Monday, July 23, 2007

Smug Alert IV: Granola Wars

Many people, even if they don’t remember the actual episodes, are aware of the TV show Dallas and the machinations of the infamous J.R. Ewing. Probably very few people are aware the Dallas was so popular that CBS presented a TV movie parody called Fresno about warring raisin barons in central California. Well, once again life imitates comedy as the Wall Street Journal last Friday morning has more on the bareknuckle world of ….Yuppie Organic Food Stores? Read how the CEO of Whole Foods is alleged to have told the CEO of Wild Oats “I’m going to destroy you.”

I find this humorous because I find that shopping at this type of store rivals driving hybrids as a lifestyle statement among the smug set. Never mind, I guess, that the profit margins at these stores are higher than among regular food stores. Never mind, that the Whole Foods-Wild Oats Merger is being investigated for violation of the antitrust laws. Just let me spend more money for that free range chicken and those organic bananas.

Another part of the crunchy-grocery mystique is the fact that Whole Foods promises to donate 5 percent of net income (essentially profit) to charitable causes. So here’s the model: 1) drive further across town in order to 2) pay more money to a store with 3) higher profit margins whose CEO 4) reminds you of everyone from John D. Rockefeller to Charles Foster Kane just so 5) you can say you are shopping at a store that donates 5 percent of the resulting profits to charity. Doug is my resident expert on organization of non-profit giving, and I suspected that he would have some problems with this model, so I’ve asked him to jump in here. The following are his comments:

Statement 1: What about the cost of pollution in driving further for organic foods?

Statement 2 & 3: What is the opportunity cost of spending a greater amount of money at Whole Foods? Maybe buyers flat-out prefer the taste of organic over alternatives; however, if buyers shop there because of the charity and the feel-goodness of it, they could get more bang for their buck in helping people by shopping at low profit margin stores and then giving the extra money directly to a charity.

Statement 4: The Whole Foods CEO sounds like everything that the people that shop at organic food stores hate about other “big businesses”.

Statement 5: Say that I have a book about third-world poverty out and it sells for $20 at most book stores but one store announced that they would sell it for $22 and donate two of those dollars to a charity. The charity represents issues of poverty outlined in the book. The buyer feels great about the donation and good about the store but the store isn’t really doing anything kind at all because they are just collecting the donations to write into one big check (which results in them looking terrific in the press). I think that captures what is going on here.

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