Tuesday, December 2, 2008

Whole Foods, "the Microsoft of the natural foods industry," goes after Portland-based New Seasons

And not "the Microsoft of the natural foods industry" in a good way, either. Here's the set-up:
  • In 2007, Whole Foods, a Texas-based chain of around 270 stores in North America and England, bought out rival Wild Oats Markets, a chain of about 100 stores in the US and Canada. Both chains cater to the "natural foods" market.

  • The FTC challenged the acquisition, on the grounds that it would violate antitrust regs by eliminating competition between the two largest chains in the industry. The merger was completed last year but the antitrust investigation is going on.

Now if one thing is certain, it's that the largest (or two largest, depending on your point of view) natural food market chains in North America and the FTC fighting out an antitrust investigation should have nothing whatsoever to do with Portland-based New Seasons Market and its total of 9 stores in the area, right?

Wrong. Whole Foods has used the FTC investigation as an excuse to subpoena sales records, marketing plans, and business plans from New Seasons. The heads of New Seasons explain why this is an outrage:

Allowing Whole Foods to look through all of our private information about how we operate and what our plans are for the future unfairly adds to their already large size and financial advantage. We’ve been able to build a successful local business being David against their Goliath, and we’re happy to keep doing that, but we do object to having one hand tied behind our back.

Why is international Whole Foods going after the confidential records of a small, local company completely unrelated to their FTC troubles? Because they can, and because from their corporate shock-and-awe point of view any opportunity to crush a competitor, however preposterous or slimy, is an opportunity worth taking.

The New Seasons heads continue:

Whole Foods says that we should give our information to their lawyers and they claim the lawyers won’t let anyone else in the organization see them. That’s like trusting the fox to guard the henhouse – and we don’t have any faith it’s going to work like that.

I’m sorry to say this, but some of the people at Whole Foods have a history of less than stellar behavior when it comes to competing fairly. There are two obvious examples of this. First, last year, their CEO John Mackey was caught posting derogatory information online about Wild Oats, using a made up screen name. […]

Second, during the first round of this law suit last year, the FTC released a bunch of e-mails that some Whole Foods executives had sent over the previous few years. You can find the entire (really lengthy) FTC report here, but just to give you a flavor of it, below are a few excerpts of Whole Foods’ comments in regards to Wild Oats: […]

"…[m]y goal is simple – I want to crush them [Wild Oats] and am willing to spend a lot of money in the process."

"...elimination of a competitor in the marketplace, competition for sites, competition for acquisitions, and operational economies of scale. We become the Microsoft of the natural foods industry."

And remember: Obama may be holding daily press conferences, but we still live in the Age of Bush, where Whole Foods might actually succeed in using an antitrust investigation against itself as a tool to eliminate another, unrelated competitor. (What's astonishing isn't that this is so, I’m afraid; it's that the current FTC was remotely concerned about the Whole Foods/Wild Oats merger in the first place.) The New Seasons heads write:

When I received this subpoena my immediate reaction was disbelief. I was confident there was no way our legal system would force us to give our private business records to one of our competitors. It looks like I may have been wrong about that. We’re fighting this (and running up whopping legal bills in the process) and here's a copy of the motion we filed with the Federal Trade Commission. Amazingly, our lawyers tell us that there’s a chance we’ll lose the case and will be required to turn over the information.

Of course I asked what would happen if we refused. The answer was that we could be held in contempt of court and subject to large fines or even jail time. In case anyone is planning on visiting me there, I really love doing the daily Oregonian crossword and also M&M Peanuts. (My wife Eileen doesn’t think this is very funny.)

Good luck to New Seasons quashing this subpoena and blocking Whole Foods' cynical and sleazy ploy. If you've got a New Seasons in your area, show 'em some love. I particularly recommend the salad/wok bar.

(Cross-posted at Loaded Orygun. Tip of the hat to The Skirt for passing this outrage along.)


Paige said...

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

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

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

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

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

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

(Posted by Whole Foods Market team member Paige Brady on behalf of our leadership team.)

Anonymous said...

hmm ... "the microsoft of the natural foods industry" ... ?

ms. brady ... it's a job, i get it ... but do you really believe all your propaganda?

the skirt said...

yep: looks like a big pile of public relations doo doo to me!

Anonymous said...

Left my comment on the whole food website. Whole Food just lost a $500 contract with us. This news is spreading fast.