Investor Ron Burkle Cashes Out For A 200% Return On $98 Million Investment in Whole Foods Market

Seven degrees of Ron Burkle: Grocer, investor, philanthropist and man about town. [Photo Credit: Cityfile.com]

On February 16 we wrote in this piece [Ron Burkle's Rather Excellent One Year Investment Adventure With Whole Foods Market] about investor and supermarket industry veteran Ron Burkle's beyond excellent return (on paper) of his $98 million investment in Whole Foods Market, Inc. in just a hair over one year. (Also see the links to past stories about Ron Burkle at the link above.)

This week we learned that Burkle and his Yucaipa Companies investment firm's return on his January 2009 $98 million investment in Whole Foods, through his Yucaipa Companies is no longer - at least the majority of it - just on paper.

According to Yacaipa, Burkle has sold the majority of his shares in Whole Foods, which represented an about 7% ownership stake in the natural grocery chain, for a return of about 200% Not bad for a year's worth of investment.

In our February 16 story we suggested Burkle might sell most or all of his Whole Foods stake soon because he's currently extremely busy tending to his about 19% ownership stake in book retailer Barnes & Noble, not to mention the myriad of other investments Yucaipa has.

Burkle has been selling off the Whole Foods shares for about the last month or so as the natural grocer's share price has continued to soar.

Among Burkle's activities vis-a-vis Barnes & Noble has been a campaign he's launched to be allowed to buy additional shares in the bookseller, something its board and CEO have been blocking.

Apparently they fear an activist shareholder who puts his money behind his ideas and strategies for making what has become a laggardprimarioy bricks-and-mortar book retailer, under fire from Amazon.com and other online book retailers, a potentially better performing one. Barnes and Noble sells books online but hasn't been able to compete in any significant way with Amazon.

Burkle has told Barns & Noble's board he wants to buy up to about 38% of the company. They have put in a provision which prohibits any outside investor from acquiring more than a 20% ownership stake.

Burkle is also interested in taking a substantial stake in the storied New York City retailer Barneys. He's bought some of the struggling apparel retailer's debt and has told its foreign owners, Dubai's Istithmar World investment firm, that he is interested in lending the firm, which has been hit hard by Dubai's financial meltdown, $50 million in return for taking control of Barney's, which Burkle thinks he can return to its glory days.

The Dubai investment firm bought Barney's in 2007 for about $900 million.

Based on his track record in the supermarket retailing industry, we think if he acquired Barney's, Burkle would first invest in it, like he did when he acquired the various chains to comprise Ralphs/Food 4 Less, which he eventually sold to Kroger Co. in the 1998's for $13.5 billion.

He likely then would cut costs, in part by wringing as much cost as he could out of Barney's supply chain, something he knows a thing or two about doing in the retailing business.

We think Burkle would also extend the Barney's brand, both into opening new stores in key U.S. markets and perhaps even selectively overseas, as well as into other forms of business. The Barney's brand still has considerable equity.

After doing these and other measures, operating Barney's for a few years, it's likely Burkle would then take the company public, which could result in substantial profits if all went well in the process we describe above.

But meanwhile Burkle has exited, at least for the most part, Whole Foods Market - and done so with a nice 200% return on his $98 million investment.

He's not out of the supermarket industry investment game completely though: Burkle owns 30% of the A&P supermarket chain and is playing a major role in the east coast grocery chain's strategy, along with how it's being managed. Remember, he's an activist shareholder, and with a 30% stake he should get involved in a hands on manner.

Burkle's Yucaipa has about $9 billion worth of investment funds, according to the firm. Among its investors are two of California's biggest pension funds.

Burkle lives in Southern California and New York City. His personal worth is estimated at $3.2 billion, according to Forbes magazine, which lists him in its storied richest people in the world ranking.

Look for Burkle - who grew up in the grocery business, starting as a bag boy at Southern California's Stater Bros. grocery chain then eventually moving into a vice president position there before leaving to start Yucaipa - to make new investments in the supermarket industry. It's not only the business where he made his first and major fortune - it's also in his blood.

