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    Published on: August 21, 2007

    The US District Court of Appeals in the District of Columbia yesterday put a temporary hold on Whole Foods’ proposed $565 million acquisition of Wild Oats, but said that the move was only to give it more time to consider the Federal Trade Commission (FTC) arguments against the deal. The three-judge panel said that the hold "should not be construed in any way as a ruling on the merits" of the case.

    Whole Foods has until tomorrow to respond to the FTC request for a stay.

    A federal judge ruled last week that Whole Foods could go ahead with its acquisition of Wild Oats, refusing to grant the FTC a temporary injunction that would have stopped the deal from taking place. The FTC then asked the appellate court to stay the ruling pending its filing of an appeal.

    The FTC opposes the deal on the grounds that it would diminish competition in the marketplace and result in increased prices and fewer options for consumers; the government argument is that Whole Food and Wild Oats are the biggest players in a distinct natural/organic retailing business. The two retailers, on the other hand, argue that their companies simply occupy one specific niche in the much larger supermarket industry, and that there is plenty of competition for the consumer’s food dollar in natural and organic categories.
    KC's View:
    I’ve commented on this story enough. Let’s see how it finally plays out.

    Published on: August 21, 2007

    by Michael Sansolo

    “These are my principles and if you don’t like them…I have others!” - Groucho Marx

    As a rule, I tend not to hate things. But life’s little ironies just keep jumping up and biting me above the ankles.

    For instance, earlier this summer I wrote about my dislike of Bluetooth phones and suggested that all users wear a feather in their hair to signify that they aren’t mumbling insanely to themselves. Sure enough, I got a new cell phone that came with a free Bluetooth headset. My college-aged daughter wasted no time supplying a feather. Darn ironies.

    Then there was the argument Kevin launched earlier this year about corks vs. screw tops on bottles of wine. Now as many of you might imagine, working with Kevin (though we are 250 miles apart) is an endless array of very important discussions. Please, please, please don’t get us started on dental care or even his passion for supermarkets expelling all products bearing the name of any restaurant.

    The cork vs. screw top seemed a slam-dunk to me. After all, what was the big deal other than a nostalgic feeling for one technology being replaced by another? Kevin, it seemed to me, was all wet.

    But to address the argument fairly, I visited a vineyard located just outside of Sydney, Australia, the wonderful country that seems to be spearheading the wine cork vs. screw top battle. Peter Auld, the winemaker and owner of Tizzana Vineyards, was more than happy to weigh in on the topic.

    The screw tops, which he uses on about half his products, are all about economics, nothing else. In fact, Peter explained why cork is actually superior. A screw top, he said, makes a very good seal on the bottle, but the seal is complete in one specific place. Any flaw in that one location and the seal fails to prevent air from entering the bottle and ruining the wine. In contrast, a cork creates a much longer seal, in essence creating redundant safeguards against leaks.

    (One short interlude here: Peter’s vineyard in Ebenezer, New South Wales, produces a number of wonderful wines. A real surprise to me was his Old Liqueur Sweet Wine for desserts. I’m not a big wine connoisseur and I usually have no taste for sweet after-dinner wines, but this was fabulous. His Shiraz and a local blend, Tomasso, were also especially good.)

    Now this is just one winemaker’s opinion and before we get notes from the Screw Top Association of America, let me just take care of this issue. Kevin, it seems, is right and the issue isn’t trivial.

    Value is such a nuanced concept these days and the key is creating a perception of distinction in the eyes of the shopper. If Peter feels cork is better for his products, he should find a way of educating his shoppers and explaining why he needs to charge an extra few cents to uphold his quality.

    That’s an argument Kevin would likely make and I’d agree. There. I said it.

    But it won’t last. Last week, Kevin actually dissed Tom Seaver, who is only the greatest ex-Mets player ever. Best as I know, Seaver was never accused of using performance enhancing drugs, never engaged in dog fights and never bet on games. All he did was pitch hard and win. The day the Mets traded him remains one of the darkest days in sports history for me. And Kevin wishes to banish him forever because his brilliance on the field hasn’t translated to the broadcast booth. Bring on the wine!
    KC's View:

    Published on: August 21, 2007

    The Associated Press reports that the Chinese government has launched a new television series designed to bolster the citizenry’s opinion of the country’s safety standards.

