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Whole Foods' Brilliant Cross-Contamination Plan

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Earlier this month, Whole Foods (NASDAQ: WFM  ) made a big decision -- it's giving its suppliers five years to either source non-gentically modified (GM) ingredients or clearly label any products that contain genetically modified ingredients. Whole Foods is so far the only major grocer to make this requirement, and it may prove to be yet another key differentiator between the company and its more conventional rivals.

California residents may be reminded of last year’s Proposition 37, a ballot measure that would have required similar labeling for any foods with GM ingredients, statewide. The measure failed, contradicting polls that consistently show that huge majorities of Americans support GM labeling, but the vote was close -- 53.1% to 46.9%. There's a lot of debate over why the measure failed, but one thing is for certain -- a lot people are interested in what goes into their food, and Whole Foods isn't necessarily just preaching to the choir.

Everything gives you cancer
During the Prop 37 campaign, some comparisons were made with 1986's Proposition 65, which did pass and required warning labels on products containing chemicals known to cause cancer or birth defects. Unfortunately, it turned out that that was pretty much everything, and now almost any place you go has signs out front warning that the building contains cancerous chemicals. They're so commonplace that no one really pays attention to them now. I've lived in more than one apartment with a warning sign not far from my front door.

The same problem exists for GM labeling. About 75% of all packaged food contains ingredients that come from genetically modified organisms, and the worry with Prop 37 was that the labels would be so commonplace that consumers would stop noticing them.

The easy solution is to buy organic food, which legally can't contain genetically modified ingredients. This is what makes Whole Foods' labeling decision a key differentiator. Customers won't necessarily have more information -- Whole Foods already labels non-GMO products on its own. But conscious consumers may not connect the lack of a "non-GMO" label with the presence of GMOs, and by making suppliers label their own GM products, Whole Foods can highlight the stores' large selection of organic products, including its own Whole Foods 365 Organic line. Because organic products tend to carry a higher margin, this move could prove to be as profitable for the company as it is helpful for consumers.

Going old school
While it's unlikely that the labeling will convince huge droves of customers to give up processed food made from GMO ingredients, pushback against GMO foods can already be seen in some areas of the world. Certain drought-resistant corn seeds from DuPont (NYSE: DD  ) and Syngenta (NYSE: SYT  ) , for example, are produced with the age-old technique of selective breeding, whereas Monsanto's (NYSE: MON  ) are genetically modified by splicing in genes from other, hardier plants.

The difference matters in certain European countries, which have strict laws regarding genetically modified foods, and in the U.S., where seeds made from selective breeding can still be considered organic. Somewhat ironically, there is, in fact, a smaller, independent seed company in the U.S. that produces a strain of certified organic corn that's been selectively bred to resist fertilization from errant GMO corn pollen, which can sometimes be a problem for organic farmers.

The Foolish bottom line
On the surface, requiring GMO labeling is (pardon the pun) a very organic move for Whole Foods, which already labels many of its products as locally grown, organic, or health- or eco-friendly in some other way, and it also has a well regarded sustainability labeling system for the fish it sells.

But the move is also very shrewd, as many of the company's suppliers might not bother to create two sets of packaging, one for Whole Foods and one for everyone else. Whole Foods may end up cross-contaminating other stores with the labeling system, drawing even more attention to the company's large selection of health-conscious -- and high-margin -- products.

It's hard to believe that a grocery store could book investors more than 30 times their initial investment, but that's just what Whole Foods has done for those who saw the organic trend coming some 20 years ago. However, it may not be too late to participate in the long-term growth of this organic foods powerhouse. In this brand-new premium report on the company, we walk through the key must-know items for every Whole Foods investor, including the main opportunities and threats facing the company. So make sure to claim your copy today by clicking here.

Read/Post Comments (7) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 24, 2013, at 11:21 AM, CharlieTX wrote:

    We went GMO free about a month ago, so we are recent converts. I must say, though, that we had both forgotten what real food tastes like - it is so much better than the processed/GMO laden foods. And we've dropped the sugar laden snacks in favor of other, more healthy alternatives. And the funny thing is, our grocery bill seems to be less this month than in previous months - that's always a good thing.

  • Report this Comment On March 24, 2013, at 11:33 AM, Issabella614 wrote:

    Monsanto's genetic splicing of algae DNA into soybean and corn DNA (et cetra) is beyond me. How can it be right to take the DNA from a different species and insert it into another (and not expect that this could go very wrong someday)?! Unfortunately I am slowly going to go broke trying to eat organic foods and fresh produce, but I do buy into that old adage, "you are what you eat", so I'll go broke while enjoying real food that is not highly processed and refined with unhealthy vegetable oils, preservatives, dyes, and GM ingredients. Now only if I can kick this bloody candy addiction...

  • Report this Comment On March 24, 2013, at 12:18 PM, Bobertarvid wrote:

    If GMO is responsible for removing the sun-ripened flavor from all of the tomatos in the markets, I say "string em up!"

  • Report this Comment On March 24, 2013, at 1:52 PM, skytrader2020 wrote:

    Everything doesn't cause you cancer, but you can bet a good deal of man made things made in factories and laboratories and through chemical reactions can. These things they've been putting into homes and food since the 1950s. Before then not much gave you cancer. That's why rates are so high in the west but not India, despite being known for its filth.

    Now there are 19 studies showing that GMOs cause organ damage. It's time to dispense with this old 20th century cold war technology and get with the newer, modern, smarter higher tech program.

  • Report this Comment On March 24, 2013, at 2:11 PM, Dadw5boys wrote:

    there are over 13 different pesticides in the foods Americans eat ! Do we really need plants that produce their own pesticide added that ?

  • Report this Comment On March 24, 2013, at 5:47 PM, tmacko wrote:

    How about we talk about whole fooods pirce gouging here on Maui HI. i used to eat there 3 times a day, but now i limit my self to 1 mabey 2 times a week they raise there pricing so much i can't eat there. just today i by a shrimp cocktail and it was a doller more but halve the shrimp F.U. WFM low lifes and to think i worked a year and a halve to remodel your Boulder store Never will i by from you again never

  • Report this Comment On March 25, 2013, at 9:13 AM, dockofthebay wrote:

    What happened to the practice of Integrated Pest Management (IPM)? It seems that agribusiness now just resorts to planting genetically modified seed that is precoated with neonicotinoids, a hideous insecticide group. Farmers then follow that by routinely blasting the plants with Roundup Ready on a schedule, rather than as needed.

    I have the sickening feeling that we are past the "point of no return" on this issue, since those farmers who don't wish to plant genetically modified produce can't even find enough selective breeding seeds to plant. I abhor Monsanto and the others who have brought this upon us.

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