Store Brands - Private Label Memo: Smart & Final-Owned Henry's Farmers Market Preparing to Debut New Natural & Organic 'Sun Harvest' Store Brand

Breaking News & Analysis: Retail Store Brand Development

Los Angeles, California-based food and grocery retailing chain Smart & Final LLC, which acquired the Henry's Farmers Market and Sun Harvest natural grocery chain (38 stores; 30 Henry's Farmers Market and Henry's Marketplace stores in Southern California; 8 Sun Harvest natural markets in Texas) from Whole Foods Market, Inc. in the summer of 2007, shortly after the Whole Foods-Wild Oats merger, is preparing to rollout a new natural and organic products store brand, multi-category line under the "Sun Harvest Natural" and "Sun Harvest Organic" labels.

The new "Sun Harvest" store brand will replace the retailer's existing "Henry's" and "Wild Oats" store brands, which it has been merchandising since acquiring the Henry's Farmers Market chain from Whole Foods in 2007. Henry's and Sun Harvest were two natural foods retail banners operated by Wild Oats Market, Inc., in addition to its flagship Wild Oats store banner.

Some products in a couple store categories, such as fresh meat, bulk foods and perhaps one or two others, will remain under the Henry's store brand. But the Henry's and Wild Oats' store brand items in all other categories will be changed to the new Sun Harvest store brand. New items also will be developed under the Sun Harvest store brand.

Their will be two "Sun Harvest" store brand labels -- "Sun Harvest Natural," for natural products items, and "Sun Harvest Organic," for organic products.

The two "Sun Harvest" brand labels -- natural and organic -- have two different looks but work cohesively with each other, suppliers who've seen the labels tell Natural~Specialty Foods Memo (NSFM).

The "Sun Harvest Natural" label is brown with warm tones and the "Sun Harvest Organic" label is green, which has become sort of a universal color for all things organic. Additionally, there are slight differences as to how the graphic image of a given product is depicted on the "natural" and "organic" item labels. For example, a label for "Sun Harvest Natural" cooked beans features cooked beans in a bowl on it. In contrast, the label for a similar "Sun Harvest Organic" item depicts the beans not in a bowl (a serving suggestion), but rather shows the beans out of a bowl in their pure form, without a serving suggestion.

Additionally, some of the "Sun Harvest" store brand natural and organic labels in certain categories such as ice cream have more of a whimsical-looking label to them and are designed to look less serious and more fun. The goal behind this design thinking is to put a smile on the face of shoppers when they see the items in-store -- to make natural and organic fun in a sense, as well as to sell product.

Smart & Final's plans for the new "Sun Harvest" private label store brand were announced to a select group of the retailer's suppliers, called the "Smart Alliance," at a company seminar in November, 2008. At one breakout session during the seminar, Smart & Final's director of corporate branding, Todd Fryer, gave a presentation on the new store brand line, along with presenting new labels for the retailer's conventional grocery "First Street" store brand, which it merchandises in its 282 non-membership warehouse-type stores and its new Smart & Final Extra format stores.

During that session Fryer also introduced the retailer's then new director of natural and organic products, Michelle Weisberg, who he said is in charge of converting over 500 food, grocery, perishable, vitamin-supplement and non-foods "Henry's" and "Wild Oats" brands across all store product categories into the new "Sun Harvest" store brand, along with creating and developing new store branded items category-wide.

Suppliers working with Ms. Weisberg, who is an industry veteran in creating natural, organic and specialty private label products for retail chains and is known for her product development innovation and creativity, tell Natural~Specialty Foods Memo (NSFM) she is developing what will be some extremely value-priced natural and organic items under the Sun Harvest brand, as well as developing some extremely creative specialty and premium-oriented natural and organic food, grocery and non-foods products under the new private label brand.

Smart & Final plans to begin phasing the new "Sun Harvest" store brand natural and organic products into the stores soon, replacing the "Henry's" and "Wild Oats" branded products gradually throughout this year. The existing store brands will be replaced with the new "Sun Harvest" items in a gradual manner, as those products sell down and new "Sun Harvest" store brand products are developed.

It's a huge project, which includes about 500 skus throughout most product categories in the Henry's Farmers Market , Henry's Marketplace and Sun Harvest banner stores, ranging from dry grocery, perishable (dairy-deli) frozen, bakery (such as breads), to vitamins-supplements, body care, and non-foods. The majority of the new store brand skus will be in the consumables categories.

Sun Harvest brand and multi retail-format synergies

Smart & Final's Todd Fryer also said at the fall, 2008 seminar for select Smart & Final partners that the retailer plans to merchandise some of the "Sun Harvest" store brand natural and organic products in its 282 Smart & Final non-membership warehouse stores and its new "Extra" format stores, as appropriate. Doing this not only leverages the Sun Harvest brand across many more than the 38 Henry's and Sun Harvest banner stores, it offers the added benefit of allowing Smart & Final to obtain a lower cost of goods from its private label suppliers because the added Smart & Final and "Extra" banner stores allow for considerably more sales volume for the new natural and organic products' store brand line.

Smart & Final also is putting a particular emphasis on making sure the new Sun Harvest natural and organic store brand food and grocery items are competitively priced, particularly in price-sensitive categories like bottled juices, basic grocery items and others. Doing this is even more important because of the current recession, and it appears to us Smart & Final-Henry's is well aware of that, based on conversations we've had with supplier representatives who are working on the development of the new store brand with the retailer, along with our own research, analysis and reporting on the new store brand development.

Smart & 'Naturally' (and organic) serious

As we've previously reported on and written about, Smart & Final LLC has taken its entry into the natural and organic grocery retailing sector very seriously since its 2007 purchase of the Henry's Farmers Market chain from Whole Foods Market, Inc. The company operates the chain independently, using the existing Henry's corporate office in Southern California it acquired as part of the purchase of the chain. But the retailer also has and is integrating aspects of the natural grocery chain's buying, merchandising and operations with its Smart & Final corporate operations where it makes sense, and where it offers synergies, like in certain aspects of the new "Sun Harvest" store brand development program.

Since acquiring Henry's Farmers Market from Whole Foods, Smart & Final has cleaned up most of the Henry's and Sun Harvest banner stores, which were looking rather poor under Wild Oats' ownership, has significantly improved the quality and pricing in the fresh produce and fresh meat categories and departments, improved everyday prices across all categories (lower and better than before) and increased the chain's promotional activity. For example, among numerous other promotions, Henry's is currently running a 25% off full line item sale on all of the vitamins and nutritional supplements it sells in its stores, along with featuring a host of Super Bowl Sunday-related natural-organic food and drink items in its advertising flyer and in-store at special sale prices.

Smart & Final-Henry's Farmers Market also recently replaced one of the existing Henry's banner stores in the city of Santee in Southern California with a brand new natural and organic foods market, which is just down the street from the older store which it closed, and soon will open three new Henry's banner stores in Southern California, one in Carlsbad (near San Diego ) in late April, another in Monrovia, also set to open in late April, and a third in Woodland Hills, which is scheduled to open in early May. [Read our November 6, 2008 piece here: Retail Memo: Henry's Farmers Market to Open New Store in Santee, CA On November 12; More New Store's and Remodels On the Way.] [We also suggest reading this June 2, 2008 related story we wrote and published in the Blog: "Retail Memo: Analysis: Free of Wild Oats Markets, Inc.'s Ownership, Henry's Farmers Markets Seems to Be Starting to Get its Groove On."]

Based on our observation and analysis, sales seems to have improved across the board at all the Henry's and Sun Harvest stores since Smart & Final acquired the small chain from Whole Foods in 2007. Whole Foods essentially sold the stores to Smart & Final right after the Wild oats merger. Therefore other than care taking for the Henry's and Sun Harvest stores for a short time, Whole Foods Market didn't really operate them in any significant way and therefore isn't responsible for the shoddy look of many of the stores when they were sold to Smart & Final.