    The show seems to be taking the position that other nations are “demonizing China’s products” and engaging in trade protectionism.

    “Although recalls are necessary, it is unfair to decide that all products made in China are unqualified," said Li Changjiang, director of the General Administration of Quality Supervision, Inspection and Quarantine.

    However, even as the show was being aired in China, the AP reported that the New Zealand government is looking into China-made children’s clothing that have been found to contain dangerous levels of formaldehyde. And just today, the Wall Street Journal reports that Wal-Mart “stopped selling two brands of dog treats in July, after customers voiced concerns that the Chinese products may have caused their pets to fall ill, but no recall has been announced.”

    These latest reports follow several months during which serious questions have been raised about the safety of foods, toothpaste and toys originating in China.
    KC's View:
    The Chinese government may be trying to pass off this new television program as “reality TV,” but it sounds more like an update of ‘Fantasy Island” to me.

    Published on: August 21, 2007

    The Washington Post reports that Homeland Security Secretary Michael Chertoff has said that the various agencies within his department, including customs and border security, will do more to focus on imported food safety and security.

    Chertoff said that these responsibilities will be folded into Homeland Security’s anti-terrorism efforts. "They're all dimensions of the same responsibility," he said.

    According to the Post story, Chertoff made the comments as part of a press briefing designed to offer an update on the work being performed by a task force assigned by President Bush to make recommendations about how to better in sure the safety of imported food. The group is scheduled to make its final report in mid-September.

    During the same session, Health and Human Services Secretary Mike Leavitt told the media that the group has ruled out the possibility that every imported item should be inspected, noting that “the scope and vastness of the amount” makes such an approach untenable. Leavitt predicted that by 2015, it is likely that the amount of imported food coming into the US will triple beyond current levels.
    KC's View:
    It’s interesting to note that both Chertoff and Leavitt said that companies will need to be more responsible for the safety of the imported products they sell. But in a different food safety area – made cow disease – the federal government has ruled out the possibility that private companies should test their own meat for mad cow and then label products that pass as “BSE-free.”

    Not sure why it makes sense in one venue and not another.

    Published on: August 21, 2007

    The Houston Chronicle reports that the US Food and Drug Administration (FDA) has abandoned a program that would have had it closing more than half of its field laboratories, saying that the agency needed to take a “fresh look” at the challenges facing it and possible solutions.

    The move came less than a month after FDA said it was temporarily backing of the lab closing program that it had said would allow it to be more efficient but that others had criticized as being more focused on cost-saving than effectiveness. Congressional investigators charged that if the plan to cut the number of testing laboratories in half were implemented, the FDA would be unable to ensure the safety of the nation’s food supply.

    FDA had said that it would not implement the plan until the report by the imported food safety task force created by President Bush offered its recommendations in mid-September. However, it now appears that the lab closing proposal is a dead issue.
    KC's View:
    No surprise here. Without passing judgment on whether closing the labs was a good idea or not from a safety point of view, it certainly was easy to tell it was a non-starter. Americans didn’t like to see headlines about contaminated food over one column and then stories about closing FDA labs elsewhere in the paper. It just didn’t synch.

    Published on: August 21, 2007

    • The Wall Street Journal reports that Kellogg Co. “has unveiled new cereal package designs intended to make it easier for consumers to quickly find key information about nutrition … The banners will feature information about calorie, fat, sugar and sodium content (and) will state whether cereals contain more than 10% of an adult's recommended daily allowance of fiber, magnesium, calcium, potassium and vitamins A, C or E.

    “The new labeling will provide a snapshot of how a cereal would fit into a person's daily diet and be printed in addition to the nutrition label now found on its side panel.” reports that Publix has been so successful selling reusable “green bags” that some locations actually are sold out and awaiting new shipments. The story notes that the bag, “which has a handle and reportedly replaces three to five plastic bags per load, is made from a non-woven polypropylene.” The bags sell for $1.49 apiece.

    • The Seattle Times reports that the “United Food and Commercial Workers, a union representing more than 20,000 grocery and retail workers in the Puget Sound area, has reached a tentative contract agreement with Safeway, Albertson's, Fred Meyer and QFC.” The union is scheduled to vote on the three-year pact next week. Terms of the deal were not disclosed.

