Whole Foods Gall Reaches New Levels (Updated: 4X)

12.2.08. I just received a response from Whole Foods, which is attached to the bottom of this post, as well as in the comments.

There are some things I like about Whole Foods. They carry an abundance of healthy, mostly organic foods, and are close to my house. However, if I had a choice, I’d pick New Seasons almost every time. Why? I like their philosophy, their service, and their wine selection, not to mention they are a local chain. Even better, if I want to buy something that is less than healthy, they have some of that too, which saves me a second trip to a different grocery store. Now, however, things have changed, and until Whole Foods backs down and quit harassing New Seasons, I won’t be returning to their store.

Competition is a healthy thing; I’m all for it. However, this item by Brian Rohter from the New Seasons blog caught my eye. With permission, I’ve reprinted it in entirety. It’s worth the time it takes to read.

You may have heard that New Seasons Market has found ourselves caught in the crossfire of an ongoing legal dispute between the Federal Trade Commission (FTC) and Whole Foods Market. The disagreement has to do with whether or not the Whole Foods merger with Wild Oats should be “allowed to proceed”. Yes, we know that seems like a crazy thing to be fighting about since all the Wild Oats stores that were around here have already been closed or turned into Whole Foods stores, but neither the federal government or Whole Foods asked us for our opinion about that.

You also are probably trying to figure out what this could possibly have to do with us. That’s a great question. Since we’ve been minding our own (local) business and have never expressed an opinion one way or the other about this merger, we were wondering the same thing.

As it turns out, because of their legal dispute with the FTC, Whole Foods has an opportunity to try and force us to give them copies of some of our most confidential financial records – for instance what our sales are, week by week, at each of our stores. They’ve also demanded all of our files that detail our strategic plans, all of our marketing plans and all of our studies about where we are considering opening new stores. You can see the entire subpoena here, and below is a partial list of what they’re trying to get (quoted directly from the subpoena):

3. All documents relating to Whole Food’s acquisition of Wild Oats, including documents discussing the effect of the merger on you.

4. All documents discussing competition with Whole Foods or Wild Oats, including responses by you to a new Whole Foods or Wild Oats store and responses by you to prices, product selection, quality, or services at Whole Foods or Wild Oats stores.

5. All market studies, strategic plans or competition analyses relating to competition in each Geographic Area, including documents discussing market shares.

6. All market studies, strategic plans or competition analyses relating to the sale of natural and organic products, including the sale of natural and organic products in your stores.

7. All documents relating to your plans to increase the shelf space at your stores allocated to natural and organic products, the number of natural and organic products sold in your stores, or the sales of natural or organic products in your stores.

8. All documents discussing your plans to renovate or improve your stores to sell additional natural and organic products or to open stores emphasizing natural and organic products.

9. Provide documents sufficient to show, or in the alternative submit a spread sheet showing: (a) the store name and address of each of your stores separately in each Geographic Area; and (b) for each store provide the total weekly sales for each week since January 1, 2006 to the current date.

I have to believe that any reasonable person would agree that it’s really over the top for Whole Foods to be asking for this information, especially since we have nothing to do with their lawsuit. It takes away the level playing field, creates an unnecessary risk for our business and has the potential to have a negative impact on our network of local growers, ranchers and suppliers. It also could permanently damage the fragile regional food system that we’ve been working to create and, in the end, could reduce options for Portlanders who choose to shop at locally owned stores.

New Seasons Market is a small, locally owned company that competes against large, multi-national chains including Whole Foods. Whole Foods has about 270 stores in cities all over North America and in England. We have 9 stores in the Portland area. 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.

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. Here’s a New York Times story about that.

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:

“Wild Oats needs to be removed from the playing field…”

“…[m]y goal is simple – I want to crush them 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.”

Yikes!

This case has been going on for about 18 months. This is the second time Whole Foods has tried to get access to our records. Last year they also filed a motion to try and get our financial records turned over to them; not just to their “outside” lawyers, but to executives who are on the Whole Foods payroll and work in the Whole Foods corporate offices in Austin, Texas. What possible reason do we have to believe they won’t just try and do that again?

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.)

We’ll keep you posted on this as the situation evolves.

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.)

Note: IP address verified as coming from WFM

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

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

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

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

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

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

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

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

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

http://www.oregonlive.com/business/index.ssf/2008/12/new_seasons_fights_chains_subp.html has been digging further and has some interesting points:

Not all of Whole Foods’ competitors in Portland received subpoenas. Zupan’s Market, which has four Portland-area stores, did not receive one.

“As a business owner, I would never want to give up my proprietary information,” said owner Mike Zupan, who said he personally didn’t mind Whole Foods’ purchase of Wild Oats. “I don’t feel threatened. Consumers here have a choice, and any time you have a large corporation come in, it gives the independents a lot of opportunity.”