On the road to becoming major regional, multi-format player

In addition to taking a serious and well-focused to date operations and development approach with the Henry's-Sun Harvest chain, Smart & Final is moving strongly into a more overall consumer-focused food and grocery retailing approach with the development and growth of its Smart & Final Extra format stores. [See our story on Smart & Final's "Extra" format from yesterday at this link: Retail Memo: Los Angeles, CA-Based Smart & Final to Significantly Grow its New 'Extra' Food and Grocery Retailing Format This Year in the Western U.S.

Historically, Smart & Final has put more of a retailing focus on the institutional customer -- small grocery store, convenience store and restaurant buyers, for example, than on individual customers -- with its non-membership flagship stores. The stores sell to the public as well as institutions. But because of the focus on large and multi-pack items tend to cater more to the institutional customer more than to individual shoppers. All of the Smart & Final's stores are in the Western U.S. and Mexico.

In recent years Smart & Final has added more single-pack items in those non-membership warehouse-style stores. And because they are non-membership, unlike Costco or Sam's Club which require shoppers to pay an annual membership fee, the stores also make it easier for non-institutional consumers to shop them, which many individual customers do. The non-membership Smart & Final stores began as sort of a cash & carry operation for institutional customers primarily. They've evolved though over the years to targeting both institutional and individual consumers.

With the opening of its first Smart & Final "Extra" banner and format store in August, 2008, the retailer signaled it was going after individual shoppers in a big way with the about 35,000 square foot hybrid supermarket-warehouse format stores.

Smart & Final plans to use numerous skus from the new Sun Harvest natural and organic store brand line, which will include at least 500 skus, in its "Extra" format food and grocery stores. For example, at the November, 2008 seminar, the retailer said it plans to merchandise numerous Sun Harvest store brand items in its "Extra" stores, one of the first of which will be Sun Harvest Natural California Style Pizza, which is a frozen, all natural upscale style pizza in various varieties. Think California Pizza Kitchen brand or Wolfgang Puck brand pizzas.

Doing this -- merchandising numerous skus of the "Sun Harvest" store brand natural and organic products in the "Extra" stores, which sell fresh, perishable and shelf-stable food and grocery products -- will allow Smart & Final to further the hybrid (in a natural and organic direction) nature of the stores, growing the specialty and natural merchandising and product offerings in the "Extra" stores, while still maintaining the format's conventional grocery and fresh foods focus.

Timing good for new Sun Harvest store brand

We think the timing for Smart & Final-Henry's Farmers Market of its new "Sun Harvest" natural and organic store brand is good because consumers are shifting to store brands across all categories in order to save money in the current recession. This is equally, and probably even more true among natural and organic food and grocery shoppers, who are being forced to trade-down in whatever ways they can in order to still be able to afford natural and organic food and grocery items over conventional products. Many are trading-down from natural-organic to conventional in fact because they must. Value-priced store brands help such shoppers to continue to buy natural and organic.

We also think integrating the majority of the "Henry's" and all of the "Wild Oats" store brands into a single new store brand -- "Sun Harvest" -- is a good idea because not only does it allow for a clearer shopper focus on a single store brand, but using the Sun Harvest name, say rather than keeping the "Henry's" brand, allows for better brand marketing at the Smart & Final banner stores, since it's less associated with a store name -- Henry's Farmers Market -- than the brand "Sun Harvest" is. Shoppers might look with a crooked eyebrow at a brand called "Henry's" throughout those stores. But brand "Sun Harvest" fits right in.

Additionally, "Sun Harvest" is a far more universally-oriented brand name than "Henry's" is. It's also much more tuned-into natural and organic products in the minds' of consumers we believe. "Sun" and "Harvest," sound fresh, natural, organic. "Henry's" on the other hand being a proper name just sounds, well...like a proper name. The brand name "Sun Harvest" therefore resonates much better in consumers minds with "natural and organic" than does the brand name Henry's does, in our analysis.

And of course the "Wild Oats" store brand is merely a relic of past ownership, a name Smart & Final has to get rid of anyway as part of its purchase agreement with Whole Foods Market, Inc.

Rolling on out

The first new "Sun Harvest" natural and organic store brand items should start hitting the Henry's stores in Southern California and the Sun Harvest natural markets in Texas soon in a gradual rollout basis

Then later, selected "Sun Harvest" store brand items, such as the Natural California Style Pizza to start, will begin appearing in the Smart & Final "Extra" stores. Selected "Sun Harvest" store brand items, such as natural and organic apple juice and some others, also will be selectively introduced in a more limited manner into the 282 (and growing) Smart & Final non-membership warehouse stores later this year.

Retail Memo: Los Angeles, CA-Based Smart & Final to Significantly Grow its New 'Extra' Food and Grocery Retailing Format This Year in the Western U.S.

Los Angeles, California-based Smart & Final Stores LLC is planning to expand the number of it's new hybrid supermarket-warehouse-style "Extra" format stores, the first of which opened in August, 2008 in Southern California.

Smart & Final currently operates eight "Extra" stores - six in Southern California (four in Orange County and the one in Bellflower pictured above) and two in Northern California's San Francisco Bay Area, in Pleasanton and Fremont. The stores are nearly double the size of the retailer's non-membership warehouse stores -- 25,000 -to- 35,000 square feet, compared to about 17,000 -to-18,000 square feet for the traditional non-membership warehouse-style stores. Like Smart & Final's warehouse format stores, the Extra stores are non-membership.

The "Extra" stores also carry about 4,000-4,500 more items -- including many more in single-unit sizes -- than Smart & Final's non-membership warehouse-style stores do, which cater to small businesses and restaurants, as well as to individual consumers.

The "Extra" target customer is the individual consumer rather than the institutional customer, which is the primary customer segment for Smart & Final's non-membership warehouse stores.

In addition, the "Extra" format puts a greater emphasis on fresh foods, including produce (the fresh produce departments are in the 4,000 -to- 5,000 square foot range), meats, deli and prepared foods, compared to the non-membership Smart & Final warehouse-type stores. The Extra stores also carry a small assortment of natural, organic and specialty food and grocery products.

The "Extra" Stores are designed to be more appealing to shoppers than Smart & Final's warehouse-style stores are. This includes having an enhanced interior design package and softer colors, more traditional style shelving, improved and more colorful in-store signage, and more shopper-appealing merchandising and displays. The stores are a hybrid supermarket-warehouse store in format but look more like a traditional supermarket in design than they do a traditional warehouse store. Having visited a couple of the stores, we agree they achieve that design enhancement over the traditional warehouse-format stores.

Smart & Final appears pleased enough with the performance of the current eight stores that it's planning to open a number of new "Extra" format stores in 2009 in Southern California, Northern California, and in other states in the Western USA where it operates its 242 non-membership warehouse stores. Those states Smart & Final operates in are, in addition to California: Oregon, Washington, Arizona, Nevada and Idaho. The retailer also operates stores in northern Mexico in a joint-venture arrangement.

Likely look for an "Extra" format test store in Arizona and one in Nevada in 2009 -- and potentially additional stores in both states before next year is out. These are two states where Smart & Final operates its non-membership warehouse-style stores but has yet to open any of its new "Extra" format stores.

In addition, Smart & Final plans to open at least one new "Extra" store in Northern California's San Francisco Bay Area, in the city of Brentwood, and another in the Central Valley city of Stockton, which is about 35 miles from Brentwood, according to a previously published report in the Sacramento Business Journal.

We've also learned Smart & Final is looking for additional locations for 2009 in Southern California and in Northern California, including in the Bay Area and the Sacramento region. The Sacramento Business Journal report mentions this, as have a number of our sources, along with a couple of other previously published reports.

