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    Published on: December 9, 2008

    Whole Foods has announced that its CEO, John Mackey, will be in Washington, DC, today to announce the filing of a lawsuit against the Federal Trade Commission (FTC) that will attempt to stop the agency’s ongoing attempts to derail the company’s $565 million acquisition of Wild Oats – a deal that was concluded a year ago, and that has resulted in virtually every Wild Oats store being converted to the Whole Foods banner.

    The FTC has continued to fight the deal, despite court rulings that it did not violate antitrust law, on the premise that it would reduce competition in the natural/organic segment and result in higher prices for consumers. Whole Foods maintains that there are no competitive issues because so many retailers now sell natural and organic foods, and notes that as the economy has spiraled down, prices have dropped in many categories.

    The new Whole Foods lawsuit, according to this morning’s Wall Street Journal, “alleges prejudice and due-process violations against Whole Foods by the FTC … The import of Whole Foods' lawsuit reaches beyond the deal because it spotlights divergent standards that companies sometimes face at the FTC and the Justice Department, which share jurisdiction for merger reviews. The Justice Department must quickly make its case in federal court, and it usually walks away from a case when it loses. The FTC has an added administrative process that the agency can use even if it loses its initial court case.

    “The lawsuit and lobbying effort on Capitol Hill is the latest twist in the battle between the FTC and Whole Foods, which says it has already spent more than $12 million on legal fees and millions more upgrading and rebranding dozens of Wild Oats stores. The FTC won the latest round in November when the court of appeals in Washington denied a request by Whole Foods for a rehearing in federal court, not a trial before the FTC .”

    “The violations of Whole Foods Market’s due process rights here are stark and, therefore, hurt the FTC's credibility,” said Lanny J. Davis, the attorney for Whole Foods Market. “Even more so does the FTC's insistence on hearing this case rather than allowing an objective federal court to hear it.”

    KC's View:
    The irony is that Mackey now says that if he could get a do-over, he wouldn’t do the Wild Oats deal because in retrospect it didn’t make sense to take on so much debt right before an economic decline. But the FTC isn’t exactly offering a do-over, and even if it were to win it is unlikely that Mackey would get his $565 million back.

    The other irony is that beyond the statement, “the merger is unlawful and should be undone,” nobody seems to know why the Ahabs at the FTC have turned the Whole Foods-Wild Oats deal into their own great white whale, while ignoring other deals, like Rupert Murdoch’s acquisition of the Wall Street Journal.

    Actually, I think that the FTC continues to fight this deal because some lawyer or regulator there has a bug up his…well, you know.

    But that’s hardly a defensible position.

    Published on: December 9, 2008

    by Michael Sansolo

    A few weeks back I had one of those good news/bad news calls; sadly it was from my financial adviser. My portfolio (much as it is) is down significantly this year. But that was both the good and bad news because my losses were actually smaller than the market as a whole. So at that point I was actually ahead.

    It’s that way with the news all around us these days. Day after day we see endless stories of malfeasance, incompetence, arrogance and more in the headlines and we start feeling superior. After all, there aren’t any food company executives getting grilled in front of Congress as they ask for bailouts, bridge loans or do-overs. Around the business there is, no doubt, some measure of self-satisfaction about this.

    After all, this is an industry based on pitched competition and a daily battle for consumer love and attention, which makes it more agile, innovative, efficient and less likely to get caught building Hummers in the time of the Prius (metaphorically speaking, of course.) Or is it?

    The pace of change in the industry today is probably unlike anything anyone has experienced at any time in their careers, maybe in their lives. It’s almost impossible to reflect with any accuracy on just how much the world has changed in the past 12 months. We’ve gone from one storm to another, from rising gas prices to ethanol battles to financial disasters to staggering job losses. We’ve gone from woes of spiraling inflation to debates about potential price declines.

    Sadly, there is no way of knowing what’s coming next beyond the potential for more change and more anxiety. (That is, unless something really good is about to unexpectedly happen, which we also can’t possibly predict.) So, we have to resort to remembering the basics and hope they carry us through.

    Remember that what matters to the shopper is what must always matter to us. Right now the shopper is scared and they want to see that someone cares. If your marketing plans haven’t been changed a dozen times during the events of 2008 you better get going or you might be selling Hummers.

    Remember that economic pressures always change the food industry. Pick any recession and you’ll see the results from the emergence of generics in the 1970s to the explosion of Walmart in the 1990s. In fact, the entire supermarket format itself was basically born of the Great Depression. Economic downturns have a way of shaking up this business. Get thinking about what you need to change before it changes you. (Don’t forget that economic good times change us too and that innovations like Whole Foods have come from new companies, not from within.)

