Reinforcements for the Anti-GMO Campaign
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Proposition 37 campaign to label genetically modified foods in California gained a few major allies recently, when prominent health food companies issued statements in support of the state ballot measure. The Just Label It campaign wasn't limited to California before, but the national aspects of this regulatory effort also received some more attention, since the Proposition 37 backers support labeling efforts in multiple states. The health food companies' press releases bring up GMO labeling rules outside of the United States, illustrating some international implications of the anti-GMO campaign.
The Whole Foods (NASDAQ: WFM) endorsement carries a lot of weight, because Whole Foods is a big customer for many natural and organic suppliers, and Whole Foods is big enough to attract customers from traditional supermarkets. Whole Foods argued that California's Proposition 37 is stricter than international GMO laws in its current form, and noted that Whole Foods supports the Washington Initiative 522 effort. Whole Foods' arguments make both the Washington Just Label It initiative campaign and GMO regulations in the European Union more visible to shoppers in the United States, so now food companies and supermarkets that sell GMO products have a much bigger problem on their hands.
With a 2.2 PEG, Whole Foods really needs to show better earnings growth, although the grocer does have a billion dollars available to invest in new stores. Once the new stores go up, Whole Foods needs a compelling argument to convince shoppers to switch, which California's Proposition 37 and Washington's Initiative 522, if it gets on the ballot, could help provide. A press release also costs a lot less than a traditional media campaign. Mark Lifsher, at the Los Angeles Times, reported that Whole Foods hasn't given cash to the Proposition 37 campaign itself so far.
United Natural Foods (NASDAQ: UNFI) tanked after its recent earnings report because supply chain problems reduced its margins, although the health food supplier made up much of its lost ground soon afterward. United Natural Foods has a 1.9 PEG itself, so it could also use another growth driver like PR from the anti-GMO campaign. The Oakland Tribune donation tracker shows that the United Natural Foods CEO Michael Funk gave $50,000 to the Proposition 37 campaign, which was tied for the sixth largest contribution as of August 22. United Natural Foods was also the only publicly traded corporation that appeared on the Prop 37 top contributors list in August, although more companies did announce their support for the proposition in September. United Natural Foods is also an important Safeway supplier, and Safeway donated to the Prop 37 opposition, so the United Natural Foods CEO's donation could cause some conflict.
Hain Celestial (NASDAQ: HAIN) brought up international GMO labeling laws in its own press release, which Hain released shortly after Whole Foods announced its support for Prop 37. Hain Celestial also has a high PEG at 1.91, and this supplier is paying close attention to international regulations right now because of its British expansion plans. United Natural Foods provides about a fifth of Hain Celestial's revenue, according to Hain Celestial's 2011 annual report.
A visit to the Chipotle (NYSE: CMG) Facebook page shows that Chipotle supports Proposition 37. Back in March, Fool writer Sara E. Wright explained that Chipotle's decision to avoid recombinant bovine growth hormone didn't differentiate its burritos in Europe, but this decision did make it easier for Chipotle to roll out stores in Britain. Chipotle's familiarity with GMO monitoring could also help the burrito maker expand in Europe, which Chipotle needs to better justify its 1.75 PEG ratio. Experience with GMO monitoring may also give Whole Foods, Hain Celestial, and United Natural Foods competitive advantages over other United States companies in the European market.
Whole Foods and Chipotle sell products directly to consumers, so these companies may receive big benefits from their Proposition 37 support. Health food shoppers do pay attention to suppliers, and Hain Celestial and United Natural Foods are relatively large and well known, so these suppliers could also see some benefits from backing Proposition 37. Hain Celestial and Chipotle already established footholds in the European market, and both companies demonstrate how paying attention to ingredients can simplify international expansion. The main effect of Proposition 37 and related legislation for investors is that these anti-GMO laws could help Whole Foods, Hain Celestial, United Natural Foods, and Chipotle grow into their multiples.
Dig Deeper
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Eric Novinson owns shares of Whole Foods Market. The Motley Fool owns shares of Chipotle Mexican Grill, The Hain Celestial Group, and Whole Foods Market. Motley Fool newsletter services recommend Chipotle Mexican Grill, The Hain Celestial Group, 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.If you have questions about this post or the Fool’s blog network, click here for information.