Ron Burkle's Rather Excellent One Year Investment Adventure With Whole Foods Market

It's been just over a year since legendary supermarket industry magnate, investor, philanthropist and friend of Bill Clinton, Ron Burkle (pictured at left), acquired a 7% stake (9.8 million shares) in natural-organic foods grocery chain Whole Foods Market, Inc. Burkle reported his stake in a SEC regulatory filing on January 8, 2009.

During the about two month period from late November 2008 -to- early January 2009 in which Burkle made his investments in Whole Foods' common stock through his Yucaipa Companies' investment firm, the natural-organic foods grocer was aisle-deep in two key struggles: it's battle with the U.S. Federal Trade Commission (FTC) over the acquisition of Wild Oats Markets Inc.; and a loss in sales due to the economic recession.

As a result of these two key factors, Whole Foods' stock share price ranged from $9.97 per share (November 24, 2008) to $10.01 per share (January 7, 2009) during the period when Burkle made his $98 million worth of stock purchases, resulting in the 7% total ownership stake in the company. We will call it an average of about $10 per share.

Today, a mere year later, Whole Foods Market. Inc. reported a whopping 79% increase in earnings for its first quarter fiscal year 2010 over the same period in 2009.

Additionally, first quarter 2010 sales increased 7% to $2.6 billion, compared to the same quarter last year. Further, same store sales, which are a key measure of a retailer's health, increased by 2.5%. Complete details are here.

Whole Foods' first quarter sales and profits report announcement today sent the natural-organic grocery chain's stock share price soaring. At the end of business today Whole Foods Market, Inc. stock was trading at $32.95 per share.

The stock has been growing like naturally-fertilized clover over the past 12 months. The 52- week low is $9.06. The 52-week average high is $34.40 per share.

Ron Burkle's excellent one year Whole Foods Market adventure

Speaking of naturally-fertilized clover, Ron Burkle is certainly waist deep in it in terms of his about 13 month profit in Whole Foods Market, Inc. stock.

Based on the average price of $10 per share he made from late November 2008 -to- early January 2009, the supermarket magnate and investor has more than tripled the value of his $98 million stake in Whole Foods in just slightly over a year.

Based on the $10 per share average purchase price, at today's $32.95 per share close, Burkle has seen a whopping per share increase of $22.95. Not bad for a one-year investment adventure.

Trust in Whole Foods board, senior management

In this story [Retail Memo - Exclusive: Supermarket Industry Investor Ron Burkle Looking For A Seat On Whole Foods Market's Board of Directors] on January 16, 2009, we reported that Ron Burkle was interested in seeking a seat on Whole Foods Market Inc.'s board, based on his 7% stake in the company.

However, to date Burkle has been satisfied to be a passive investor in the natural-organic grocery chain - a position that has obviously paid off for the supermarket industry investor.

We stick by the January 2009 report that Burkle did have an interest, however strong or weak, in possibly joining the board. But it obviously wasn't something he has pushed, since if he did we doubt Whole Foods would deny him a spot. And if the grocer did, we would have heard about it. We haven't.

Historically, Burkle has been what's referred to as an activist shareholder, an investor who buys a substantial stake in a company and then participates in some way in its operations, generally as a member of its board and often times operationally. This has been especially the case for Burkle regarding his numerous investments and acquisitions in the food and grocery retailing industry.

But it appears to date that Ron Burkle has trust in Whole Foods' current board and senior management - a trust well-founded based on the growth of the investor's just over one year investment - and as such sees no need to join the board.

Burkle hasn't been a traditional passive investor when it comes to Whole Foods Market though. In fact, we are aware that over the last year Burkle has offered numerous ideas and suggestions, including involving Whole Foods value strategy, to the grocer's board members and senior management.

But of course Burkle isn't merely a investor in supermarkets - he has extensive operations experience as an food and grocry retailing executive.

He started out in the grocery retailing business as a bag boy for the Los Angeles-based Stater Bros. supermarket chain, where he eventually became a vice president.

In addition, Burkle was the board chair of Wild Oats Markets Inc., and was instrumental in the natural grocer's merger with Whole Foods.

Ron Burkle also put together one of the biggest supermarket chain's in the U.S. - Ralphs/Food 4 Less - which he eventually sold to Kroger Co. This was what earned him the 'supermarket magnate" nickname.

