LAYOFFS: NO LOVE AT ATLANTAFRESH ARTISAN CREAMERY

Here is another sad story of a small business forced to close their doors. Was the root cause an overzealous market expansion into an area beyond the company's core competency or the lack of foresight to build-in contractual protections against reasonable future conditions? A function of consumer demand or changing retailer conditions?

The Press Release from AtlantaFresh Artisan Creamery ...

"After Whole Foods Cancelled its Purchasing Contract AtlantaFresh Creamery forced to shutter doors."

"In 2015, Whole Foods Market asked AtlantaFresh Artisan Creamery, a Southern regional producer of grass-fed Greek Yogurt, if they would supply 100% grass-fed, certified Non-GMO milk and cream to a significant portion of the Whole Foods Markets nationwide (three regions totaling 110 stores)." 

Induced? Or were dollars dancing in the head of the owner? 

"AtlantaFresh was induced to move forward with Whole Foods Market in an agreement whereby Whole Foods Market loaned the creamery $500,000 for expansion and signed a 7-year purchasing contract committing to purchase 30,000 gallons of milk per week."

Perhaps an attorney could have built-in better contractual protections like rejecting a non-binding purchasing contract for one with debt forgiveness and a liquidated damages schedule in the event of a contract cancelation.

"AtlantaFresh took on an additional $2 million in debt to build out their facility sufficiently in order to fulfill the contract (doubling the size of their facility)." 

While it is likely that the owner may have had to sign a personal guarantee for the loan, perhaps collateralizing the loan with the purchase contract and using Whole Foods as a co-signer may have been enough to avoid any personal guarantee.

"AtlantaFresh began fulfilling the contract in July of 2016." 

"Fourteen months later Whole Foods canceled the 7-year agreement without cause in September of 2017, shortly after Whole Foods Market agreed to be acquired by Amazon for $13.4 billion."

It is not uncommon to see major changes in vendor relationships when companies are merged or are acquired. The fact that the company's primary retailer was acquired by a known disrupter of retail logistics and pricing is also troublesome. 

"After having had AtlantaFresh products on their shelves for 8 years, Whole Foods Market removed all AtlantaFresh products entirely from their system, despite being made fully aware that it would very likely put AtlantaFresh out of business." 

“'Whole Foods became our largest customer fairly early on. We were ecstatic about the relationship because they were very strong supporters of the local food movement and of AtlantaFresh,' stated AtlantaFresh CEO Ron Marks". 

"Prior to the milk agreement, AtlantaFresh Greek Yogurt was distributed in 180 Whole Foods stores in 20 states." 

Perhaps it was a mistake to move beyond the company's core competency in yogurt into the packaging and distribution of milk.

The Ripple effect on vendors ...

"Hart Agriculture, the dairy farmer contracted to supply milk to AtlantaFresh, has also suffered severe financial hardship as a result of the contract cancellation. They have closed down Waynesboro, GA-based Newberry Farm, certified as a Non-GMO 100% grass-fed dairy farm."

"Whole Foods senior management spoke of providing a settlement in order to keep AtlantaFresh afloat but never followed through. Having been profitably in business for 9 years until this last fall, AtlantaFresh was recently forced to lay off 32 employees and will be closing their doors in mid- March."

Whole Foods responds ...

"In an email to Atlanta Business Chronicle, a Whole Foods Market spokesperson said, 'Local products are fundamental to Whole Foods Market, and we work closely with each of our suppliers to try to create successful relationships. We are always excited to bring new local products to our stores and customers, but, unfortunately, not all products meet sales expectations. When that occurs, we have ongoing conversations with the supplier to try to improve sales. In this case, we also made significant efforts across the business to increase sales, including in-store marketing, paid advertising, special promotions and expanded distribution. Despite our efforts, we are not always able to raise demand and we must occasionally make the difficult decision to discontinue products.'”

Essentially, if the demand changes the retailer is forced to take action. 

Seeing any business close is troubling. However, the primary lesson to be learned is that you do not place the majority of your eggs in a single basket or a significant part of your business with a single customer. And, upon contract signing, you immediately start looking for additional customers or contract business to use surplus capacity to reduce the impact of a large customer. 

This is not a new situation. One of the largest mailorder companies in the nation used to custom-design products and provide plastic injection molds. Talking up more and more of a vendor's production capacity until they could dictate prices under the implied threat of switching vendors. Many vendors entered into these deals gleefully and enjoyed the additional cash flow until the day of reckoning. 

 A personal observation. Whole Foods, used to be known locally as "Whole Paycheck" due to their high prices and upscale customers and was little more than an upscale version of Trader Joe's. And, susceptible to any local economic downt

If you work for a company that has a single large customer, consider the effects of a contract cancellation on your job. Another reason we recommend developing multiple independent sources of income.

Are you asking yourself, Am I Next?

NO LOVE AT COCA-COLA

In May, Coca-Cola announced another 1,200 layoffs by the end of 2017. The iconic beverage company, Coca-Cola continues to cut jobs in a reorganization that is said, by CEO James Quincey, to be “critical for us to create an environment where we can accelerate growth and become the consumer-centric, total beverage company we need to be in a fast-changing world." Rather routine baffle-gab from a company facing hostile government initiatives to reduce the consumption of soda by raising taxes or limiting serving sizes.  Characterizing reductions in force as “productivity savings,” it should be noted that Coca-Cola shed more than 20,000 employees by the end of 2016.

What could go wrong in the future?

Here are the “Risk Factors” contain in “ITEM 1A” of Coca-Cola’s 10K filing with the Securities and Exchange Commission. (Fiscal Year Ending 2016) 

1. Obesity concerns may reduce demand for some of our products.
2. Water scarcity and poor quality could negatively impact the Coca-Cola system's costs and capacity.
3. If we do not anticipate and address evolving consumer preferences, our business could suffer.
4. Increased competition and capabilities in the marketplace could hurt our business.
5. Product safety and quality concerns could negatively affect our business.
6. Our success depends in large part on our ability to maintain consumer confidence in the safety
7. Public debate and concern about perceived negative health consequences of certain ingredients, such as non-nutritive sweeteners and biotechnology-derived substances, and of other substances present in our beverage products or packaging materials, may reduce demand for our beverage products.
8. If we are not successful in our innovation activities, our results may be negatively affected.
9. Increased demand for food products and decreased agricultural productivity may negatively affect our business.
10. Changes in the retail landscape or the loss of key retail or foodservice customers could adversely affect our financial performance.
11. If we are unable to expand our operations in emerging and developing markets, our growth rate could be negatively affected.
12. Fluctuations in foreign currency exchange rates could have a material adverse effect on our financial results.
13. If interest rates increase, our net income could be negatively affected.
14. We rely on our bottling partners for a significant portion of our business. If we are unable to maintain good relationships with our bottling partners, our business could suffer.
15. If our bottling partners' financial condition deteriorates, our business and financial results could be affected.
16. Increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters could have a material adverse impact on our financial results.
17. Increased or new indirect taxes in the United States or in one or more of our other major markets could negatively affect our business.
18. Increase in the cost, disruption of supply or shortage of energy or fuels could affect our profitability.
19. Increase in the cost, disruption of supply or shortage of ingredients, other raw materials or packaging materials could harm our business.
20. Changes in laws and regulations relating to beverage containers and packaging could increase our costs and reduce demand for our products.
21. Significant additional labeling or warning requirements or limitations on the marketing or sale of our products may inhibit sales of affected products.
22. If we are unable to protect our information systems against service interruption, misappropriation of data or breaches of security, our operations could be disrupted and our reputation may be damaged.
23. Unfavorable general economic conditions in the United States could negatively impact our financial performance.
24. Unfavorable economic and political conditions in international markets could hurt our business.
25. Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.
26. Failure to adequately protect, or disputes relating to, trademarks, formulae and other intellectual property rights could harm our business.
27. Adverse weather conditions could reduce the demand for our products.
28. Climate change may have a long-term adverse impact on our business and results of operations.
29. If negative publicity, even if unwarranted, related to product safety or quality, human and workplace rights, obesity or other issues damages our brand image and corporate reputation, our business may suffer.
30. Changes in, or failure to comply with, the laws and regulations applicable to our products or our business operations could increase our costs or reduce our net operating revenues.
31. Changes in accounting standards could affect our reported financial results.
32. If global credit market conditions deteriorate, our financial performance could be adversely affected.
33. Default by or failure of one or more of our counterparty financial institutions could cause us to incur significant losses.
34. If we are unable to timely implement our previously announced actions to reinvigorate growth, or we do not realize the economic benefits we anticipate from these actions, our results of operations for future periods could be negatively affected.
35. If we fail to realize a significant portion of the anticipated benefits of our strategic relationship with Monster, our financial performance could be adversely affected.
36. If we are unable to renew collective bargaining agreements on satisfactory terms, or we or our bottling partners experience strikes, work stoppages or labor unrest, our business could suffer.
37. We may be required to recognize impairment charges that could materially affect our financial results.
38. We may incur multi-employer plan withdrawal liabilities in the future, which could negatively impact our financial performance.
39. If we do not successfully integrate and manage our Company-owned or -controlled bottling operations or other acquired businesses or brands, our results could suffer.
40. If we do not successfully manage our refranchising activities, our business and results of operations could be adversely affected.
41. If we are unable to successfully manage the possible negative consequences of our productivity initiatives, our business operations could be adversely affected.
42. If we are unable to attract or retain a highly skilled workforce, our business could be negatively affected.
43. Global or regional catastrophic events could impact our operations and financial results.

As you can plainly see, it is far easier to reduce the number of employees to produce short-term results than deal with many of the root causes of poor performance. It should also be noted that one of the most significant risk factors are hedge funds and stock market speculators who simply are gambling on the direction of the market. I have seen cases where a company’s capitalization has been reduced by $500 MILLION without any significant change in the management or underlying operations of the company. All in the name of managing “sector risk” and shuffling holdings prior to a reporting period.

You may wish to review the informal or formal risk factors of your company when considering your next employment opportunity.