Further, the retailer also has plans to convert some of its existing Smart & Final banner non-membership warehouse format stores into Extra stores in 2009. It's likely some of these stores could be in Arizona and Nevada, along with in California, in addition to the company converting some its traditional non-membership warehouse format stores in Oregon, Washington and Idaho into the new format on a case-by-case basis, since it would make sense to do so wherever the company operates existing Warehouse stores.

We suggest a good candidate for such conversion is the Smart & Final Warehouse store in downtown Oakland, California. Since the store was built many years ago, the neighborhood has changed much. There have been numerous new residential developments built over the last few years, resulting in thousands of new residents in the area. As a result, the downtown Oakland area near Jack London Square where the Smart & Final Warehouse-style format store is built is understored in terms of supermarkets. We believe converting the store into the "Extra" format store presents and opportunity for the retailer, as well as add an important food retailing venue to the understored neighborhood.

Tesco's small-format Fresh & Easy Neighborhood Market was planning on locating one of its grocery and fresh foods stores nearby the existing downtown Oakland Smart & Final non-membership warehouse store. But the company pulled out, siting problems with the building it had panned to convert into one of its 10,000 -to- 13,000 square foot Fresh & Easy markets. It does have two other stores thus far planned for Oakland however.

We think Smart & Final could open as many as 25-35 new "Extra" stores, many of them conversions of existing non-membership warehouse format stores, mostly in California, but also in Arizona, Nevada and the other western states, in 2009.

Smart & Final becoming a multi-format food and grocery retailer

In addition to its now six month month old "Extra" format, the first store of which opened in August of this year in Southern California, Smart & Final owns the Henry's Farmers Market natural and organic foods stores in Southern California and the Sun Harvest Markets natural foods stores in Texas, which it operates as a separate division from Smart & Final, with its own headquarters in San Diego, but also has integrated into the company where synergies makes sense.

There are currently 36 total stores, about 26 Henry's banner stores (all located in Southern California) and about 10 Sun Harvest banner natural and organic foods markets, which are all located in Texas.

Smart & Final acquired the Henry's-Sun Harvest stores from Whole Foods Market, Inc in 2007. The stores were part of Whole Foods' acquisition of Wild Oats Markets, Inc. Wild Oats operated the Henry's and Sun Harvest stores, which were sort of a hybrid natural and specialty foods format, separate from its flagship Wild Oats' banner natural and organic foods stores.

The Henry's and Sun Harvest markets didn't fit into Whole Foods Market's strategic plans for Wild Oats, plus it wanted to raise some cash to aid in its acquisition, so the natural foods grocery chain sold the stores to Smart & Final, which itself is owned by investment firm Apollo Management LLC, which bought Smart & Final in May, 2007. Apollo/Smart & Final acquired Henry's and Sun Harvest from Whole Foods just a couple months later.

The Henry's Farmers Market and Sun Harvest stores were rather run down by the time Wild Oats sold to Whole Foods. However, since acquiring the stores from Whole Foods last year, Smart & Final has invested money in them and improved them dramatically, focusing the stores back into a more focused natural and organic foods format and vastly improving how the stores look, along with their merchandising, product selection and pricing.

Smart & Final is in the processes of remodeling a number of the Henry's and Sun Harvest stores and plans to open a few new Henry's Farmers Market units in Southern California next year.

With its flagship 200-plus Smart & Final smaller-format non-membership warehouse type stores, its Henry's and Sun Harvest natural foods division, and now its Extra format, Smart & Final LLC is strategically branching out into a multi-format and multi-category food and grocery retailer, and is clearly indicating a big part of its future involves being as individual consumer-focuses as it's been institutional customer-focused throughout its history.

Smart & Final is well capitalized in terms of its ability to grow the Henry's and Sun Harvest chains in the natural and organic grocery retailing segment. In fact, it has the ability if it desires to become a major player in the sector, in our analysis.

Retail Memo - Breaking: Whole Foods Makes Settlement Offer to FTC; FTC Halts Action For 5 Days; Natural~Specialty Foods Memo Calls For A Settlement

News & Analysis: FTC. v. Whole Foods Market, Inc. - Time For A Settlement

In an interesting but not all together surprising move to Natural~Specialty Foods Memo (NSFM), the U. S. Federal Trade Commission (FTC) today temporarily halted for five days its challenge to Whole Foods Market, Inc.'s friendly 2007 acquisition of Wild Oats Market, Inc.

The FTC announced the temporary suspension of its challenge to the merger in a brief order filed today in which it stated it would "withdraw this matter from adjudication for five business days."

David Wales, the head of the FTC's Bureau of Competition, which is in charge of the agency's challenge to the merger, said in a statement today that Whole Foods Market, Inc. sent the FTC a settlement offer to end the case today. Therefore the FTC has halted any action on the case for the five business days in order to study the offer and negotiate with Whole Foods' legal counsel.

We see the move by the FTC as a goodwill gesture in response to Whole Foods' offer. Additionally the moves by both Whole Foods (the settlement offer) and the FTC (the halt) could portend a resolution of this long legal battle over the merger of Wild oats into Whole Foods Market, Inc.

"We're going to roll up our sleeves and take a look at what they're offering," Wales said today in a statement. "We're hopeful that a settlement can be reached."

Over at Whole Foods Market's Austin, Texas headquarters, company executive vice president Jim Sud, who's been the corporate voice on the issue of late rather then CEO John Mackey, said in a statement: "We welcome this opportunity to hold constructive discussions directly with the (FTC) commissioners as well as the FTC's attorneys."

Whole Foods desires settlement deal

A person very close to the FTC. v. Whole Foods case told Natural~Specialty Foods Memo (NSFM) today that the natural grocery chain is very engaged in wanting to work out a settlement with the FTC, both because of the ruling made against the company last week by the U.S. Federal Court of Appeals, which we reported on here, and because the natural foods retailer, which will report its 1rst quarter fiscal-year sales on February 16, is extremely concerned about how much the battle with the FTC is taking its focus away from what it does, the retailing of natural, organic and premium food groceries.

Last Friday the federal appeals court ruled against Whole Foods' lawsuit against the FTC in which the company sought to block the upcoming April 6 trial before an FTC Administrative Law Judge, as well as give it a ruling that would remove FTC jurisdiction over the case and have it settled in a U.S. Federal Court courtroom.

The decision against Whole Foods' lawsuit in favor of the FTC assured that the April 6 trial will be held.

If the outcome of that trial goes in the FTC's favor it could mean a complete unwinding of the 2007 Whole Foods-Wild Oats merger. The worse case scenario could be that Whole Foods Market, Inc. would have to completely rebrand all of the former Wild Oats stores its converted (about 100) to the Whole Foods banner, which are all but about 6-12, and set up a entirely separate corporate entity to operate Wild Oats, essentially resulting in taking the merger back to where it was on the day the companies announced the deal in the summer of 2007.

In fact, the FTC has a motion before U.S. Federal Judge Paul Friedman in which it's asking the judge to force Whole Foods to do just what we describe above -- rebrand about 100 converted Wild Oats stores from Whole Foods back to Wild Oats and set up a separate entity to operate them -- even before it holds the April 6 administrative trial on the merger. Judge Friedman will hold hearings next month, on February 15-16 (the 16th being the same day Whole Foods Market, Inc. announces its first quarter financials), on this motion by the FTC, and as we reported here on January 25, 2009, says he will make a ruling shortly (likely in days) after the hearings end.

In our analysis, this upcoming court challenge to the integration of the about 100 Wild Oats stores also provides further motivation for Whole Foods to have offered its settlement offer to the FTC. The natural grocer is running out of legal options -- and time. And its legal costs continue to mount. Meanwhile, U.S. taxpayers gets to pick up all of the legal costs expended by the FTC and federal courts in the regulatory agencies legal challenge against the merger.