    Remember that even in tough times, shoppers want decent treatment. The emphasis may be on price, but don’t neglect to treat people like people. Be their friend in times of need and they’ll remember you.

    Lastly, don’t misread the signals. Sure, supermarkets are doing well right now, with meals and shoppers returning in solid numbers, but problems still remain.

    Just last week, Harris Interactive released a broad consumer poll of industries that consumers trust and, conversely, industries they feel need more regulation. It’s no shock that banking, health care and energy companies are all seen as needing the most regulation, with the banks’ negative numbers skyrocketing. And it’s delightful to see that supermarkets rank just after hospitals as the most trusted.

    But the entire picture of the study presents some areas of concern. Supermarkets and food manufacturers also saw some of the largest declines in trust since 2003, likely due to issues like food safety, health and wellness and our slipping overall connection with the consumer. So yes, celebrate the good news, but don’t let it blind you.

    Times are tough and the job ahead of all of us is harder than ever. In short, that’s both the good news and the bad news.

    Michael Sansolo can be reached via email at .

    KC's View:

    Published on: December 9, 2008

    The Wall Street Journal has an interesting piece in which it reports that “as shoppers pack their carts with more lower-priced private-label products, grocery stores may wind up picking up an ancillary benefit of having stronger in-house brands: a bit of leverage in talks with suppliers that make branded goods … Private-label gains come as some name brands lose market share, a shift that industry experts say could benefit grocers on several fronts in their dealing with suppliers. To help further promote their brands, branded consumer goods companies may have to kick in more to a retailer's marketing fund to pay for discounts, two-for-one offers or prime placement in supermarket circulars. Retailers may also get juicier rebate offers from their suppliers, as incentive to help push sales of branded products.

    “Grocery stores can also use their knowledge of producing their private-label products to push back on price increases from branded products if they think they go too far.”

    KC's View:
    Good timing on this piece, since there recently has been some debate here on MNB about whether or not we can expect food prices to go down in the near future as the recessionary economy worsens. I continue to believe that food prices are going to down – largely because the pressure to lower them will come not just from shoppers who have less money to spend, but also from retailers who increasingly are willing to use private label as an effective and lower-cost alternative. Sure, there are issues about commodity costs…but the pressure to lower prices will be impossible to resist.

    That said, I would hope that the pressure from traditional food retailers does not take the form of demands for more slotting allowances or promotional fees. Because these retailers need to realize that the primary value-oriented competition, Walmart, will not be making such demands; rather, it will be just demanding lower, lower, lower prices…and will turn them into a compelling offer to increasingly squeezed US consumers.

    If US retailers don't learn this lesson sooner or later, the current competitive and economic climate may prove to be too difficult for them to survive. They need to make it simple, or they will make it almost impossible to effectively compete.

    Published on: December 9, 2008

    Bloomberg reports that the World Health Organization (WHO) believes that “standards on melamine in food may need to be tightened in the U.S. and Europe,” after melamine-related food safety scandals in both China in the US.

    According to Bloomberg, the Chinese problems were far worse than previously reported – that to this point six children have died, 51,900 were hospitalized, and almost 300,000 suffered from urinary problems likely related to the presence of melamine in baby formula. In the US, it has just recently been revealed that the nation’s three major baby formula manufacturers had made formula with trace amounts of melamine.

    “We expect this could better guide the authorities in protecting the health of their public,” said Jorgen Schlundt, WHO’s director for food safety, said in a prepared statement yesterday.

    KC's View:
    Gee, ya’ think?

    Published on: December 9, 2008

    The Chicago Sun-Times reports that Safeway “has created a real estate development business that has reviewed 36 projects for possible development and is working actively on a handful of the projects … One example of a project would be Safeway developing a shopping center where it operates a grocery store, and leasing or selling the retail space surrounding its store. Safeway would retain ownership of its grocery store in that center.”

    According to Safeway CEO Steve Burd, “The opportunities [to develop undervalued real estate] are pretty extraordinary right now for people who can step up to the table.”

    KC's View:
    Safeway has proven to be very savvy about creating tangential businesses that spread around the risk a bit, whether it is getting into health care, creating a vigorous gift card business, developing an organic private label program, or now establishing a real estate business.

    Sounds smart to me.

    Published on: December 9, 2008

    The Irish Times reports that Dublin-based Superquinn is enduring criticism from local unions because of a plan that reportedly would reduce Christmas bonuses by as much as 30 percent, and give the bonuses to workers in the form of redeemable Superclub points instead of cash. A spokesman for the Mandate union calls the management decision a “superscrooge move” that violates the tradition of having such bonuses be productivity-based rather than discretionary.

