Whole Foods Market (NASDAQ:WFM) is in the crosshairs of a class-action lawsuit for selling Non-GMO Project Verified almond milk when the product had not yet received that certification. With the organic grocer preparing its entire supply chain for mandatory GMO labeling in 2018, has it opened itself up for a major legal showdown?
There has been a flurry of such legal activism, lawyers pushing their shopping carts down grocery store aisles searching the ingredients list for offending terms such as "all-natural," "organic," or "evaporated cane juice." The last two years have brought numerous lawsuits filed against and settled by major food manufacturers.
- PepsiCo (NYSE:PEP) agreed to pay $9 million last year to settle a class action lawsuit over claims its Naked Juice was "natural."
- Cargill similarly just agreed to pay $6.1 million to settle claims its stevia sweetener Truvia was "natural."
- WhiteWave Foods (NYSE:WWAV) could pay as much as $800,000 to settle a lawsuit over its use of the term "evaporated cane juice" instead of "sugar." Trader Joe's, Blue Diamond Growers, and Chobani were sued for the same issue, though Chobani's case was dismissed.
The Whole Foods lawsuit is different, though. The trial lawyers allege the supermarket violated California's Sherman Law and various consumer protection laws by selling Blue Diamond's Almond Breeze almond milk with a non-GMO stamp on it when the product hadn't yet been certified as such.
Put a label on it
The Non-GMO Project is a nonprofit organization campaigning to raise awareness about genetically modified organisms in our foods. It offers a certification process for food manufacturers that want to promote their products as being GMO-free. The lawsuit says more than 20,000 Non-GMO Project Verified products are on store shelves today.
But Blue Diamond's Almond Breeze isn't one of them. Or rather, wasn't. At the time they were sold, the Almond Breeze products were still undergoing the verification process.
What the lawsuit gets right is the product was advertised as something it wasn't. The plaintiff says she relied on the Non-GMO Project Verified label to buy the milk and pay a premium price. Without the logo, she would not have bought it at all, let alone paid up for it.
So why not target the source?
The lawsuit is curious in that it targets Whole Foods rather than Blue Diamond. The organic supermarket chain is being taken to task for allegedly illegally marketing, distributing, and selling the mislabeled products to consumers, rather than the nut processor for slapping the label on the milk. But with over $14 billion in revenue in fiscal 2014, and $579 million in profit, Whole Foods might have deeper pockets to pay a settlement than would Blue Diamond Growers, which recorded $1.5 billion in global almond sales in its fiscal 2013-2014 year.
The lawsuit argues that Whole Foods is profiting from the growing awareness of the risks posed by GMOs. Since the supermarket chain was making claims about the milk in its marketing and advertising, it has a legal duty to ensure the claims about the product being Non-GMO Project Verified are factual, according to the lawsuit. But the argument seems to stretch just how far a retailer must go in verifying the claims made on the thousands of products it sells.
Trust, but verify
Whole Foods is implementing a full-transparency policy that says all products in its U.S. and Canadian stores must be labeled to indicate if they contain GMOs. But what sort of verification process will it implement to ensure the products are exactly what they claim? This remains unclear.
Some pundits don't believe this will generate a rash of copycat lawsuits. But unlike the more nebulous wording "all natural" that lawyers pounced on, "GMO-free" or "Non-GMO Project Verified" are more specific terms. Certainly, the floodgates for lawyers reading the labels on all of Whole Foods products have been opened.
And unless Whole Foods has learned its lesson on selling products with inaccurate claims, the organic supermarket risks not only lawsuits, but also customer loyalty.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Follow Rich Duprey's coverage of all the most important news and developments in the leading brand name products you use. He owns shares of WhiteWave Foods. The Motley Fool recommends PepsiCo, WhiteWave Foods, and Whole Foods Market. The Motley Fool owns shares of PepsiCo, WhiteWave Foods, and 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.