FTC statement, position encouraging

The statement today ("We're going to roll up our sleeves and take a look at what they're offering," Wales said. "We're hopeful that a settlement can be reached") by FTC Bureau of Competition chief competition enforcer (his official title) David Wales that the regulatory agency plans to consider Whole Foods' settlement offer in such a serious way is positive news from the standpoint of the two entities eventually being able to reach an agreement and avoid the upcoming April 6 administrative trial.

This is the first time in recent case history that Wales has indicated an interest in settling the case short of unwinding the entire merger.

Natural~Specialty Foods Memo (NSFM) has learned that Whole Foods' settlement offer to the FTC includes the selling of a number of stores in most of the 29 U.S. markets in which the FTC argues the combined Whole Foods-Wild Oats is a monopoly in, in what the regulator calls the "premium natural and organic retailing segment (PNOS)."

Post-merger -- to today

Shortly after the merger Whole Foods Market, Inc. sold off the about 36 Henry's and Sun Harvest banner natural foods markets in Southern California and Texas that were part of Wild Oats Market, Inc., and were acquire by Whole Foods in the merger. Those stores were bought by Southern California-based Smart & Final LLC., which operates over 200 hundred non-membership warehouse format food and grocery stores in the Western U.S. and in Mexico, as well as now operating the Henry's Farmers Market (southern California) and Sun Harvest (Texas) banner natural foods stores, along with a new format the retailer created last year called Smart & Final Extra, which are 30,000 -to- 35,000 square foot hybrid supermarket-warehouse-type stores.

Additionally, since late 2007 when a federal court decision in favor of the merger, a decision the FTC since got reversed on appeal, which is why it continues to oppose the deal, Whole Foods has closed a number of former Wild Oats' stores that were either underperforming or that natural grocery chain says were located to close to newer and larger Whole Foods banner stores to make the units viable.

Nearly all of the former Wild Oats stores kept after the 2007 merger have now been converted to the Whole Foods banner, accept for about 6 -to- 10 stores. Earlier this month Whole Foods Market, Inc. co-president Walter Robb said only about a half dozen former Wild Oats stores were left to rebrand to Whole Foods. Our research counts a couple more than that left to convert. Therefore we use the 6-10 store range figure.

A settlement blueprint or template

In other words, the universe of stores we are talking about regarding a post-merger, combined Whole Foods-Wild Oats isn't much more than 100 nationally throughout the U.S. in these 29 markets where the FTC deems Whole Foods Market, Inc. a PNOS segment monopoly.

Our argument since the summer of 2007 has been that a post-merger, combined Whole Foods-Wild Oats isn't a monopoly. [You can read a recent story in which we made our argument as to why that's the case at the link here: 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.]

However, looking at FTC v. Whole Foods Market, Inc. today from a completely practical standpoint, we see no reason why the FTC and the natural grocer should not be able to achieve a settlement. After all, we are talking about a universe of just slightly more than 100 stores that the FTC is saying a "PNOS" category monopolist (Whole Foods) makes. We're also talking about just 29 specific U.S. markets. These two key facts need to be the starting point for negotiation, we suggest.

The FTC and Whole Foods need to look at each of these 29 markets and the number of stores the combined Whole Foods-Wild Oats has in each of the markets. Both parties then need to do an independent competitive analysis on each of these markets, including in the analysis not just natural foods class of trade retailers but also food retailers that are hybrid natural-organic-specialty supermarkets. These include retailers like Gelson's and Bristol Farms in Southern California, Raley's and Andronico's Markets in Northern California, The Fresh Market (chain), which has stores in the south, Midwest, Mid Atlantic and eastern regions, Wegmans in the east, Haggen Foods in the Pacific Northwest, and the numerous other natural-organic-specialty "hybrid" chains that fit this category in the 29 markets designated as monopolist by the FTC.

Once this real competitive analysis is done in the 29 U.S. markets, the FTC and Whole Foods then need to agree on Whole Foods' closing an agreed upon number of those 100-plus former Wild Oats stores in each of the respective markets. There still might remain 29 of those markets after the independent competitive analysis work is done, which is something that can be completed in a matter of a few days. But there also could be fewer than 29 remaining after the analysis.

The burden in the FTC's administrative process is on Whole Foods in reaching a settlement, that's why the natural foods grocery chain reached out to the FTC and submitted a settlement offer. In return the FTC suspended action on the case for five days. We think thus far that's a positive spirit of cooperation.

As all lawyers and negotiators know, first time settlement offers are seldom accepted. Instead they tend to be the opening entree to get settlement talks started. Whole Foods has served that opening entree with its offer. The FTC has responded in kind with the temporary halt of legal activity. Both moves are good negotiation openers. After all, another thing all good negotiators know is that the best negotiations come when both sides give a little something right at the start.

Natural~Specialty Foods Memo calls for a settlement

We strongly encourage the FTC and Whole Foods Market, Inc. to use a version of the simple but empirical framework we outlined above in their settlement negotiations on the 2007 merger. It's time to put this thing to bed.

If the two parties use what we suggest as a blueprint (assuming the FTC doesn't accept Whole Foods' first settlement offer, which we believe will be the case), then go from there, we think a settlement can be reached that doesn't render the deal a complete loss for Whole Foods Market, Inc., while at the same time satisfies the FTC's position that a post-merger, combined Whole Foods-Wild Oats is an anti-competitive retailer, providing the regulator with a negotiated settlement it can live with.

It's time for both the FTC and Whole Foods Market to follow new U.S. President Barack Obama's call for a less partisan Washington -- or in this case a less dogmatic regulatory agency (the FTC) and a more agreeable-to-compromise company, Whole Foods Market, Inc., along with helping to usher in the new U.S. President's inauguration day call for a "New Era of Responsibility" among the nation's governmental institutions and agencies, businesses and people.

The initial settlement offer by Whole Foods Market, Inc. started that ball rolling. And the FTC's temporary halt of legal activity on the merger has followed Whole Foods' offer in kind. Now its time to "roll-up those sleeves" and negotiate -- and work out a settlement.

Marketing Memo: NBC Rejects PETA's Sexy, Hot & Steamy 'Veggie Love' Super Bowl Ad As 'To Hot' For Super Bowl Sunday Viewing

Above: A scene from PETA's 'Veggie Love' Super Bowl Ad, the commercial NBC says is "to hot" for game-day viewing. [Photo: PETA]

Apparently the NBC television network, the broadcast network for this year's Super Bowl football championship game/American national holiday event, doesn't do sexy -- at least when it comes to fresh produce-inspired, sensuality-oriented commercials appearing on its upcoming telecast of the big game.

In its somewhat distorted wisdom, General Electric, Inc.-owned NBC, which has been known to run a sexually suggestive soap opera, prime time television serious and movie or two on the network, (not to mention sex-themed commercials), has rejected a Super Bowl Sunday ad spot from the non-profit animal rights and pro-veggie organization PETA (People for the Ethical Treatment of Animals) on the grounds that the commercial is just "plain too sexy" to appear on the network as part of its Super Bowl telecast.

PETA's Super Bowl ad, "Veggie Love," which features a bevy of beauties who are powerless to resist the temptation of veggie love, was deemed "too hot" for the Super Bowl, NBC says. NBC rejected the video because of concerns over "rubbing pelvic region with pumpkin," a woman "screwing herself with broccoli," and more, a company spokesman said today without cracking a smile. [In the spirit of "equal time," you can read NBC's complete list of concerns about the commercial here.]

But what about all those "hot" beer commercials from Super Bowl's past, we wonder? Maybe that was on ABC, CBS or Fox? Or is NBC's rejection of the PETA "Veggie Love" ad really all about fear of the U.S. Federal Communications Commission (FCC)? Remember the "Janet Jackson moment" and the resulting fining of the network that aired the footage, even though it was on an awards show and not a commercial spot, by the FCC?

the rejected PETA ad shows numerous extremely attractive woman let us say "losing themselves" in the freshness and sensuality of fresh produce.

