ORGANIC FOOD: THE PARADOX - Foodopoly: The Battle Over the Future of Food and Farming in America - page 64

the largest organic company in the country, owns Horizon Organic milk and Silk, the largest producer
of soy milk. As the largest conventional milk producer, Dean, which provides conventional and organ-
ic private-label milk, controls almost 40 percent of the conventional milk market. Aurora Organic Dairy,
widely criticized for its large factory farms, produces private-label milk for Safeway and Costco.
Earthbound Farm, the fourth-largest organic company in the country, produces one hundred varieties
of organic fruits and vegetables—some for private-label brands. According to the company's president,
Charles Sweat, Earthbound is increasingly providing fresh-cut private-label produce. Besides packaging
salads, he notes that other “private-label commodities” include romaine hearts, celery, broccoli, and cauli-
flower. Sweat said that he expects a rapid growth of private labels in “commodity vegetables” over the next
four years, with private labels becoming a larger part of Earthbound's business. 7
Trader Joe's, a secretive retailer with $8.5 billion in revenues and privately owned by a German family,
pioneered the private-label phenomenon, but the store releases virtually no information about its operations
or products. According to an article in Fortune in August 2010, the company, with 344 stores in 25 states,
requires suppliers to sign a nondisclosure agreement. The chain typically carries four thousand products,
80 percent of which are store brands. This results in the average store selling $1,750 in merchandise per
square foot, almost double the ratio of Whole Foods, allowing the company to have no debt and enabling
it to fund growth from its own coffers. Among the companies producing products for Trader Joe's are Pep-
siCo and Danone's Stonyfield Farm. 8
Natural food stores like Trader Joe's account for 39 percent of organic food sales. But within this cat-
egory, Whole Foods Market dominates the market. Since acquiring its competition over the past twenty
years—including Wellspring Grocery, Bread of Life, Bread & Circus, Food for Thought, Fresh Fields, Mrs.
Gooch's, and Wild Oats Markets, among others—the chain has had no national competition. It began in-
auspiciously in 1978 as a small natural food store in Austin, Texas, that college dropout John Mackey and
his girlfriend Renee Lawson Hardy called Safer Way Natural Foods. Two years later they formed a partner-
ship with another natural food store, creating Whole Foods Market. In 1992, after aggressively acquiring
other stores and chains, the company went public.
Whole Foods' most contentious acquisition was of its closest competitor, Wild Oats Markets. It was
challenged by the Federal Trade Commission for violating federal antitrust laws, but after two years of leg-
al wrangling the deal was blessed. But Mackey's reputation was damaged by the FTC discovery that over a
number of years he had been using an alias on the Yahoo! investment message board in an attempt to boost
Whole Foods Market's reputation and to trash its competitors, especially Wild Oats.
Today Whole Foods Market, with 311 stores and $9 billion in revenues, caters to a high-income clientele
willing to pay a premium for food perceived to be of a higher quality and for the stores' ambience. Mackey,
a self-proclaimed libertarian, has pursued a fiercely antiunion strategy. His philosophy is summed up by
his August 2009 editorial in the Wall Street Journal , damning health care reform. He wrote that “the last
thing our country needs is a massive new health-care entitlement. . . . A careful reading of both the Declar-
ation of Independence and the Constitution will not reveal any intrinsic right to health care, food or shelter.
That's because there isn't any. This 'right' has never existed in America.” 9
Andrew Wolf, managing director for BB&T Capital Markets, says, “Whole Foods has been an acquis-
ition story more than a new-store growth story.” He notes that Trader Joe's is no longer a threat, because
Whole Foods has chosen to challenge Trader Joe's selectively on prices in categories where the latter has
maybe two items and Whole Foods has ten, by matching Trader Joe's on the two shared items. By main-
taining a higher market price on the other eight items, it has “taken away some of Trader Joe's value ad-
vantage through category management.” Wolf says that Mackey is very competitive and adaptive—for in-
stance, he doubled sales per square foot at Whole Foods when competing with Wild Oats. 10