Tuesday, July 28, 2015

Why Niche Markets Shouldn't Lobby for Ideology

Politco's Morning Agriculture memo this morning thought it stumbled on something interesting this morning when it led it's daily e-mail with the following:

'GOOD FOOD' INDUSTRY ESCHEWS LOBBYING: "The leaders of the so-called good food sector - including Chipotle, Whole Foods and Applegate - are winning big in the marketplace with health-conscious consumers. But the industry's current lobbying strategy - largely ignoring Capitol Hill - may be a recipe for disaster in the long run, some of its other leaders say," reports Pro Agriculture's Helena Bottemiller Evich.
"The inertia already has cost the fast-growing sector: Just last week, the House approved a bill to block any state-level mandatory GMO labeling 275-150, a mostly party-line vote that picked up 45 Democrats. There's a growing list of good food industry leaders who are worried that remaining aloof could mean missing opportunities to fight several hot-button issues in Congress, including the future of federal dietary recommendations and school lunch reform.
"Yet neither Whole Foods nor Chipotle and Applegate, companies that serve up antibiotic-free meats, nor Hain Celestial Group, which owns Arrowhead Mills, Spectrum and Celestial Seasonings, have a single registered lobbyist between them, according to a POLITICO review of disclosure records. Their involvement on Capitol Hill, on issues from the farm bill to nutrition labeling, has ranged from limited to nonexistent."
So some healthy food providers are not lobbying Congress to mandate GMO labeling or push other policies enhancing nutrition in America. I don't understand why this should be thought of as surprising - Whole Foods and Chipotle only stand to lose if they do so.

Whole Foods is not some ideologically pure group seeking to make everyone in the country a hippie, natural-food loving consumer. It's a billion-dollar corporation bilking customers who bought into the organic craze. Its CEO lambasted the Affordable Care Act a couple years ago, clarifying Whole Foods is not some instrument of the left.

The only lobbying Whole Foods should be engaging in is to prevent labeling of GMO foods. As a niche market, it enjoys being able to charge a premium to claim the purity of its products. Once Price Chopper, Wal Mart, and Kroger are forced to similarly label their foodstuffs, consumers may be less likely to patronize Whole Foods as they're comfortable in being able to find non-GMO products anywhere. Lobbying against the Pompeo Bill obviously risks too much backlash from consumers to pursue the strategy, but Whole Foods should be comfortable in sitting back, not throwing millions at the problem, and enjoying its nicheness.

Whole Foods is the chain store that serves up organic food, while Chipotle is the chain fast-food restaurant promising all-natural meat products. So why doesn't Chipotle want everyone to be forced to eat that way? Same reason - as long as all-natural food consumption is held out as some sort of unique product, Chipotle can capitalize on its scarcity. Any bureaucratic move to reduce scarcity denies Chipotle to charge a premium. (FYI, it's interesting that while McDonald's divorced itself from financial interest in the chain about a decade ago, Chipotle has been crushing it while McDonald's is getting hammered.)

I'd never heard of Applegate before the article, but it appears to be a line of meat products in grocery stores such as chicken nuggets and hot dogs. Most of its products are red meat, and the company appears to operate under the guise of healthy because its products are organic while simultaneously clogging your arteries (see product line here). This is the company that stands to lose on a labeling bill for the same reasons - right now the company markets itself as organic, and there are enough customers who care enough to pay a premium for the label. Forcing everyone to label will push more companies to ensure they can meet the same standards. This may be good for consumers, but bad for Applegate because increased supply will lower prices at the checkout aisle. That means more money in your pocket, and less than theirs.

Still not convinced? An analogy is fuel-efficient cars. While people are aware they'll save money on gas purchases if they buy a more fuel-efficient car, some care more than others. A company specializing in making a great fuel-efficient car can target those people that care, but there may not be enough for all auto manufacturers to really target this market (think Toyota v. GM at the turn of the 21st century).

But if Congress requires companies to label the gas mileage a car receives and installs CAFE* requirements, other companies see greater incentive to enter the small-car market. This is good for consumers of small cars because choice equals lower prices, but the niche for efficient cars previously filled by a single company no longer makes that company as much money. It doesn't make sense for Toyota to lobby Congress to increase GM's presence in the small-car market in this example. It similarly doesn't make sense for Whole Foods to lobby Congress to increase competitors in the market.

*Corporate Average Fuel Economy

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