Burkle focusing on books not groceries right now

Interestingly, today Yahoo, of which Burkle is an investor and has been a member of the board of directors since 2001, announced that the investor is stepping down from its board because he wants to "devote more time to his other business interests."

In the statement, Yahoo Chairman Roy Bostock said: "Yahoo and its stockholders have benefited greatly from the counsel, insights and objectivity Ron has brought to the company during his nine years on the board."

The key business interest we think Burkle wants to devote more time to is his current investment focus on the Barnes & Noble book store chain.

Burkle recently disclosed in an SEC regulatory filing that his Yucaipa Companies investment firm has acquired a 19% ownership stake in the bricks-and-mortar and online book retailer. Additionally, in that filing Burkle said he would like to own as much as 37% of Barnes & Noble.

Barnes & Noble has an anti-takeover provision which makes it difficult for investors like Burkle to acquire majority ownership in the company, something that's been suggested he would like to do. However, if he can acquire as much as 37% (and even a bit less) of the bookstore chain, Burkle will have significant influence, including a seat (and maybe even chair) on the retailer's board.

It sounds to us like we will see the "activist shareholder" Burkle rather than the more passive investor Burkle when it comes to his run on Barnes & Noble.

In fact, his profits so far in Whole Foods Market, Inc. could provide a nice cash cushion should he decide to sell some shares for his investment in Barnes & Noble.

We have no information however that Burkle plans on cashing-in any part of or all of his investment stake in Whole Foods.

Either way, it's been a rather excellent 'One Year Whole Foods Market Investment Adventure' for the supermarket magnate.

We even suppose it's been an excellent enough one year adventure to make the legendary investor willing to take a crack at one of the most difficult retailing segments in U.S. - book selling.

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: 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.

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

Ron Burkle (on the right in the picture above), the billionaire supermarket industry investor, founder and chairman of the Southern California-based Yucaipa Companies investment firm, has provided former two-term President Bill Clinton, who's wife New York Senator Hillary Clinton is running for the Democratic Party nomination for President, with a healthy source of income during his post-Presidential years, according to a batch of Clinton family income tax returns the couple just released. The tax returns are interesting reading indeed.

The former President and his wife Senator Hillary Clinton released eight years' worth of income tax returns on Friday. The period covers the Clinton's last couple years in the White House to the present.

The Clinton's jointly-earned a whopping $109 million during this eight year period, the vast majority of which was brought in beginning in 2001, which was the former President's first year out of office after completing his second and final term. In fact, when Bill and Hillary Clinton left the White House in 2001, they were $12 million in debt do to extensive legal bills accumulated over the legal investigations of the Whitewater land deal, the Monica Lewinsky scandal and related impeachment proceedings, and other legal challenges.

President Clinton earned nearly half of that $109 million as a speaker, traveling all over the world between 2001 and 2006 giving speeches to corporations, business groups and other organizations for hefty per-speech fees. The tax returns don't list who he earned the speaking fees from, which would be most interesting to know.

Another big source of income for "brand Clinton" were book royalties. The former President and Mrs. Clinton brought in about $30 million between 2001 and 2006 for their best selling books; two books for Bill and two books for Hillary during this period.

But giving speeches and writing best selling books were far from the only major sources of income for former President Clinton.

In fact, one multi-million dollar source (and name) of income for the former President stands out large to us in reading through the tax returns which were posted online. That name is billionaire supermarket industry investor Ron Burkle, who is a long time Bill Clinton friend and supporter--and currently one of the most generous donors to Hillary Clinton's Presidential campaign.

Not long after the former President left office in 2001, Burkle hired Mr. Clinton as an advisor for his Yucaipa Companies investment firm. Additionally, Burkle made Clinton a partner in a number of his investment funds. Further, a bit later Burkle put the former President on Yucaipa's board of directors as well.

The tax returns show Bill Clinton's partnership with Burkle in various Yucaipa investment vehicles earning the former President and Mrs. Clinton an annual income of about $1 million a year starting in 2003. In 2005, Bill Clinton grossed $5 million from his investments with Burkle, according to the tax returns. Further, the returns show the former President earning an additional $2.5 million in each of the past two years.

