Whole Foods Faces FTC Mislabeling Investigation; Specialty Grocer Meets Growing Blowback from Organic Farmer/Consumers

WASHINGTON – Weathering a dramatic 14% drop in shareholder value, the iconic grocer Whole Foods Market now faces consumer fraud accusations. This comes on the heels of the beleaguered grocer also dealing with a related and escalating protest concerning its new in-house rating system for conventional and Certified Organic produce.

Before these latest controversies, investment analysts had begun questioning Whole Foods’ ability to maintain above average profit margins in an increasingly competitive organic food market. Its new “Responsibly Grown” program for rating produce is seen as an effort to help the company maintain the high prices and margins which had earned the retailer the moniker “Whole Paycheck.”

The Cornucopia Institute, a national farm policy research group that acts as an organic industry watchdog, announced today that it asked the Federal Trade Commission to investigate allegations of consumer fraud and mislabeling related to Whole Foods’ ”Responsibly Grown” produce rating program. Based in Cornucopia, Wisconsin, the organization has documented a number of examples where the grocer has labeled products “Good,” “Better” or “Best” when the farms or distributors in question had not met the standards set forth in the company’s recently developed “Responsibly Grown” guidelines.

“Whole Foods is undermining investor and consumer confidence, and their ability to garner premium prices, by playing fast and loose with the very system they are claiming offers their customers produce that meets a higher standard,” said Mark A. Kastel, Senior Farm Policy Analyst at Cornucopia.

Some of the apparent labeling misrepresentations were brought to the attention of the company, and the public, by a group of veteran organic fruit and vegetable farmers. The growers complained that, in an attempt to maintain higher than average marketplace prices, Whole Foods developed a rating protocol that, in some cases, labels conventional produce, grown with petrochemical-based fertilizers and toxic pesticides, as “Best” while presenting Certified Organic produce to their customers either as “Unrated” or with inferior rankings.

The dispute has received widespread media coverage, including in the New York Times, National Public Radio and on the web-based magazine Grist.

According to the New York Times report, organic farmers told John Mackey, Whole Foods Market’s founder and chief executive officer, that the company had done “much to help educate consumers about the advantages of eating an organic diet.” But they warned that “the new rating program undermines, to a great degree, that effort.”

Even though the company purports that its program is all about produce traceability and “transparency,” widespread mislabeling, violating the company’s own published standards, appears to be confirmed in a blog post by Mr. Mackey, who was reacting to the discontent and uprising by a growing number of Whole Foods’ organic farmer-suppliers.

Responding to photographs made public by the protesting farmers, Mr. Mackey’s blog post stated, “Unfortunately, the referenced photographs exemplify one of our key challenges implementing this new and layered program: the signage is not correct.”

“These discrepancies are very disturbing,” Kastel stated. “Not only do they undermine the honesty and integrity of this vast grocery retailer, but this is a 400-store chain that has secured organic certification. Can we trust that they are properly labeling and presenting organic produce as well?”

Whole Foods, following the lead of pioneering member-owned cooperative grocers, became a Certified Organic retailer with their operations inspected and audited by CCOF, purportedly the largest certifier accredited by USDA’s National Organic Program.

“Organic certification requires careful tracking of the source of products so that labeling and signage in stores are accurate. In addition to our formal request to the FTC to investigate these apparent violations of consumer trust, we are also asking CCOF and the USDA to look into any potential irregularities regarding organic marketing,” Cornucopia’s Kastel added.

Meanwhile, the protest by farmers is gaining steam. They are challenging the propriety of representing conventional produce, which contains vastly higher levels of agrochemical contamination than organic produce, tests show, as the “Best” option for consumers.

Five farmers who supply Whole Foods with fresh fruits and vegetables, and who were all originally fearful of coming forward due to potential retaliation and jeopardizing their livelihoods, have now been joined on their letter to Mr. Mackey by additional Whole Food suppliers totaling 17. Dozens of other organic farmers, some who do not sell directly to Whole Foods but rather through labels such as Organic Valley, have also signed on in support of the brave farmers who are “sticking their neck out.”

The number of farmers speaking out publicly, with more signing on every day, has grown by over 1,100% in a little over a week.

The signature of one of those farmers in particular, a true icon in the organic movement, Dr. Fred Kirschenmann, is particularly meaningful to the ad hoc group. Dr. Kirschenmann is a pioneering North Dakota grain and livestock producer and a distinguished fellow at the Leopold Center for Sustainable Agriculture at the Iowa State University.

The support of Dr. Kirschenmann, an internationally recognized expert and advocate for land ethics and sustainable agriculture, added a real morale boost to the initial five signatories to the letter. The original core group was nervous about their public criticism of a corporation as powerful as Whole Foods.

