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REUTEMAN: Whole Foods CEO should thank Kroger
Published August 11, 2007 at midnight
I want to make sure the subtext of a couple of interesting corporate moves this week doesn't escape your attention:
Whole Foods CEO John Mackey ought to send Kroger CEO Dave Dillon a couple of dozen organic red roses.
Let me explain. A federal judge has indicated he'll rule by Wednesday on the Federal Trade Commission's objections to Whole Foods' planned $671 million purchase of competitor Wild Oats. The FTC claims the deal would create a monopoly player among natural-foods grocers and higher prices are sure to follow. Whole Foods argues that its true competitors are large national supermarket chains that are beginning to sell organic produce in a big way.
Along comes Kroger, the nation's largest supermarket chain, with an announcement Wednesday that it's boosting its organic offerings to better compete with natural-foods grocers.
"Our customers tell us they are interested in trying more organic foods, and this expanded assortment is designed to help them do that during their regular shopping visits with us," said Linda Severin, a Kroger vice president.
Kroger didn't get to the top by misreading trends. Organic foods may have comprised less than 3 percent of total food sales in 2006, but annual percentage sales growth has been in the high teens for the past decade, and posted 22 percent growth last year - up to $16.7 billion, according to the Organic Trade Association. And even with Kroger's move this week, it'll still trail Safeway, Wal-Mart and Albertsons' parent SuperValu in organic offerings. The Natural Marketing Institute says 53 percent of organic shoppers purchased their goods at traditional grocery stores last year, making them - not Whole Foods or Wild Oats - the leading source of organic products.
No question, Kroger's move bolsters Whole Foods' merger prospects. Those prospects were badly damaged by the FTC's revelations of Mackey's internal e-mails and online postings. One e-mail to board members said that buying Wild Oats would allow the company to "avoid nasty price wars." That one could literally prove to be a deal-killer, but if the judge rules against the FTC, Mackey certainly has Kroger to thank.
Qwest executed an in-your-face move this week in what's proved to be an uphill battle to provide television service in Colorado.
For several years now, Qwest's video proposals have run aground over the principle that they be required to provide services throughout a community, rather than phase them in. Cities that would grant Qwest a television franchise worry the telco would offer service in wealthy neighborhoods and ignore poorer ones. In Denver, those cities are represented by the Greater Metro Telecommunications Consortium, whose attorney is Ken Fellman, who also happens to be mayor of Arvada.
Well, on Monday Qwest chose Arvada for the first test of a new Federal Communications Commission rule that puts communities on a 90-day "shot clock" to accept or reject a video franchise application. If the deadline arrives and the deal has been neither approved nor rejected, it automatically takes effect.
Qwest and Arvada have been wrangling over various franchise requirements for two years, unable to compromise. The FCC ruled that localities with exclusive cable franchises can no longer shut out other video providers that want to offer service.
In a letter to Arvada made public Monday, Chuck Ward, Qwest's Colorado president, said that if the two sides "are unable to negotiate an acceptable agreement . . . then pursuant to FCC rules, Qwest will be authorized to offer service pursuant to an interim franchise."
The issue will likely end up in court, but Qwest feels it has a powerful new weapon in the FCC ruling. What better place for a test case than the front yard of its most vocal opponent. Even Fellman said Monday he was curious why Qwest notified the media if it was "purely a business decision." Ken, I think you know the answer.
For the record, I think it's inherently unfair and anti-competitive that Comcast is able to offer phone service to Qwest customers in the metro area, but Qwest is unable to offer video services to Comcast customers.
Business editor Rob Reuteman can be reached at 303-954-5177 or reutemanr@RockyMountainNews.com.
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