Wednesday, December 3, 2008

Update on "We're Just Trying To Mind Our Own (Local) Business." The Oregonian Weighs In.

The Oregonian has weighed in with their perspective about Whole Foods Market subpoenaing copies of some of our most confidential financial records, including our strategic plans, our marketing plans and our studies about where we are considering opening new stores. Here's the Oregonian story from this morning's paper, New Seasons fights chain's subpoena and here's the editorial board's take on the situation, Special on chutzpah, Aisle Three.

Looks like there's a problem with the link to the Oregonian editorial right now. Here's a copied and pasted version:

Special on chutzpah, Aisle Three

by The Oregonian Editorial Board
Wednesday December 03, 2008, 4:11 PM


Whole Foods, already under fire for its anticompetitive conduct, pushes its luck
There's silly and there's federal government silly, as New Seasons Market is finding out.

The privately owned, Portland-based chain of natural and healthy grocery food stores has been asked, and may be ordered, to provide a raft of confidential information to a much larger competitor, Whole Foods Inc. Information such as "all documents discussing competition with Whole Foods or Wild Oats," "all market studies relating to competition," "all documents relating to the sales of natural or organic products in your stores," and, most audaciously, "for each store provide the total weekly sales for each week since Jan. 1, 2006." That's what Whole Foods' lawyers say they want from New Seasons.

And what has New Seasons done to call down such burdensome demands for disclosure of its private, proprietary information? Its crime is running a successful chain of grocery stores in the niche that Whole Foods has tried to dominate, partly by its takeover of Wild Oats, the chain that has since disappeared from the Portland area.

In the spring of 2007, the Federal Trade Commission weighed in with objections to the planned merger, arguing convincingly that it would reduce competition and thus, raise prices to consumers. The agency showed that Whole Foods had secretly plotted to crush Wild Oats and dominate the industry, specifically citing its concerns about price competition in Portland. (At roughly the same time, Whole Foods CEO John Mackey was discovered to have been posting critical comments about Wild Oats on public blogs under a pseudonym.)

Despite the continuing regulatory opposition, as you may have noticed, the merger proceeded. After taking control of Wild Oats, Whole Foods quickly shut down three of the newly acquired stores in the Portland area and renamed the rest.New Seasons stayed out of all that messiness. CEO Brian Rohter said the chain never expressed any opinion about the merger and obviously, wasn't a party to it.

Yet now, as the rather pointless dispute between the FTC and Whole Foods grinds on, New Seasons is being asked to supply its primary competitor with a raft of private information that would never otherwise be available for outside scrutiny. And Rohter says his lawyers tell him he may actually be forced to comply with the request, although New Seasons has filed its objection to doing so.


Nothing about Whole Foods' behavior so far suggests that this is a benign request for onformation. Rather, it is a nakedly anticompetitive maneuver intended to hamstring its strongest rival in the Portland area.

The FTC is entitled to proceed with its dispute with Whole Foods, and in the end, may improve competition in the market by doing so. But it shouldn't reward Whole Foods' history of deceptive conduct by granting it the key to its competitors' vault of secrets.

Quash the Whole Foods subpoena. Let the company compete in the marketplace, not in a Washington, D.C., hearing room.

If you don't know what we're talking about and want to learn more, take a look at the blog posting below this one, We're Just Trying To Mind Our Own (Local) Business. There's lots and lots of info (and many opinions) there.


Monday, December 1, 2008

We're Just Trying To Mind Our Own (Local) Business

By Brian Rohter

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.