All told, Bill Clinton has brought in almost $8 million dollars in income in the last five years from his involvement in and partnership with Ron Burkle and his Yucaipa investment arms. Not a bad pay day.

According to Yucaipa, Burkle hired the former President to be a senior advisor to the firm, which has included helping Burkle meet global businessman and world leaders, land new investors for his funds and identify global investment opportunities. Clinton also has served in a policy role as a member of Yucaipa's board of directors.

As we reported in this piece we wrote on January 30, the former President is in the process of ending his business relationship with Burkle and Yucaipa. It's estimated by a number of sources including the Wall Street Journal that Bill Clinton could walk away with as much as a $20 million final payout when he concludes his partnership interests in the various Yucaipa-controlled investment funds and vehicles. That's on top of the nearly $8 million earned to date.

Burkle made his name as a supermarket industry investor in the 1980's by acquiring and putting together a number of major supermarket chains into a retail grocery company he called Ralph's/Food-4-Less, and then ultimately selling the huge supermarket company for billions.

Among the chains he acquired and bundled together were Los Angeles-based Ralph's Grocery Co., Fred Meyer, Inc. (Oregon), Boy's Markets (Los Angeles), Falley's Food-4-Less (Kansas City, Mo.), Arizona-based Smitty's, Dominick's of Chicago and a few others. [Read our January 30 piece here for more details.]

Burkle, who got his start in the supermarket business as a bagboy for Stater Bros. supermarkets in Southern California where he later became a VP, operated the company with a team for about eight years, building it up, cutting costs and the like. He then broke Dominick's off from Ralph's/Food-4-Less and sold it to Safeway Stores, Inc. for nearly $2 billion dollars.

Following that profitable sale, Burkle improved sales and operations at Ralph's/Food-4-Less even further and then made the BIG sale: Kroger Co. agreed to buy the supermarket company from Burkle for $8 billion. This was the acquisition that put Kroger in the number one spot among grocery retailers in the U.S., where it remains today.

Burkle latest BIG grocery retailing deal was last year's acquisition of natural foods retailer Wild Oats Markets, Inc. by Whole Foods Market, Inc.

A little background: In the 2005-2006 time period, Burkle acquired about 5% ownership in Wild Oats Markets, Inc., making him the retailer's largest individual outside shareholder. Not long after acquiring his 5% stake, Burkle helped engineer the ousting of the grocery retailing company's then CEO, who many felt was responsible for Wild Oats' underperformance at the time. Burkle also took a seat on the fledgling natural foods' chain's board of directors.

In 2007, Burkle was a major behind the scenes force in helping to engineer the acquisition of Wild Oats by Whole Foods Market, Inc., which netted him and his Yucaipa investment firm a healthy payout. Whole Foods announced it was acquiring Wild Oats in September, 2007, with the full support of Wild Oats Markets, Inc.'s board and investors.

Burkle hasn't made a major supermarket industry investment play since last year's Whole Foods/Wild Oats acquisition-merger. However, through his various Yucaipa investment funds, he has stakes in companies of all types throughout the world (including grocery industry) as well as in the U.S.

In this piece we wrote on January 30, we said Burkle was taking a close look at SuperValu, Inc. in terms of possibly making a major investment in what many believe is an undervalued company. We learned this from a source close to both Yucaipa and SuperValu.

To date, Burkle hasn't made major investment in SuperValu that we are aware of , and it's likely he won't, since some fundamentals both at SuperValu and in the U.S. economy have changed since January, 2008. However, don't rule it completely out either--we aren't.

In fact, Burkle's deal tend to be good for the supermarket industry in our analysis. When he bundled up all the regional chains in the 1980's some were tired, smaller operations in need of shaking up Others, like Ralph's and Fred Meyer, were full of potential but just operating in a rather mediocre manner. Burkle bundled all these somewhat disperate chains together and created value--and in our view provided what at the time was some much needed "creative destruction" in the supermarket industry.