    According to Gerry Light, the union spokesman, “This is a much larger issue than a 30 per cent reduction in the employees Christmas bonus. This is the first time that the current owners of Superquinn have decided to ignore the responsible partnership arrangements put in place by the company and the trade unions over the past three years." Light also said that there was no consultation with the union before the decision was announced, and that the company was using the economic downturn as an excuse to change existing agreements.

    KC's View:
    Actually, an economic downturn isn’t just an excuse to try to cut costs wherever possible. It can be a pretty good and entirely justifiable reason…and if you don't do it, you end up being obsolete.

    That said, this probably stings a little bit more because Superquinn will always be judged as having two eras – TTOF and AF. (“The Time of Feargal” and “After Feargal,” referring to the legendary founder of the company, Feargal Quinn.) Quinn sold the company several years ago, and while he still is a presence, he does not have the same role and control he used to have.

    I’m not defending the bonus decision. But I do think that unions have to consider the broader picture, and see small decisions in the light of a recessionary global economy that is in serious trouble.

    One other quick point…there is a precedent for UK retailers handing out bonuses in the form of shopping points. Tesco announced yesterday that it is giving its UK staffers bonuses in the form of the equivalent of $35 million (US) worth of shopping coupons. So this is hardly unheard of.

    Published on: December 9, 2008

    Anheuser-Busch InBev announced yesterday that in the wake of the just-completed $52 billion acquisition of A-B by InBev, more than 1,400 jobs in the company’s US operations will be eliminated. This represents roughly six percent of the company’s US workforce, and most of the cuts are expected to take effect by the end of this year.

    KC's View:
    Merry Christmas to all, and to all, a good night.

    Published on: December 9, 2008

    The Financial Times reports that France-based Carrefour, the world’s second biggest retailer, plans to test a new convenience store format that would be appropriate for smaller markets and neighborhoods.

    One version, called Carrefour Contact, will be used in small towns and villages, while another, called Carrefour City, could be used in urban neighborhoods.

    Carrefour already has a number of c-store brands that it mostly franchises, but if this new format works, those could be brought under the new brand umbrella.

    KC's View:

    Published on: December 9, 2008

    Research company IGD says that based on their current growth rates, it is expected that number three global retailer Tesco is expected to surpass number two Carrefour sometime in the next five years.

    Number one, of course, remains Walmart…which does not seem in danger of losing its crown anytime soon.

    KC's View:

    Published on: December 9, 2008

    Published reports say that adding cranberry concentrate to ground beef could help fight off E. coli contamination, serving as a natural preservative that does not affect flavor, taste or color.
    KC's View:
    The problem, of course, is that if you start adding cranberry concentrate to beef, cows start thinking that they are turkeys. And then, you head down the road toward a disaster of biblical proportions, real wrath-of-God type stuff. Fire and brimstone coming down from the sky! Rivers and seas boiling! Forty years of darkness! Earthquakes, volcanoes...The dead rising from the grave! Human sacrifice, dogs and cats living together - MASS HYSTERIA!

    In other words, something strange in the neighborhood.

    Hate to see that happen.

    Published on: December 9, 2008

    MNB had a story yesterday saying that McDonald’s is offering its US employees financial education, including lessons in how to budget and track expenses.

    I commented: This is a smart move on all sorts of levels. There are an awful lot of people out there who do not know anything about budgeting and investing, and McDonald’s makes a clear commitment to its people through this effort.

    BTW…this is something that America’s schools ought to be doing a better job at teaching. I haven't used any of the things I learned in chemistry, biology or even algebra since I got out of high school…but it seems to me that a personal finance course would have had a lot of lasting value. Needless to say, it wasn't taught…and still is not today in most of America’s schools.

    MNB user Dave Tuchler wrote:

    Agree that this is something that is sorely needed.

    Two years ago my older daughter took a summer high school course called 'Consumer' that was required, but she took it in the summer to free her school year calendar for things she wanted to take more. We all thought it would be a 'mickey' course.

    As it turns out, they did a pretty effective job of demonstrating what it takes to live, outside the protective bubble of mom and dad. At least a temporary lesson.

    They gave a reasonable theoretical starting salary, $35-40k, and asked the kids how they would live. My daughter initially described (being in the Chicago area) that she would live on the Gold coast in a 'modest apartment', buy clothes (but nothing outrageous), go out to eat a few times a week, and get a 'modest first car, like a BMW 3-series'.

