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Whole Foods CEO Sows Wild Oats | The Nation

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Whole Foods CEO Sows Wild Oats

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The August 16 federal district court ruling that allowed Whole Foods Market to acquire Wild Oats Market--which withstood appeal the following week--should come as no surprise. The Bush-era Federal Trade Commission has successfully stopped exactly one merger. The deal is still not technically done, as an FTC administrative law judge, separate from FTC antitrust lawyers, could still conceivably rule against the merger (at which point Whole Foods would then be the party issuing an appeal). But the core legal question of whether Whole Foods would monopolize the choices of fancy organic grocery-store shoppers was not what drew attention beyond Wall Street. What really grabbed the headlines was the bizarre, pseudonymous philosophizing of Whole Foods CEO John Mackey--and his rather conventional commitment to the bottom line, which belies the groovy, feel-good vibes pumped out from the company's PR machine.

About the Author

Matthew Blake
Matthew Blake is a 2007 intern in The Nation's Washington, DC, bureau.

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Wide public interest in the planned merger was piqued in July when antitrust investigators discovered that for seven years Mackey had been posting comments on the Yahoo Finance Bulletin Board chat room under the name "Rahodeb" (an anagram of Deborah, his wife) that promoted himself and Whole Foods and frequently ridiculed Wild Oats. The Securities and Exchange Commission as well as the Whole Foods board has launched an investigation of the chat-room barbs. Mackey used the pseudonym to tell the world he had a cute haircut and that Whole Foods shoppers had outrageously cool tattoos and piercings. More pertinent to the proposed merger, "Rahodeb" had a habit of belittling Wild Oats whenever its stock rose. "Whole Foods says they will open 25 stores in OATS territories in the next 2 years," Mackey-as-Rahodeb wrote after a March 2006 Wild Oats stock jump. "The end game is now underway for OATS.... Whole Foods is systematically destroying their viability as a business--market by market, city by city."

Such comic-book malevolence exposed the megalomania of a CEO who had cultivated a maverick image. Mackey likes to tell reporters he is no longer interested in making money, and he frequently quotes Charles Darwin, Samuel Beckett and even the Talking Heads. Now, disgusted at the pseudonymous postings, many Whole Foods shareholders want him to leave the company or, at the very least, resign his second job as board chairman. "The legal questions are pretty hazy, but it's bizarre behavior at the minimum," says Mike Garland, whose Change to Win Investment Group has invested some of its members' pension funds in Whole Foods stock. "He spent hours of company time on these chat boards." The SEC will determine whether Mackey committed fraud. James Cox, a securities law professor at Duke University, told the San Francisco Chronicle that Mackey would most likely be charged with omitting material facts by obscuring his identity. He added that the SEC could make an example of him to deter other blogging CEOs from surreptitiously manipulating stock information.

Meanwhile, the FTC tried to capitalize on Mackey's blundering in its contention that Whole Foods is ruthlessly cornering the "premium natural and organic supermarket" industry--and to win its case, the FTC lawyers had to prove that this sector was separate from regular chain grocery stores like Kroger and Safeway. The commission's argument largely eschewed the tables, charts and graphs of economic evidence one might expect at an antitrust hearing. It instead described what makes Whole Foods and Wild Oats unique, with Mackey's ramblings spliced in for effect. "The case presented the issue of whether qualitative evidence is sufficient," observed former FTC antitrust official Mike Cowie, who testified at the trial.

The strategy failed, but it produced something strangely compelling in the process--a primer on how Mackey has successfully marketed Whole Foods to the typically affluent, well-educated and liberal organic supermarket consumer. In essence, the FTC tried to turn the well-established public relations mantras of Whole Foods against the company. FTC lawyer Michael Bloom argued that despite selling organics, Kroger, Safeway, Wal-Mart and even Trader Joe's do not compete against Whole Foods and Wild Oats because those grocers do not "sell a healthy lifestyle." The FTC court brief chronicling the rise of the industry reads almost like a Whole Foods or Wild Oats press release:

"Organic and natural foods have been available for many years at traditional health food stores, which typically are small, independent "mom and pop" stores or coops. But starting in the 1980s, a new breed of natural and organic food retailer came onto the scene---larger, attractive supermarkets offering a wide variety of high-quality fruits and vegetables, meats and fish, prepared foods and other perishables, with strong branding and a prominent emphasis on healthy lifestyles and environmental sustainability."

The FTC briefing describes Whole Foods and Wild Oats as offering a "third place" for the socially aware consumer, in addition to home and work. It cites a consumer survey by the market research firm The Hartman Group stating that Whole Foods and Wild Oats customers treat their "natural and organic supermarket experience" as a "treasure hunt" for the newest, most righteous culinary delights. According to the FTC, premium and natural organic supermarkets have persuasively sold themselves as a rapturous fusion of browsing a boutique-clothing store and volunteering for Greenpeace.

What is flawed in the argument is that it is harder than ever to make the case that shopping at Whole Foods is more socially commendable than at, well, Kroger or Safeway. Whole Foods has faced well-deserved criticism for its effect on the environment, local communities and employees. Michael Pollan's bestseller The Omnivore's Dilemma derides Whole Foods as "industrial organic," a company that coolly did away with the counter-cuisine and local distribution that were key elements of the radical 1960s-era organic movement. Pollan points out that there is nothing environmentally friendly or health-conscious about Whole Foods practices such as flying in asparagus from Argentina in January.

Whole Foods and Mackey have partially responded to Pollan and like-minded critics with a program to give low-interest loans to local farmers and a pledge to put farmers' markets in Whole Foods parking lots. But there might be worthier local markets to attend than one in a Whole Foods parking space. Phil Howard, assistant professor of community, agriculture, recreation and resource studies at Michigan State University, argues that while "Mackey has gotten people to do their education about what organic means, it's still much better to shop at cooperative and independent food stores." In a country where entire communities are "food deserts" bereft of grocery stores, Whole Foods typically builds stores in liberal, educated areas that already have independent retailers with local produce--and maybe unionized labor as well.

Which raises another disturbing fact about Whole Foods: It's the second-biggest union-free food retailer, behind Wal-Mart. Yet in its twenty-seven-year history, only one of its 197 stores, in Madison, Wisconsin, successfully unionized, and that union fell apart with no contract to show for workers' efforts. Instead of bargaining with the union, Whole Foods challenged its validity. Mackey even went up to Wisconsin and personally handed workers copies of a pamphlet titled "Beyond Unions." When the Madison Whole Foods voted to decertify in 2004, Mackey spread his beyond-union gospel on a nine-month cross-country tour, during which he discussed with employees "what Whole Foods was about." The store has also fended off unionizing attempts in Berkeley, California; St. Paul, Minnesota; and Falls Church, Virginia.

Now more than just labor unions are upset with Mackey. But while his fate still hangs in the balance, Whole Foods's likely purchase of Wild Oats will only further cement his company on the Fortune 500 list. Organic sales have been increasing by about 20 percent each year lately, but as the August federal court decision correctly ruled, it is not a substantial distinction whether you make those purchases at Whole Foods or Safeway or Wal-Mart. Says Ronnie Cummins, national director of the Organic Consumers Association, "There is a grain of truth that the organic movement needed to become more businesslike, but we have betrayed potential trade-union allies and low-income communities. We have got to get political again."

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