His move regarding Wild Oats is the same in our opinion. Before Burkle took his 5% stake in the natural products retailer, it was in big trouble. Whole Foods' was eating its lunch, as were many independent natural foods stores. There was nothing Wild about Wild Oats at that time--and nobody in the grocer's senior management team was even close to feeling his or her "Oats" over the natural grocery chains sales and operating performance.

Many people cry (and even cry fowl) about the Whole Foods acquisition, but it was the best thing to happen to Wild Oats--and the natural foods retailing sector. Burkle shook it up--and likely saved Wild Oats in the process, in our analysis and opinion. Whole Foods had a hand in the saving as well of course.

Meanwhile, Burkle has been very good to former President Clinton. Of course, that's a two-way street. Burkle has been a close personal friend, as well as a financial angel, to Bill Clinton since his first run for the Presidency in 1990, which he won, followed by winning a second term. It's likely that friendship has paid a handsome dividend or two for Mr. Burkle.

Ron Burkle also has extended his personal, political and financial relationship to the former First Lady and Senator from New York, Hillary Clinton, in her run for the Democratic nomination for President. According to campaign disclosure statements as well as a recent report in the New York Times, Burkle is one of Senator Clintons "Hillraisers," a title given to those key supporters who raise more than $100,000 for her Presidential campaign.

Burkle has done that--and much more. In addition to giving the maximum amount an individual can give to a Presidential candidate--which is about $5,000 ($2,500 during the primary campaign and another $2,500 for the general election)--and raising hundreds of thousands of dollars for her, including holding a lavish fundraiser at his Beverly Hills estate for the Senator from New York, Burkle also has made a six figure donation on top of all this to Emily's List, which is a women-run independent political action group that's a big supporter of Hillary Clinton for President.

Who would have thought the grocery industry would end up being such a cash cow for a former U.S. President. We bet Bill Clinton, who says one of the things he loves about no longer being President is that he gets to do some of his own grocery shopping, grins from ear-to-ear each time the supermarket clerk at the checkstand asks him if he wants paper or plastic (bags) for his grocery purchases.

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

Ron Burkle, billionaire supermarket industry investor and former bagboy for Southern California's Stater Bros. supermarket chain, is taking a long, serious look at making a major investment in fledgling grocery retailing and wholesaling giant SuperValu, Inc. we've learned.

Burkle, who founded and runs investment firm Yucaipa Companies, LLC and is a close personal friend of former President Bill Clinton (Bill's also an investor in Yucaipa and stands to make about $8 -to- $9 million when he cashes out of one of its funds soon) and a major financial supporter of Hillary Clinton's Presidential campaign, likes what he sees in SuperValu.

What is it he likes? In SuperValu, Inc., Burkle sees a major, multi-banner, multi-format grocery retailer and wholesaler that's stock share price is lower than it should be, has tons of valuable assets, has what looks like a viable turnaround plan, and could benefit from an infusion of cash to help with that restructuring and a large-scale store remodeling program it's in the middle of. SuperValu, Inc. currently has about $44 billion in annual sales.

These are similar attributes, assets and liabilities Burkle has spotted, and liked, in numerous supermarket chains in the past, leading him to invest, acquire, merge, restructure and then sell, making billions as a result.

Burkle's biggest deal with Yucaipa Companies (founded in 1986), which netted him a couple billion dollars of personal profit, began about 20 years ago and involved mutiple acquisitions over an eight year period (1987-1995).

Beginning in 1987, Yucaipa Companies bought Falley's Food-4-Less of Kansas City, Mo. for $35 million. Two years later in 1989 the company acquired long-time Southern California grocery chain Boy's Markets for $375 million. In 1991 Burkle added Alpha Beta, a leading California supermarket chain, to his fast-growing food retailing empire, paying $271 million for the grocery chain.

Then in 1994, the company acquired Phoenix, Arizona-based Smitty's for $138 million. That same year (1994) also saw Burkle making his biggest acquisition to date, the $1.5 billion purchase of Southern California grocery chain Ralph's Grocery Co. He wasn't finished yet though. The following year (1995) Yucaipa Companies acquired Chicago-based supermarket chain Dominick's for $750 million.