“Whole Foods has done a lot to build the organic movement but, as the organic farming infrastructure has grown, their continued reliance on marketing conventional food, at premium prices, while charging family-scale farmers fees to participate in a self-serving labeling scheme, has some of their most loyal customers hammering them hard on their website and Facebook pages,” Cornucopia’s Kastel, a long-term industry observer, stated.

“With Whole Foods’ margins eroding from increasing competitive pressure from discounters like Walmart, Costco and Target, and from mainline grocers like Kroger’s, alienating their core-customer base does not seem to be a wise approach,” Kastel added.

John Stauber, an author and internationally recognized expert on corporate public relations efforts attempting to undermine grassroots movements, commented, “Whole Foods risks severely alienating its unique customer base by appearing to engage in fraudulent marketing practices detrimental to the integrity of organic agriculture.”

Although in his blog Whole Foods CEO John Mackey expressed a willingness to look at incremental modifications to their program, the company has not yet responded to a request by the farmers, articulated in a private meeting last week, to institute a temporary moratorium removing “Responsibly Grown” signage and labels in stores until new, higher-integrity scoring criteria can be developed and staff training implemented, in the sprawling national chain, that will assure customers that they are actually getting what they are paying for.

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Some corporate ethicists have compared this smoldering dispute between veteran organic farmers and Whole Foods Market, to the recent public dispute between performing artists, including Taylor Swift, and Apple. When Apple attempted to use the work of performers without compensating them, in an effort to promote the launch of a new marketing program, they were faced with a revolt.

That confrontation was settled amicably when Apple announced that, even when providing content on their new services without charge to consumers, they would compensate the deserving artists.

“We hope that Whole Foods’ Co-Chief Executive Officers John Mackey and Walter Rob will follow Apple’s lead by showing appropriate respect for the pioneering Certified Organic farmers who are so widely respected by their customer base and who have, literally, helped them build their business over the past quarter-century,” said Mark A. Kastel, Codirector of The Cornucopia Institute, a Wisconsin-based farm policy research group with its approximately 10,000 members reflecting a large percentage of U.S. Certified Organic farmers.

EVEN MORE :

New York Daily News and City Officials Reportedly Find Whole Foods Illegally Overcharging Customers in All Stores in the City

The New York Daily News reported yesterday, June 23, that the New York City Department of Consumer Affairs (DCA) has launched a probe of Whole Foods Markets after investigators nabbed the upscale food purveyor for routinely overcharging customers on groceries during dozens of inspections dating back to at least 2010.

Inspectors weighed 80 different types of items at Whole Foods’ eight locations in the city that were open at the time. They found every label was inaccurate, with many overcharging consumers, DCA agency spokeswoman Abby Lootens said to The News.

“Our inspectors told me it was the worst case of overcharges that they’ve ever seen,” DCA Commissioner Julie Menin told the New York Daily News.

Whole Foods spokesman Michael Sinatra said the Texas-based chain “never intentionally used deceptive practices to incorrectly charge customers.”

The Columbus Circle location has the dubious distinction of being hit with the most pricing violations in the entire city — 240 during 28 inspections dating back to 2010 — The News found. The violations range from failing to display prices to overcharging at the scanner and adding tax to items that are not taxable under state law.

A source familiar with the investigation said a Whole Foods store employee told a DCA inspector that the mislabeled prices were ordered by corporate honchos.

While labeling errors afflicted all of the city’s major grocery store chains, Whole Foods’ pricing problems stood out as particularly systemic, a News analysis found.

“You can see some prices are really high and wonder why. I always assumed it was because they were selling something really healthy or organic,” said store customer Marlena Sebunia, to the New York Daily News as she exited the Whole Foods store in Tribeca.

The Cornucopia Institute, an organic industry watchdog, has complained that although the corporation says all the right things in their marketing communications work, whether the intent here was to defraud their customers or not, it clearly illustrates that they don’t have the management control to operate a 400-store chain and live up to the representations they are making to the public.

“In terms of damage control this company needs to announce, and follow through, with an adequately funded internal audit and a new layer of internal staffing to carry out in-house audits to make sure that they are not misrepresenting their products,” said Mark A. Kastel, a spokesman for Cornucopia. “Otherwise, they are going to continue to experience substandard financial performance and jeopardize the very niche in the marketplace they created for themselves.”

The above information regarding the consumer fraud investigation, by city of New York officials, was primarily gleaned from a copywritten story in the New York Daily News:
http://www.nydailynews.com/new-york/exclusive-foods-faces-city-probe-overcharges-article-1.2268695


 

Contact Information

Mark Kastel

Codirector

The Cornucopia Institute

(1) 6086252042

Contact via E-mail