The yogurt manufacturer Chobani proclaims on its website that "You can't beat natural ingredients. So we don't try to." Yesterday, Whole Foods Market (NASDAQ:WFM) took issue with Chobani for trying to beat natural. The grocery chain announced that, starting in 2014, it would no longer carry Chobani brand yogurt, as the company relies on milk from cows that have been fed genetically modified grains.
Apart from being a massive blow to Chobani, the issue raises all sorts of questions for consumers who are concerned about the food they eat -- hopefully, this is everyone. The issue came to a head in California last year, when voters rejected a ballot initiative that would force companies to label food that contained genetically modified ingredients.
In that fight, major food producers waged a successful campaign based on the premise that additional labeling would drive up food costs. That's less of an issue for Whole Foods, which believes it can change the way less-price-sensitive shoppers eat by giving them more organic choices. The grocer has pledged to sell only GMO (genetically modified organism) free or clearly labeled items by 2018.
Whole Foods dedication to organic growth
The company's focus on organic produce has helped it grow at an astonishing rate. In 2007, Whole Foods brought in $6.6 billion in revenue and made $183 million in income. This year those figures are $12.9 billion in revenue leading to $466 million worth of income.
That's been mirrored by the rising U.S. organic food market, which grew by an estimated 11% last year, accounting for 4% of all food consumed in homes. The U.S. now has more than 5 million acres of organic farmland, but even that wasn't enough to keep Chobani in non-GMO milk.
Chobani released a statement in the wake of Whole Foods' announcement, saying that "right now there is not enough organic milk available to meet our broad consumer demand." That's not hard to believe, as the company reportedly used in excess of 1 billion gallons of milk in 2012. The shortfall left Whole Foods with a choice to make -- it could give Chobani time, force it to address its labeling, or drop the yogurt maker. The move to drop was cited as an opportunity for Whole Foods to give space to some products that aren't readily available right now.
Why Whole Foods booted Chobani
What it really means is that Whole Foods can make a small stand for the values it espouses, get some attention for its GMO campaign, and not take a huge hit to the bottom line. While Greek yogurt sales are growing, the loss of Chobani is unlikely to have more than a small effect on the stores. Rest assured, there will still be plenty of unlabeled GMOs at Whole Foods until the 2018 deadline.
For Chobani, the hit is going to be bigger. The company got some bad press, was kicked out of a major national chain, and has had to defend the use of GMO milk in its "natural" product. That said, the backlash isn't going to put the company out of business or endanger its 2014. Whole Foods is big, but it only represents a small slice of the total U.S. grocery market, the remainder of which is open to Chobani.
For consumers, this small change represents the tip of a huge iceberg. The consensus seems to be that GMOs are broadly safe for human consumption, but there are all sorts of unaddressed ecological and financial impacts. Those will increasingly play a role in the way Americans buy and consume food as this topic heats up and the fight for labeling GMOs gains ground. Whole Foods may get out in front with its 2018 pledge, but the tide could just as easily turn against it. In short -- keep your eyes on this space.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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