    • In St. Louis, Dierberg’s, Schnuck Markets and Shop 'n Save reportedly have reached a tentative labor agreement for a new labor agreement covering more than nine thousand employees represented by the United Food and Commercial Workers (UFCW). A ratification vote is scheduled for September 5. Terms of the new labor deal, which replaces one that expired back on May 13, were not disclosed.

    • The Tennessean reports that there will be a new line of products coming to store shelves – named after a television program that stopped production in 1968.

    The line, called “Mayberry’s Finest,” consists of 32 units that are named after the fictional Southern town where “The Andy Griffith Show” was set.
    KC's View:
    If this last product introduction works, expect it to be followed up by “Sgt. Bilko” poker chips, “Mr. Ed” horsehair blankets, a “Petticoat Junction” line of underwear for women, Dick Van Dyke-branded walnuts, and even frozen lamb products carrying the image of Alfred Hitchcock.

    Published on: August 21, 2007

    One MNB user had some thoughts about my backing of Whole Foods’ proposed acquisition of Wild Oats:

    I have a concern about your singular basis for why this merger should be allowed to go through - that the judge must/must not shop for food.

    Personally, I have no problem if the merger is allowed to happen or is blocked - I am on the sidelines on this. However, your focus on current shopping habits is very short sighted, and perhaps could result in a decision that you don't agree with. You see, I DO shop for my own groceries and I have tons of alternatives, including a Whole Foods that
    is not far away. Every time I have been to Whole Foods, the place has been packed. And I have asked a few of the customers if they shop for food elsewhere (a good number do not - but my study is far from thorough). I also go to a number of other stores including members of the big three who have dedicated organic and natural food sections. Rarely are those sections populated with shoppers - again, not a thorough study. However, I am SHOPPING FOR MY OWN FOOD and if the judge is seeing the same thing that I am seeing, then perhaps he may decide differently than you would like him to decide.

    Another point is that anti-trust is not solely about current alternatives but it is also about future alternatives. It's called barriers to entry. I would refer you to the research work of a current member of the FTC - Dennis Carleton. He has written extensively on barriers to entry and how to define them - including "Why Barriers to Entry are Barriers to Understanding,” which evaluates a lot of the historical research on defining barriers to entry, from Bain's work in the 1950's to research conducted in the very recent. In retailing, it is hard to assume that there are any barriers to entry - which is why I based my early contention that this merger should be allowed. But in reading some of Carleton's work, you see that barriers to entry can involve suppliers
    and I believe that even you have commented that there is a lack of organic and natural foods available some segments of the industry (look at milk for example).

    All I am asking from you, and from others who are commenting on this issue, is to base your argument on more than just the anecdotal evidence that you happen to have. You can say that the FTC is a bunch of minions, but take a look at the credentials of some of the folks there (Professor Carleton for example) and compare them to yours and see if
    the term minion still applies. Furthermore, I encourage you to read up on some of the research that has been done on anti-trust issues and then formulate your opinion.

    Personally, I think that it would add more weight to your commentary.

    Lastly, regarding prices, if I am a Whole Foods shareholder, I sure would hope that raising prices is considered if this merger goes through. If raising prices increases value of the shares of Whole Foods, then would think that shareholders would not only be for it, but would demand it.

    All interesting points. If I may, let me respond…

    When I write about the judge doing his own shopping, all I’m really suggesting is that it would be nice if the person making the decision had some exposure to the marketplace beyond what is presented to him in legal briefs. In this case, I just think that if he bought organic products in places other than Whole Foods or Wild Oats, it would give him a better understanding of market realities. It isn’t a matter of whether Whole Foods is busy and the smaller competitors are not – it is a matter of whether there are smaller competitors at all.

    (At least, I think this is the case. I plead guilty to not being an antitrust scholar. Nor am I likely to become one.)

    When I referred yesterday to “FTC minions,” I was attempting a clever turn of the phrase, and certainly did not mean to characterize everyone who works at the FTC as minions. I assume that like any organization, the FTC has leaders and it has minions. But I obviously wasn’t being as clever as I thought. (This happens a lot.)

    Finally, if I were a Whole Foods shareholder, I would want it to pursue whatever pricing policies that seemed destined to 1) bring more people into the store, 2) sell more product consistent with the store’s image, and 3) create a more viable long-term entity. I would not want the company to pursue a pricing policy that would increase the short-term share price if that meant creating potential long-term problems. The immediate or short-term share price, in fact, would be a lesser concern. But that’s just me.