Over this eight year period, Burkle and a senior management team operated these various supermarket chains (acquisition-by-acquisition) as an integrated company of sorts, but yet each kept it's own identity, format and positioning in its respective markets. From 1995-1997, Burkle and his team integrated the desperate operations, slashed costs, closed poorly-performing stores, built some new stores, remodeled a number of others, and improved sales and profits as a result.

In 1997, Burkle merged Ralph's/Food-4-Less with Oregon-based Fred Meyer, Inc., creating the number two food retailing company in the Western U.S. after Safeway Stores, Inc. The combined company was named Fred Meyer, Inc.

Then the selling began. In 1998 Burkle broke the Dominick's chain off from Fred Meyer, Inc. and sold it to Safeway Stores, Inc. for $1.85 billion. Yucaipa paid just $750 million for the chain less than three years earlier. Then the BIG DEAL came: Kroger Co. agreed to buy Fred Meyer, Inc. for $8 billion. You can do the math; add up what Burkle paid for all the chains above, then subtract that from $9.85 billion, the combined sale price he fetched for Fred Meyer and Dominicks, and as you can see, he made a tidy profit.

After selling Fred Meyer, Inc. to Kroger Co.--the purchase which made Kroger the number one supermarket chain in the U.S.--Burkle focused primarily on making major investments with Yucaipa, both in and outside of the supermarket industry, rather than acquisitions.

He also nurtured his close friendship with Bill Clinton. In fact, when President Clinton left office after serving his last term, he joined Yucaipa Companies' board of directors at Burkle's invitation. He also became an investor in Burkle's various investment funds--hence the $8 -to $9 million payday the former President is due when he cashes out soon, according to experts who are aware that he plans on doing so.

Burkle's most recent payday came from the acquisition of Wild Oats Markets by Whole Foods Market, Inc., a merger Burkle helped to engineer as the largest private investor in Wild Oats, as well as being its most influencial member of its corporate board of directors.

Burkle netted a couple hundred million dollars from the sale of Wild Oats in September, 2007. That money has been burning a figurative hole in the pockets of the former bagboy, who later became an executive at Stater Bros. in Southern California.

From what we hear, Burkle is close to making a major investment in SuperValu. The grocery chain and wholesaler has been having rough times since the fourth quarter of last year. Sales have been down, although profits have actually been up slightly. The company also has been struggling for well over two years to integrate its huge acqusition of Albertsons, Inc. into its culture and operations. SuperValu's stock share price has been hovering near its all-time lows, which is perhaps its biggest problem, at least in the eyes and investment portfolios of Wall Street.

Just this week however, SuperValu, Inc. CEO Jeff Noodle announced a major restructuring and store remodeling plan that Wall Street analysts might like. Burkle loves to invest large sums of cash and then become a partner with company CEO's and senior executives in restructuring and streamlining operations as a way to increase a company's value. Noddle told investors on January 24 the company is on track to remodel 165 more stores under its "Premium, Fresh and Healthy" format model between now and next year.

At the January 24 investors meeting Noodle also announced additional new initiatives for the company's Sav-a-Lot small-format discount stores and for other parts of its retail operations. He also announced the closing of Supervalu, Inc.'s Sunflower Market stores, a three year-old experimental five-store chain of small-format natural foods stores with an emphasis on low prices.

Such initiatives are music to Burkle's highly-tuned investment ears. We aren't saying the billionaire will make a sizeable investment in SuperValu, Inc. for sure. What we are saying is he's looking very closely and seriously at doing so. Further, if he does make a major investment in the company, look for him to participate in an advisory capacity to Noodle.

SuperValu, Inc. is a huge grocery industry corporation with $44 million in annual sales. As such, Burkle isn't going to gain five or six percent ownership in the company like he did with Wild Oats, which was bought by Whole Foods Market, Inc. for less than $1 billion dollars. However, a cash investment of say $1 billion by Burkle would go a long way right about now in helping SuperValu with it's massive store remodeling program.

Even more important, a Burkle investment would be a positive signal to Wall Street and the company's institutional and private investors and stockholders. In fact, such an investment, especially with Burkle attached to it in some way, would likely give SuperValu, Inc.'s stock a nice per-share boost in the short term. Stay tuned.