No men are shown enjoying the more sensual side of the veggies in the ad. We presume that's because most Super Bowl advertisers' target audience on game day are men. But we all know many women watch the Super Bowl as well. Of course, it's doubtful that the mere inclusion of a male or two in the "veggie love" commercial spot would have been enough to change NBC's mind in terms of running the ad. But doing so would have been more equal opportunity.

We think the censors at NBC should think twice about judging what the American people should or should not view. after all, isn't NBC the same network, along with the others, that's always the first to cry censorship when one group or another wants the network to ban a program (or ad spot) it feels is overly sexually explicit or offers some other offensive element to the group? Yep, the same NBC.

And aren't the TV networks famous for pulling out and using that saying they created: "If people don't want to watch it (an offensive to them program or commercial) all they have to do is press the off button on the television?"

But we guess "Veggie Love" is just a bit too much for the NBC brass. This despite the fact PETA was willing to pay the same millions of dollars for its Super Bowl commercial spot as everybody else is, including food and grocery companies PepsiCo and Kelloggs, both of which will be running Super Bowl spots. We didn't know PETA had that kind of cash on hand, by the way.

But you see, since it is the Super Bowl, and there are so many companies willing to buy ad spots (more demand than there is supply), it just might be that rejecting the PETA ad, and the millions of dollars that come with it in revenue for NBC, was easy since the once-annual Super Bowl event is the hottest advertising ticket around for TV networks. There were plenty of others waiting to take PETA's ad time slot.

We wonder if NBC would have rejected the same PETA ad, say for the same amount of money, if the animal rights and pro-veggie, non meat-eater loving group wanted to run it on the network at anytime other than on Super Bowl Sunday? What do you think? Would not the green eye shade-wearing guys at NBC veto the censors? After all, NBC and its parent company General Electric are hurting for revenue in this severe recession.

But alas the only sexy veggies on Super Bowl Sunday will be those viewers create in their own kitchens and display on serving trays for guests watching the game at their homes. We suspect some creative food styling can be done with carrot sticks, celery stalks, broccoli florets and other fresh veggie snack fare -- all in the raw and in their natural sensual state of course. Image the added sensuality if those veggies also are organic and locally-grown.

Meanwhile, NBC is handing PETA a public relations gift of gold. The animal rights, pro-veggie organization is beginning to get all sorts of ink, a video of its NBC-rejected Super Bowl commercial is now up on YouTube and other sites, and between today and Super Bowl Sunday the word-of-mouth buzz, media mentions and views of its video will likely provide the veggie-loving group with even more exposure than they would have received with its Super Bowl ad -- and without spending the millions for the commercial. In fact, PETA now has the "Veggie Love" Super Bowl ad issue at the very top of its Web site here. It's a PR goldmine in the making.

We happen to enjoy (eating) meat, as well as fruits and veggies (all from a culinary-only perspective of course), so we aren't what you would call "Friends of PETA" in the sense that we share all of the group's advocacy positions. But we do call them like we see them. And in this case we think NBC looks super-silly in its rejection of the ad for its Super Bowl Sunday telecast.

We do think the PETA ad, if shown on the Super Bowl Sunday telecast, might just have provided the fresh produce industry and America's food and grocery retailers with the most massive "post-game" spike in fresh produce sales in history. So in this regard PETA's loss is the fresh produce industry's and grocer's loss as well. (Tongue only partially in cheek.)

In learning of NBC's rejection of the hot and steamy ad we are reminded of what a 10-year old boy we know said the other day to a boy a couple years older than him, in a different context of course. The 10 year old said to the 12-year old who was teasing him: "Grow up already."

We think this is good advice for NBC regarding it rejection of the ad featuring attractive women and fresh produce -- "Grow up already." The people watching the Super Bowl can turn their heads, go to the kitchen to get some real veggies, or in a worse-case scenario press the TV remote control off button for 30 seconds when the spot comes on if they find it offensive.

[You can watch the PETA "Veggie Love" commercial video at this link: 'Veggie Love': PETA's Banned Super Bowl Ad. Or view it here from the PETA Website. Unlike NBC, Natural~Specialty Foods Memo (NSFM) doesn't censor our readers. However, if you feel strongly that fresh veggies should not be used in non-culinary ways, you might not want to view the video. More on the Peta issue...Video: Too Hot for TV: More Banned PETA Ads. And: Read NBC's Sexually-Explicit Rejection E-mail. Finally: Subscribe to the PETA YouTube channel.]

"Hand me the veggie tray" and "Please pass the dipping sauce" could have taken on whole new meanings this Super Bowl Sunday we suspect had PETA been able to run its "Veggie Love" commercial during the game. Super Bowl Sunday might have never been the same.

Retail Memo: Judge Sets February Hearing Dates On FTC Motion That Could Result in Whole Foods Market Having to Rebrand 100 Former Wild Oats Units

News & Analysis:

FTC. v. Whole Foods Market, Inc. - A Major Motion

Judge Paul Friedman, who presides in the U.S. Federal District Court for the District of Columbia, has set a two-day hearing on his court's calendar -- February 17-18, 2009 -- in which he will listen to arguments from U.S. Federal Trade Commission (FTC) and Whole Foods Market, Inc. lawyers regarding the FTC's motion asking the court to rebrand all of the former Wild Oats stores Whole Foods has thus far integrated and changed to the Whole Foods Market name. Judge Friedman also plans to offer a ruling on the FTC motion shortly after the two day hearing next month.

We first reported in this January 12, 2008 piece [ 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] on the FTC's motion to Judge Friedman's court when the regulatory agency filed it.

In its legal filing the FTC asks Judge Friedman to rule in its favor on three key points:

>Order Whole Foods to rebrand (change the signs, ect.) the about 100 Wild Oats stores it's converted to the Whole Foods banner back to the Wild Oats banner.

>Put the operation of those rebranded stores in the hands of a third party.

>Order Whole Foods to stop converting any additional former Wild Oats stores into Whole Foods stores. Note: there are just a few of such stores left to integrate and convert.

points one and two are the most ominous for Whole Foods Market, Inc. should Judge Friedman rule in favor of the FTC's motion. Rebranding the about 100 stores already converted, which is nearly all of them except 6-12 former Wild oats units, would not only cost Whole Foods a substantial of money (did they save the Old Wild Oats signs, for example) but would essentially mean putting back together a format -- Wild Oats -- that didn't work all that well in the first place. It also would be a marketing nightmare as it would take away any benefits the stores have gained from the Whole Foods name and style of merchandising.

The FTC and some others may not be aware but when Whole Foods acquired Wild Oats in the summer of 2007 it was only after the Boulder, Colorado-based then minor rival to Whole Foods had shopped the company around all over to potential buyers, including the mega-supermarket chain Kroger, which took a pass on acquiring Wild Oats, as did all the others.

Point number two, which goes with rebranding the 100 or so already converted former Wild Oats stores, which is putting the operation of those stores in the hands of a third party, not only seems like a draconian request by the FTC -- one sure to cost Whole Foods lots of financial losses and loss of business at those stores -- but also one without any kind of clear road map.

What does Whole Foods do? Create a new corporate entity? After all, Wild Oats no longer exists as a corporate entity of any kind. Who would want to run it? Does doing so mean creating new finance, HR, marketing departments? A new President? (of this third-party entity). New buyers? Who would provide the employees at the 100 stores health insurance, something Whole Foods Market, Inc. pays 100% of for its employees? The third party?

And, would Whole Foods be forced to pay for all this? To fund the third party entity, including health insurance, ect.? We think so. It really might be better at that point for Whole Foods Market to just close those 100 stores and walk away. Take a write down. Sell the real estate when the economy improves. Or, ask the FTC to appoint a receiver to dispose of the "surplus" stores, arguing the costs of complying with the order are too massive to make keeping them profitable, which would be a real argument. Maybe even ask for a bailout? It's not unheard of these days.