    MNB user John Lloyd had another thought on the antitrust issue:

    There used to be laws (Robinson-Patman) and a prevailing philosophy in this country that there should be a level playing field in the cost of goods to retailers. It is up to the federal government to enforce these laws and to ensure that ultimately there is enough margin for more that just the big guys. Sure, we small format stores can out service the corporate giants, but without margin how do we pay staff. Long live the FTC!

    Regarding the reports that Wal-Mart is considering testing two new formats – a health services and supply concept, and an urban, food-driven c-store – MNB user Bob Vereen offered some perspective:

    Wal-Mart tried developing home centers years ago, and had 3 or 4 before closing them. I think the slow stock-turns and big inventory required were the factors.

    They also tried some craft-type stores, and as I recall, used Helen Walton's name (Sam's wife) on them. And I have a vague recollection they even tried a few drug stores, but am a bit hazy on that.

    MNB had a story yesterday about a new federal study issued by the President’s Cancer Panel that says that lifestyle changes – specifically eating right, maintaining an optimum weight, exercising, and not smoking – could have an enormous impact in trying to continue the decline in cancer deaths in the US.

    One interesting part of the study was the panel’s call for a “culture of wellness” in America – and that includes coordinating agricultural and nutrition policies in the US. This would mean doing things like curtailing corn subsidies for farmers, when that corn often is used in unhealthy things like high fructose corn syrup.

    That’s interesting logic, I commented. It doesn’t seem to take ethanol into account, but actual coordination of policies by the US government sounds like it might be worth pursuing. Unlikely, of course. Because it actually would make sense…

    One MNB user had a perfect example of this disconnect:

    If 30% of cancer is due to tobacco, why does the government still subsidize tobacco farmers?

    Because the tobacco industry still has enough blood money to pay for really expensive and really effective lobbyists.

    At least, that’d be my entirely biased guess.

    Another MNB user wrote:

    You may have read this article from the NY Times. It makes reference to the link between our current farm bill and the poor nutrition of Americans … I believe it's our responsibility to push the government to address disease as a result of nutritionally vacant foods they are "helping" provide to the general public …

    To quote from the article, "... the current farm bill helps commodity farmers by cutting them a check based on how many bushels they can grow, rather than, say, by supporting prices and limiting production, as farm bills once did. The result? A food system awash in added sugars (derived from corn) and added fats (derived mainly from soy), as well as dirt-cheap meat and milk (derived from both). By comparison, the farm bill does almost nothing to support farmers growing fresh produce. A result of these policy choices is on stark display in your supermarket, where the real price of fruits and vegetables between 1985 and 2000 increased by nearly 40 percent while the real price of soft drinks (a k a liquid corn) declined by 23 percent. The reason the least healthful calories in the supermarket are the cheapest is that those are the ones the farm bill encourages farmers to grow."

    I joked yesterday that any report saying that eating right, maintaining an optimum weight, exercising, and not smoking could have an enormous impact in trying to continue the decline in cancer deaths seems like it should be relegated to the Department of the Painfully Obvious.

    But as MNB user Lisa Everitt pointed out, this isn’t a joking matter.

    Five years ago I finished treatment for a nasty case of breast cancer. When I asked my oncologist “What do I do now?” he said, “Exercise and eat your broccoli.” It was exceptionally hard to do, and that was with the vivid recent memory of 11 months of chemo and radiation, baldness and scars to motivate me. I spent two years making excuses before I joined a gym, and I am never going to be a person who cheerfully goes for a jog or turns down dessert.

    I think there’s huge cognitive dissonance when part of the solution for something so deadly is something so simple. Maybe part of the dissonance is the fact that cancer is random — we all know somebody who embodied the motto “Eat Right, Work Out, Die Anyway.” I don’t like to think about the likelihood that if I had spent more of my twenties and thirties (any of my twenties and thirties, really) on the treadmill and less time eating cheeseburgers, I might have avoided cancer in the first place.

    So yeah, it’s patently obvious, but we still need to hear it over and over (and watch people we love dying) before we get it through our thick skulls.

    Thanks for starting with my thick skull.

    KC's View: