Whole Foods Recalls Beef

With the US economy very possibly facing a recession, the market for luxury items has taken a beating. Whole Foods Inc. (WFMI), a high-end foods grocer specializing in organic and “natural” foods, has been no exception as its stock plummeted from over $70 in January 2007 to under $20 today. Making matters worse is a recent recall of E. coli contaminated beef that caused customers in several states to get sick. According to a New York Times Article, this was caused by an unnoticed change made by one of Whole Foods’ suppliers:

Scrambling to contain the fallout from a recall that threatens the chain’s reputation for quality, Whole Foods acknowledged that it had failed to catch an important change made by one of its suppliers of ground beef, Coleman Natural Beef.

After coming under new ownership, Coleman Natural began using a slaughterhouse in Omaha that had received multiple citations and had fought a long-running battle with the Agriculture Department. The government has said the plant was the source of ground beef that has sickened scores of people around the country.

The oversight was due to a lack of procedure. Although Coleman Natural Beef indicated the change in slaughterhouse through stamps on the packaged meat, Whole Foods had no procedures to interpret these stamps… a problem that the chain is addressing right away:

Whole Foods will immediately institute new procedures to detect such a change in the future, the chain said. A spokeswoman, Libba Letton, said the company would also undertake a broad review of procedures for approving suppliers and scrutinizing the quality of products.

On top of these new procedures, Whole Foods will also implement mandatory E. coli testing for its meat products that go beyond government regulatory requirements… a necessary precaution for a company that builds its business on providing the highest quality goods. In these trying economic times, this bad PR can be potentially disastrous for Whole Foods unless the matter is handled properly.

Michael Dell’s Comeback

Micheal Dell created the company that bears his name from his college dorm at age 19. He served as the company’s CEO for 20 years before distancing himself from his company and becoming chairman of the board. Three years later (early last year), Dell decided to step back in as CEO. Why? According to a recent interview with The Economist:

“When you start a company, it’s a very personal thing,” answers Dell, who is now 43. “I will care about what happens to the company even after I’m dead. I just can’t let it go.”

It seems as though Michael Dell’s passion, drive, and management brilliance is getting things done, as the firm is regaining market share that was lost under previous management. For years, Dell had been the leader in PC sales worldwide, but recent changes in the global economy resulted in the company being knocked down from its throne by Hewlett-Packard. The biggest factor was that PC sales by volume have been shifting from rich countries to developing nations, and consumers in developing nations are a lot less prone to shop on the online marketplace (where a majority of Dell’s computer sales take place). While Dell still dominates sales in the corporate sector, previous management did not pick up on this new developing world trend:

How does Mr Dell explain his firm’s sudden loss of poise? Its growth, from revenues of $6 billion to nearly $61 billion over the past ten years, was based on a “very monolithic model”, which no longer works as well, he says. But the management was too focused on the short term to see this: “We were only doing things that optimised the business we had.” Back in the driver’s seat, he is now doing precisely the opposite: trying out new approaches and diversifying Dell’s business model both geographically and commercially.

Michael Dell plans on breaking away from this “monolithic model” by implementing strategies that are very unconventional for a company known for selling its conservative black/gray box PCs. These strategies include selling stylish PCs, and emulating its rival HP by providing IT services for corporate clients. Most importantly, Micheal Dell plans on infiltrating the developing markets (think China and India) by creating laptops and personal computers that are cheap enough to be purchased by the masses. It seems as though the brains are back in the building, and we can expect great things from Dell (the company), as long as Dell (the person) is behind the wheel.

Microsoft Withdraws YAHOO! Bid

For the past three months, Microsoft and Yahoo have been engaged in negotiations for a merger between the two technology giants. Earlier today, Microsoft announced it was walking away from its offer since the two companies could not agree on a price. According to the New York Times Article:

Microsoft said Saturday that it was abandoning its blockbuster bid to acquire Yahoo after it raised its offer by $5 billion but Yahoo rejected it as still too low.

The about-face followed a meeting on Saturday morning in Seattle between Microsoft’s chief executive, Steven A. Ballmer, and Yahoo’s chief and co-founder, Jerry Yang, according to a person familiar with the talks.

At the meeting, which also included Yahoo’s other founder, David Filo, and a Microsoft president who oversees its online unit, Kevin Johnson, Mr. Ballmer increased Microsoft’s offer to $33 a share, or a total of about $47.5 billion, from $29.40 a share. Mr. Yang told Mr. Ballmer that Yahoo would not accept an offer below $37 a share, this person said.

“Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo has not moved toward accepting our offer,” Mr. Ballmer said in a statement. “After careful consideration, we believe the economics demanded by Yahoo do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal.”

A person close to Yahoo said the price was not the only stumbling block. The person said Yahoo was also concerned that the deal could be blocked by regulators and wanted a higher offer, in part, as a hedge against that risk.

Microsoft’s decision to walk away casts a cloud of uncertainty over Yahoo and its shareholders. The breakdown in the talks is likely to send Yahoo’s shares plunging, and Mr. Yang and his team will have to decide how to placate investors.

A bit anticlimactic after three months of negotiating? Maybe not. The merger was initially considered as a way for both firms to compete against internet giant Google, which has been dominating Yahoo! and threatening Microsoft’s dominance with features such as Google Docs. Both Microsoft and Yahoo will benefit from a merger, and I feel that it’s probably going to go through. Microsoft’s “walk” is just a strategy to pressure Yahoo into taking a lower price.

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