Perhaps the FTC would be willing to run the 100-store former Wild Oats entity, taking a page from the U.S. Treasury Department which now owns huge chunks (and the best preferred stock in) of America's top banks like Citi and Bank America. Many economists think the next step for the Treasury Department is the nationalization of these banks because they now are asking for billions more. Perhaps the FTC should just nationalize the 100-store former Wild Oats entity. We bet Whole Foods would entertain a decent offer -- one as decent as Treasury gave the big banks -- for those 100 stores.

Regarding point three, Whole Foods' ceasing to further integrate any more of the former Wild Oats stores, that would be something Whole Foods Market, Inc. could live with without much grief. In fact, lawyers for Whole Foods told Judge Friedman last week that the natural grocery chain has voluntarily stopped integrating and rebranding any additional stores, along with agreeing to not close any more former Wild Oats stores until the case is settled.

We think that's a smart move in that it tosses a somewhat real and largely symbolic bone to the FTC in terms of the hearing in Judge Friedman's court on the three-part motion.

Plus, since lawyers for the FTC argue there are exceptions to the voluntary offering from Whole Foods, exceptions they say will allow the company to continue to integrate Wild Oats assets into the Whole Foods brand, ruling in favor of the FTC on just that one point would still be a "real" ruling by Judge Friedman for the FTC.

The judge's ruling?

Natural~Specialty Foods Memo (NSFM) is going to go out on a limb and offer what we think will be Judge Friedman's decision on the FTC motion.

We think he will grant the third point of the FTC's wish list, that Whole Foods' cease from rebranding and closing any additional former Wild Oats stores.

But we don't think the judge will grant the other two key points in the FTC's motion: That all of the former Wild Oats store so far rebranded be returned to the original Wild Oats' status, and that those about 100 stores be turned over to a third party entity to run them.

It's also possible that the judge could rule that the about 100 stores be rebranded, but still allow Whole Foods to operate them. If he does grant that aspect, we are rather certain he would do so in this way, based on close observation of how he has handled the case since the summer of 2007.

Of course we could be wrong on all counts.

If so, such a decision will be extremely costly for Whole Foods Market, Inc. at a time when the value of the company has decreased by a whopping 70% since its friendly acquisition of Wild Oats -- a deal Whole Foods' CEO John Mackey now says publicly he would never do over. Like Whole Foods Market's lead outside legal counsel Lanny Davis has sais, in a different context though, "You can't put the toothpaste back in the bottle."

In our analysis, rebranding the stores and turning the operations over to a third party does nothing to further the FTC's case.

What it does do though is give the FTC a de facto temporary victory in breaking up the merger. Why? Because were Whole Foods have to rebrand these 100 stores, then later if it wins the case, change them back again to Whole Foods stores, the cost of doing so, and the loss of customer goodwill would likely result in Whole Foods' ending up getting rid of or closing a number of these stores because of the extensive costs from all of the rebranding and the loss of business during the process.

This motion makes no sense other to to play hardball with Whole Foods. Judge Friedman, who originally issued the ruling in favor of Whole Foods that gave the natural grocer the green light to go forward with the integration process, has played it pretty fair throughout this long process, in our analysis. Therefore it would surprise us if he ruled in the FTC's favor on the two draconian aspects of the regulator's motion -- the rebranding of the about 100 former Wild Oats stores, now changed to Whole Foods, back to the Wild Oats name and their placement with a third party to operate them.

But it's merely our analysis and opinion. It won't be until after the February 15-16 hearings until we know what Judge Friedman's actual ruling will be. And for Whole Foods Market that ruling has profound consequences as it prepares for the April 6, 2009 trial on the merger to be held by an FTC Administrative Law Judge in Washington, D.C. It also has profound consequences for the natural grocer's everyday operations. Stay tuned.

Retail Memo: Despite its Battle With the FTC and Other Struggles, Whole Foods Market Still Ranked 22nd 'Best Place' to Work in America By Fortune

FTC. v. Whole Foods Market, Inc.

Despite its ongoing battle against the U.S. Federal Trade Commission's (FTC) attempt to overturn its 2007 friendly acquisition of rival Wild Oats Market, Inc., it's 70% loss in company value over the last year and 40-plus% drop in quarterly income, along with its corporate headquarters firings (about 100 employees) in late 2008 and numerous other challenges, Whole Foods Market, Inc. still has managed to place 22nd on Fortune magazine's "100 Best Places to Work in America" annual ranking of American companies.

As a side note, Orrick Herrington & Sutcliffe, which is Whole Foods' main outside legal firm (it's using three firms, all coordinated by lead council Lanny Davis of the Orrick firm) in its battle against the FTC's attempt to overturn the Wild Oats deal, was ranked as the 87th best place to work in America by Fortune this year. It's one of two law firm's in the ranking.

The issue of Fortune magazine that includes the "100 Best Places to Work" ranking doesn't hit retail until January 26. However it's now available online at the Fortune Web site here.

Whole Foods' dropped six places this year compared to last year, when it came in 16th in Fortune's top 100 "Best Places to Work" ranking. But it wasn't alone in doing so. For example, coffee and food retail cafe giant Starbucks came in 24th this year. Last year the Seattle, Washington-based company, which also is experiencing its share of struggles, came in near the top last year -- placing number seven.

Even the uber-popular Google, who's campus in Silicon Valley offers among other employee features an employee cafe that offers food grown no more than 150 miles from Google headquarters, and offers the mostly organic meals the cafe serves at low prices subsidized by the company, dropped slightly in the ranking this year. Last year Google was ranked number one by Fortune as the best company in America to work for and at. This year Google placed fourth.

Whole Foods Market has made the Fortune list for 12 years in a row and is one of only 13 companies to be named every year since the list’s inception.

Regarding Whole Foods ranking at number 22, the business publication noted that the slowing economy “has not curbed the enthusiasm of this young workforce (28 percent are under age 25).” Additionally, it listed Whole Foods Market as number one among the top 100 for job growth, for adding 8,570 new employees in the last year. Much of that job growth came from the acquisition of Wild Oats.

Fortune also noted that Whole Foods is just one out of a total of 15 companies on the "100 best list" that pay 100 percent of its employees health-care premiums.
In addition to Whole Foods Market, four other retail food and grocery companies were ranked in the top 100 by Fortune. Two, Wegmans and Nugget Market, placed in front of Whole Foods.

Wegmans Food Markets, the family-owned New York state-based supermarket chain, known for its across the board innovation and high-touch employee policies, placed fifth overall. The retailer has been on the Fortune list for 12 straight years in a row and ranked in the top ten for seven of those years.

Nugget Market, which is a smaller, family-owned supermarket chain based in Woodland, California (about 15 miles from Sacramento) was ranked as the 10th best company to work for in America this year by Fortune. The inclusion on the list in 2009 marks the fourth year Nugget has been ranked as one of the 100 best places to work in the U.S. by the business publication.

Both Wegmans and Nugget put a major focus on merchandising natural, organic and premium foods, as does Whole Foods Market.

Stew Leonard's, a family-owned, multi-store independent based on the east coast, was ranked as the 53rd best company to work for in Fortune's ranking this year, and Publix Super Markets, a major supermarket chain in the southern U.S. that's based in Florida, came in at number 88 this year.

Both Stew Leonards and Publix are major retailers of natural, organic and premium foods, as well as selling basic food and grocery items.

The Stew Leonard's stores are mega-sized supermarkets and feature lots of natural, organic and specialty foods alongside conventional items, including a huge assortment of organic fresh produce and fresh meats. Stew Leonards also is a pioneer in marketing and merchandising "locally-produced food products, including working directly with farmers and producers.

