buy like products at Whole Foods Market stores.

More NSFM Linkage:

Natural~Specialty Foods Memo reported extensively on, wrote about and offered analysis on the FTC v. Whole Foods issue and related topics in December, 2008. Below is a linked bibliography of all of our December stories and posts:

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 29, 2008: Independent Grocer Memo: Natural-Organic, Local, Fresh and Premium Keys to Pacific Northwest USA's Haggen Foods; Now Adding Value....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 24, 2008: Christmas Eve Memo 2008: 'Twas the Night Before Christmas' - FTC v. Whole Foods Market, Inc. Version....December 24, 2008: Independent Grocer Memo: From Mrs. Gooch's to the Auto Body Business, Then Back to Retail, Chris Kysar is On A Healthy Organic Foods Retailing Roll....December 24, 2008: Retail Memo: It's 'Deja Vu All Over Again' - Judge Paul Friedman to Whole Foods Market, FTC: 'What's My Role Here?'....December 23, 2008: Retail Memo: FTC Postpones Scheduled February 16 Administrative Hearing on Whole Foods-Wild Oats Deal Break-Up Until April 6, 2009....December 23, 2008: Independent Grocer Memo: National Grocers' Association Asks President-Elect Obama to Look Out For Independent Grocers When He takes Office in January....

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 22, 2008: Retail Memo: Whole Foods Market Wants to Depose and Obtain Internal E-Mails From FTC Commissioner, Suggesting Possible Conflict of Interest Situation....December 22, 2008: Retail Memo: At Hearing Today Judge Tells FTC to Provide Road Map of How Whole Foods Could Take About Merged Companies Should Ruling Go In its Favor....December 19, 2008: Retail Memo: Whole Foods' Lobbying Effort Baring More Fruit - House Committee Leaders Send Letter to FTC Chair Similar to One Sent By Senate Leaders....

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 18, 2008: Retail Memo: The 'Whole Primary Source Scoop' -- FTC and U.S. Federal Court Documents on the FTC v. Whole Foods Market, Inc. Case....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 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....

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, including pieces about mass market and natural foods class of trade retail competitors.

[Note: Natural~Specialty Foods Memo holds no Whole Foods Market, Inc. stock at present.]

Retail Memo: Bloody Recession Be Damned - Upscale, Premium UK Supermarket Chain Waitrose Reports Record Sales For the Day Before Christmas

Bloody recession be damned -- it's Christmas.

The sentiment above appears to be what was on the minds of tens of thousands of British consumers who flocked to the United Kingdom's most upscale and premium-oriented supermarket chain, Waitrose, on the days leading up to Christmas, December 25.

And December 23, Christmas Eve, was the biggest day of all. In fact, it was the biggest day in history for upscale Waitrose [Web site: Waitrose.com.]

The specialty, premium, gourmet, fresh-prepared and natural foods-focused supermarket chain, which is owned by Britain's John Lewis Partnership, took in £34.4m from more than 879,000 transactions on December 23, beating the previous record of 754,000 set in December 2006, the company reported this week. Waitrose is a full-service general format supermarket in addition to its upscale focus.

Waitrose says it benefited from a "late shopping surge" in the last three days before Christmas, which resulted in a 12% rise in same store sales for the chain.

On Christmas eve, sales were 5% over Christmas Eve 2007, while in the week leading up to Christmas, same store growth was 3.5%, according to Waitrose managing director (CEO) Mark Price.

Chief executive Price says shoppers were filling their carts with Christmas holiday foods, along with buying lots of specialty foods items as gifts.

Waitrose tossed out some numbers regarding item sales during the week leading up to Christmas: It says it sold 231,000 fresh and frozen turkeys, 350 tons of British cooked meats, over 12 million mince pies and millions of boxes of chocolates.

It appears that despite the very severe economic recession in the UK, thousands of consumers decided to spend their money on a traditional Christmas when it came to food.

Our analysis, and this holds for our observations in the U.S. as well, is that numerous consumers decided that instead of spending the amounts of money they normally have in previous years on Christmas presents -- clothing, electronics, toys and the like -- that this year they would spend much less on such gift items, but spend more on food, as well as purchase more food items as gifts.

The percentage decreases among department, toy and other gift-oriented stores in both the UK and U.S. bare out our analysis, we believe. In contrast, numerous supermarket chains, including upscale grocers such as Waitrose in the UK and similar format retailers in the U.S., are reporting very strong Christmas holiday sales in their stores.

Additionally, it appears to us that many consumers who might traditionally have had Christmas dinner out at a restaurant (holiday restaurant sales in both the UK and the U.S. were down over last year) or travel away from the home for the holiday (hotel bookings were down considerably for Christmas this year), stayed home, and dined at home, thus leading them to spend more money at the supermarket, including on fancy holiday foods -- money they saved by not dining out or staying home rather than going away for the holiday; or both.