    Then they had them run the numbers: divide annual salary by 12, subtract rent, parking, utilities, etc. see what's left. My daughter ended up 'living' way on the west side, settled for an 8-year old Toyota she found in the classifieds for about $2500, decided she couldn't save much the first year, and then realized she hadn't allotted anything for food…

    It's been 2 years, she's at college and back in the bubble. Wonder if any of that lesson stuck.

    However, another MNB user wrote:

    In regards to teaching finances in school, I'm sure the educators will get right to that after they swim through all the other bull crap that the govt. has decided they should teach. Unfortunately what people don't understand about standardized testing is that teachers are forced to "teach to the test" and if finances and budgeting isn't on there, well they are not going to be taught it. In addition you may not have used anything in your science classes, but I went into the science field, and I'm now preparing to got it High School Science. I've been in the Chemistry and Biology Field for 5 years, and it's an amazing field to get into, and also incredibly difficult

    Step into a teachers shoes before you try to make comments about how and what they should teach.

    Just FYI...I may not walk in a teacher's shows, but I sleep in her bed. That's right, my wife is a teacher. And both she and I would agree with you wholeheartedly about teaching to the is one of her biggest complaints about a career choice she loves. (She was a banker/stockbroker for 15 years, then stayed home with the kids for 10, and then went back and got her education degree so she could teach elementary school. She has two masters and I have none, and I cheerfully concede that she is much smarter than I am.)

    I wasn't blaming teachers. Far from it. I think the system is flawed. I also am not arguing that people shouldn't take biology...though I would argue that maybe it should be taught differently to different kinds of people. (The idea that I would be taught the same biology class as someone who took to the subject much more easily, seems silly. Schools ought to teach the kids, not the subject.)

    Now, I'm not sure that Mrs. Content Guy would agree with me on all these points. (We often debate subjects like whether every kid should be forced to read "The Great Gatsby" at some point in their education...I say yes, she says maybe not, and I concede that my point here would appear to run counter to my biology argument above. Which is why this debate is better held over pizza and beer or wine.) But I think I'm entitled to my opinion, even if I'm not actually a teacher. (I come from a family of educators, so I have some passing familiarity with the subject.)

    That said, you are to be congratulated for becoming a teacher in an area that many of us ignore or avoid. I hope you are the kind of teacher who will provoke higher-level thought in your students, making them think rather than just memorize, recite and regurgitate. I suspect you are.

    Good luck!

    We had an email yesterday from an MNB user complaining that online coupons are difficult to use. Which led one MNB user to write:

    FYI, All I use is on-line coupons and I have never had any issues using them in Kansas. Naïve me didn’t even think about the ability to counterfeit the coupons.

    Another MNB user chimed in:

    I use them every week at Wal-Mart. This past Sunday my bill was $193.36 before coupons and $168.44 after, saving me $24.92. About half of them were from an online coupon source.

    Wow. Compete with that.

    On the subject of who ought to named to run the FDA in the new Obama administration, one MNB user wrote:

    New leadership does nothing for the FDA unless new leadership respects and promotes the “mission” of the FDA…AND, if “People close to the pharmaceutical industry also have been floating Dr. Woodcock's name as either interim or permanent FDA chief.”…then she is the wrong person. (I guess that comment reveals how I feel about corruption in FDA new drug approvals – maybe corruption is too strong of a word…maybe I should have said, “intentional ignorance”…maybe intentional ignorance is also too strong, maybe I should have said, “blissful ignorance”)

    Ignorance is ignorance. It should have no place in government.

    But, of course, it does.

    BTW…we keep getting emails about the proposed bailout of the three Detroit automakers. (Calling them the “Big Three” somehow seems quaint and inaccurate.) It occurs to me that there is a lot of discussion of hiring an “auto czar” who would oversee any bailout on behalf of the government…and the US taxpayer. And the guy who keeps being mentioned is former GE CEO Jack Welch.

    But I have an idea. A much better idea.

    Lee Scott.

    Think about it.

    He’s retiring from the CEO job at Walmart. He knows a lot about making a company efficient and consumer-responsive while simultaneously pioneering a green approach to doing business. And we know he will watch taxpayer dollars like they are his own.

    He’d make the unions nuts, but that’s probably a good thing.

    Lee Scott for US auto czar.

    Call your senator or representative now.

    KC's View:

    Published on: December 9, 2008

    In Monday Night Football, the Carolina Panthers defeated the Tampa Bay Buccaneers 38-23.

    And in Major League Baseball, an era came to an end as pitcher Greg Maddux announced his retirement after 23 seasons and 355 wins, many of them with the Atlanta Braves during the years that the team dominated the National League.

    KC's View:
    Too many of those victories came against my Mets. But I had to respect the skills, the achievements, and the longevity. He was a professional, and that is high praise.