Publix, which is the largest and fastest-growing employee-owned supermarket chain in the U.S., is a pioneer among supermarket chains in the natural and organics segment. In fact last year it started opening a new format supermarket called "Greenwise," which looks in its physical design and merchandise selection more like a Whole Foods store than it does a conventional supermarket. Publix is the leading grocer in Florida in terms of market share.

Food/grocery/consumer packaged goods maker and marketer General Mills was the only non-retailing food industry company to make it into Fortune's 100 best ranking this year.

In addition to marketing many of the top selling conventional food and grocery brands like Gold Medal (flour), Bisquick, Pillsbury and Green Giant, General Mills also is a major player and marketer in the natural and organic foods sector. Two of its natural and organic category brands are Muir Glen (organic tomato products and others) and Cascadian Farm, for example. Both are major top selling brands in the natural-organic segment. General Mills also markets premium food brands like Yoplait yogurt and Haagen-Dazs ice cream. [Link to General Mills' brands list.]

Below are the top ten places to work in the U.S. as determined by this year's Fortune magazine ranking:

• NetApp
• Edward Jones
• Boston Consulting Group
• Google
• Wegmans Food Markets
• Cisco Systems
• Genentech
• Methodist Hospital System
• Goldman Sachs
• Nugget Markets

Click here to view the full "100 Best Places to Work in America" list from Fortune magazine. There's also additional data about the 100 companies at the link.

Retail Memo - News & Analysis: Gelson's Chain Challenges Whole Foods' Subpoena For Trade Secrets; FTC Says No Like it said to New Seasons Market

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

A U.S. Federal Trade Commission (FTC) Administrative Law Judge has denied a legal motion "For a protective order to quash or limit subpoena from Whole Foods Market, Inc." from the only other retail chain, Southern California-based Gelson's Market, out of the 93 natural and premium food and grocery retailing companies subpoenaed for various sorts of sales, financial and other trade secret information by Whole Foods Market in its battle against the FTC's legal case to overturn the 2007 Whole Foods-Wild Oats merger.

Basically the Gelson's legal motion/petition, like the one filed by Portland, Oregon's New Seasons Market, which also was denied by the FTC, asked the FTC to either kill the demands for proprietary information contained in the Whole Foods' subpoena completely and if not to then limit the demands, issuing a protective order which would allow the company to not submit some of the information demanded which it believes could harm it from a competitive standpoint.

Of particular concern to Gelson's are demands in the subpoena in which Whole Foods wants information from the 93 food retailing companies about their strategic growth plans in each of their respective markets. The FTC Administrative Law Judge ruled that Gelson's didn't show cause in its petition that such information would harm the company. Therefore he ruled against the grocery chain, ordering it to comply with the original terms of the subpoena.

As we've reported on previously, Portland, Oregon-based New Seasons Market, a nine-store natural foods chain was, until we recently discovered the Gelson's petition, the only one of the 93 retailers to challenge Whole Foods' subpoena with the FTC. New Seasons ultimately lost its legal challenge and was ordered by the FTC to comply with the subpoena. The Portland natural grocery chain failed to do so by the required date. However it reached a negotiated agreement with Whole Foods Market, Inc. and has now submitted the mutually agreed upon trade secret information.

Gelson's, which was one of more than half of the 93 retailers who didn't comply with Whole Foods' subpoena by its November 4, 2008 deadline, has been ordered by the FTC Administrative Law Judge to now do so post haste.

[You can read the full ruling at this link: Administrative Law Judge's Order on Non-party Gelson's Market's Motion for Protective Order or to Quash or Limit Subpoena from Whole Foods Market, Inc.]

The arguments to quash or limit the subpoenas made in the legal motions by lawyers for Gelson's and New Seasons were very similar.

What isn't similar though is that Gelson's is part of a publicly-owned and traded corporation, Arden Group, and therefore is a public supermarket chain, unlike New Seasons Market, which is a privately-held company. This means much of the information demanded in the Whole Foods Market subpoena -- sales and related financial data for example -- is already of public record by law. However, it's that non-public information such as plans to open new stores and the like, that Whole Foods' legal council says it must have, along with all the other information, from the 93 retailers. Privately-held companies like New Seasons aren't required by U.S. law to report there sales and profit information publicly like public companies are.

In addition to operating supermarkets under the Gelson's banner in Southern California, Arden Group also operates a few stores under the Arden-Mayfair banner in the region. In addition to its supermarket operations, holding company Arden Group has real estate and other related business interests.

There are 18 Gelson's supermarkets in Southern California. The stores sell a full range of food and groceries just like a regular supermarket does but put a major emphasis on selling specialty, gourmet, premium, ethnic and natural foods in an upscale store setting. [Learn more here.]

The central part of Whole Foods' argument as to why it's not a monopoly in what the FTC calls the "premium natural and organic retailing segment" in the 29 U.S. markets the regulator says it is is because the natural foods grocery chain not only competes with other natural foods class of trade retailers (like Portland's New Seasons Market) but with upscale supermarket chains such as Gelson's and numerous others across the U.S. that focus on the very same types of products Whole Foods does in its stores and are thus direct competitors.

This is an argument we've made since last summer -- long before Whole Foods' legal counsel came up with the idea of proving this by issuing subpoenas to the 93 retailers, a number of which are similar in format to Gelsons -- arguing that the FTC, in opposing the merger so strongly, has failed to understand the true nature of natural and premium food retailing in the U.S. today. That reality is that it is a multi-format, highly competitive business in which an increasingly variety of retailers are competing against Whole Foods for a share of the natural, organic and premium food category pie. [We suggest reading our January 15, 2009 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] for an overview of our argument.]

As we've also previously said, we completely understand and respect why New Seasons Market, and now Gelson's, challenged the subpoenas. Were we in their respective positions we likely would have done the same if unable to work out an agreement with Whole Foods.

Whole Foods' plan and strategy is to compile all of the data from these 93 retailers into a competitive analysis vis-a-vis itself in these 29 markets where the FTC says it holds a monopoly post merger in what the FTC has defined as the "premium natural and organic retailing segment." The retailer then plans to use this analysis to demonstrate at the scheduled April 6, 2009 FTC Administrative trial, where the fate of the merger will likely be decided, that it has more than enough competition -- from natural foods class of trade retailers, upscale/specialty supermarket chains and others -- in each of these markets.

The danger to Whole Foods though is that the burden of proof in the FTC Administrative trial is completely on the company. It must demonstrate to the Administrative Law Judge that the natural foods grocery chain isn't a monopoly, under FTC definitions no less, in every single one of the 29 markets. The Administrative Law Judge technically can rule against the entire merger if he believes Whole Foods has failed to prove its case in just one or two markets. That's a very difficult standard to meet.

As a result, without the proprietary information from the 93 retailers, at least two dozen of which have yet to comply with the subpoena as of early last week, according to Whole Foods' legal council Lanny Davis, the natural foods grocery chain can build a case to defend itself against the FTC's 29 market monopolist argument.

Therefore, as we've been writing about, this is why Whole Foods Market, Inc. is putting so much effort, including expensive legal talent, into obtaining the information from these 93 subpoenaed retailers. And the clock is running fast. April 6 is coming up very soon. Whole Foods still must obtain the information from these two dozen or so retailers, and must still compile all of the information into a legal brief before April 6.

On January 14, Whole Foods Market, Inc. took a number of steps designed to encourage those retailers who've yet to comply with its subpoena to do so. [Read about those measures at this link: Retail Memo: Whole Foods Offers Carrot and Stick to Retailers That Have Yet to Comply to Subpoena For Trade Secret Data and Information.]

It's our analysis that those measures, combined with the FTC's Administrative Law Judge's ruling against New Seasons' and Gelson's -- the only two of the 93 retailers we're thus far aware have challenged the subpoena -- will likely result in most of those remaining retailers' submitting the information demanded in the subpoena to Whole Foods' lawyers.

However, many of the retailers who have already submitted information, have self-edited some of the demands, those they believed were most proprietary to their respective business activity. Whole Foods Market also is attempting to get those retailers to submit the omitted information. That could be more difficult to achieve.

What is clear though is that Whole Foods wants and needs this information so badly it's willing to compromise, in the case of New Seasons market and perhaps others thus far, as well as to play hard play if needed.

The stakes are high. The unwinding of the merger could cost an already struggling Whole Foods much -- financially, in market share, and even possibly in terms of who has control of the company in the future. Stay tuned.

Reader Resource - Linkage:

Below is a bibliography of recent stories and posts published in Natural~Specialty Foods Memo (NSFM) on the FTC. v. Whole Foods Market, Inc. legal case and merger issue:

January, 2009:

January 23, 2008: Retail Memo: Three Judge Federal Appeals Court Panel Rules Against Whole Foods' FTC Lawsuit Today; What's Next?.... January 21, 2008: Retail Memo: An Argument in Favor of the FTC in FTC v. Whole Foods Market, Inc. -- Or At Least Against Whole Foods' Legal Tactics....

January 19, 2009: Retail Memo: Concerned With Fast-Looming FTC Hearing Date Whole Foods Re-Files Lawsuit Taking it Directly to Washington, D.C. Federal Appeals Court....January 19, 2009: Retail Memo - Breaking News: Portland's New Seasons Market and Whole Foods Market, Inc. Reach Agreement; New Seasons Will Provide Trade Secrets....

January 16, 2009: Read Memo: Colorado Newspaper Columnist Joins NSFM's 'Whole Foods Market Isn't A Monopoly' Bandwagon....Friday, January 16, 2009: Retail Memo - Exclusive: Supermarket Industry Investor Ron Burkle Looking For A Seat On Whole Foods Market's Board of Directors....Thursday, January 15, 2009: 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....

Thursday, January 15, 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 FoodsRetail Memo: Whole Foods Offers Carrot and Stick to Retailers That Have Yet to Comply to Subpoena For Trade Secret Data and Information....

Monday, January 12, 2009: Retail Memo - Breaking News: Whole Foods Press Conference Tomorrow; Objective: Get Retailers to Comply With Subpoena; Need: Urgent....Monday, January 12, 2009: 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, 2008:

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 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.

Natural~Specialty Foods Memo (NSFM) Archives

FTC v. Whole Foods - Linkage from the NSFM 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: Three Judge Federal Appeals Court Panel Rules Against Whole Foods' FTC Lawsuit Today; What's Next?

Whole Foods Market, Inc. v. FTC: The Lawsuit

A three-judge panel of the United States Court of Appeals for the District of Columbia didn't waste anytime in rejecting today the legal petition filed late last week by Whole Foods Market, Inc. in which the natural grocery chain asked the court to block the U.S Federal Trade Commission (FTC) from holding its planned April 6, 2008 Administrative trial on the Whole Foods-Wild Oats merger. [The FTC's Bureau of Competition is the agency department responsible for contesting the merger.

In a brief, one page ruling released by the court this afternoon, it denied Whole Foods' request to remove the FTC from jurisdiction over deciding the legality and status of its 2007 friendly acquisition of then Wild Oats Market, Inc. and refused to bar the regulatory agency from holding its April 6 Administrative trial. In short, the appeals court dismissed Whole Foods' lawsuit against the FTC.

As we reported and wrote about in this January 19, 2009 piece [Retail Memo: Concerned With Fast-Looming FTC Hearing Date Whole Foods Re-Files Lawsuit Taking it Directly to Washington, D.C. Federal Appeals Court], late last week Whole Foods Market, Inc. filed an emergency petition with the federal court of appeals, asking it to decide on its lawsuit to remove the FTC from the case and stop the April 6 Administrative trial. Whole Foods said it filed the petition with the appeals court rather than let the motion remain to be decided in the court of U.S. Federal Judge Paul Friedman, where it was pending, because with the April 6 FTC trial date looming it needed to get a decision on the petition as fast as possible.

The federal appeals court did just that -- ruling in favor of the FTC just one week after Whole Foods filed the petition with the court.

In its lasuit Whole Foods argued that the FTC already has prejudged the merger case and can't possibly give the company a fair hearing. And that in doing so the FTC has deprived the retailer of its due process rights, the lawsuit argued. [Read our December 8, 2008 on the filing: Retail Memo: Breaking News - Whole Foods Market, Inc. Files Lawsuit Against the FTC; Argues the Regulator Violated the Company's Due Process Rights.]

Natural~Specialty Foods Memo (NSFM) predicted in our January 19 story that the three-judge federal appeals court panel would do just what it did do today, which is to rule against Whole Foods' petition and in favor of the FTC. Below (in italics) is what we wrote in our January 19 story:

"It's our analysis that Whole Foods' outside legal council, led by Washington, D.C.-based lawyers Lanny Davis and Paul Denis -- the attorney who will be arguing the natural grocery chain's case at the April 6 FTC hearing/trial -- believe the petition won't be granted and that the hearing will go forward. We suggest this because all indications are that will be the case, based on our extensive research on FTC v. Whole Foods Market, Inc. at this point in time. This is our independent analysis. None of the members of Whole Foods' outside legal council has suggested to us it's their opinion.

Whole Foods' outside legal council has about two months to prepare for the FTC Administrative hearing/trial. Obviously the natural grocery chain's lawyers would like to have a ruling on the lawsuit petition as soon as possible because if, for example, they were to get a ruling in the company's favor by the appeals court that means instead of preparing for the FTC Administrative hearing they would need to rapidly shift gears and prepare for a hearing back in the courtroom of Federal Judge Paul Friedman, which is where the case would most likely go if the federal appeals court removes the FTC's jurisdiction. That's why it makes logical sense to us that Whole Foods Market re-filed the case in the federal appeals court."

Whole Foods' lead lawyer in the case, Lanny Davis of the Orrick law firm, said today in a statement that the natural grocery chain is studying the appeals court ruling and might refile its lawsuit against the FTC. As mentioned above, the lawsuit was first filed in Judge Friedman's courtroom and then refiled with the court of appeals late last week.

"There is no question our due (Whole Foods market, Inc.) process and equal protection rights have been violated and we intend to pursue this case until we can get a hearing in a federal court about those violations," Davis said in a statement today after the appeals court ruling.

We tried to get hold of a spokesperson at the FTC this afternoon, interested in the agency's take on the decision today, but were told it had no immediate comment on the decision.

At this point Whole Foods might be able to refile a lawsuit against the FTC. But its unlikely a court would hear and rule on it before the scheduled April 6, 2009 FTC trial, which is just a bit over two months away. After all, now that the appeals court has ruled, Judge Friedman won't likely entertain the lawsuit since the reason Whole Foods' took it out of his court in the first place was because the company wanted a rapid decision, which they got today. Also the FTC had already said that if Judge Friedman ruled in favor of Whole Foods, the regulator would have appealed it to the federal appeals court anyway.

Additionally, since it is the U.S. Federal Appeals Court that ruled today, it appears unlikely that same court would hear and rule on the same, or a similar, lawsuit once again.

As a result, it seems Whole Foods most likely will have to resign itself to face the April 6 FTC Administrative trial, even if it does refile the lawsuit.

We talked to an experienced antitrust lawyer today who basically agreed with our analysis, saying he couldn't see any quick alternatives for Whole Foods Market, Inc. in terms of beating the April 6 deadline considering the appeals court's ruling today, particularly because Whole Foods has asked for a speedy decision.

We suspect Whole Foods' outside legal council will attempt to find a way to refile the lawsuit however. But its our analysis that unless something dramatic happens between now and April, that April 6 FTC Administrative trial is going to happen. Stay tuned.