POWER 50 (CONTINUED) 2006-07-24 (1)

45) The New Private Investor

yed a leading role in the biggest industry business stories of the year.

What's next: Record-size buyout funds; the "institutionalization" of hedge funds.

Named for the three-headed dog in Greek mythology that guarded the gates of hell, Cerberus Capital Management practically begs to be looked upon with a degree of fear and suspicion. Rumors that the New York hedge fund would rename the more than 600 Albertsons stores it acquired this year Hounds of Hades Markets are, however, quite untrue.

One lesson? The new supermarket investor can come in disguise.

"It's hard to put a face to these guys because different private equity funds have different criteria they're looking at," Neil Stern, a senior partner with McMillan-Doolittle, Chicago, told SN. "There's value-oriented guys, growth-oriented guys and restructuring-oriented guys."

At the Strategic Research Institute's Alternative Investment Roundup conference in New York earlier this month, the audience included men and women, young and old, united only by a desire to make money for their investors through their various alternative strategies - which encompassed large buyout firms, secretive hedge funds, distress specialists, real estate players and other opportunistic investments.

Panelists at one session spoke of broad trends portending an increase in such activity: There's a tendency among institutions like endowments and pension funds to devote a portion of their investments to the alternative field, they said, while traditional investment banks are devoting more of their energies to private funds, including taking ownership positions in some or starting and spinning off their own. These trends are serving to "institutionalize" some vehicles heretofore considered too risky by institutional investors, a phenomenon that ultimately is leaving a lot more money out there to invest.

According to the National Venture Capital Association, New York, private equity firms are increasing both in number and in the amount of money they raise. In 2005, buyout and mezzanine firms - defined as funds focused on leveraged buyouts, mezzanine financing, turnarounds and recapitalizations - raised $86.2 billion, the most the association ever recorded and an increase of 67.2% from 2004. That accompanied a 23% increase in the number of such funds raising capital.

Earlier this month, New York-based buyout firm Blackstone Group said it raised a $15.6 billion buyout fund it called "the world's largest private equity fund." Rivals like Texas Pacific, KKR and Apollo have also created or seek to create funds in the double-digit billions, reports said.

While the flow of money to these private investors is likely to affect any number of industries, food and food retail have not been immune. Private investors over the last year have played a role in the momentous changes taking place at Albertsons, Pathmark, Bi-Lo, Minyard's, Marsh and Winn-Dixie, to name just a few.

According to Sonya Brown, partner at Boston-based private equity firm Summit Partners, retailers have characteristics buyout firms find attractive: steady, dependable cash flow, allowing the investor leverage. Retailers also often have "hidden assets" like real estate and stores, sources said, which can be flipped or re-tenanted and are attractive to specialists in that field.

"There's an appreciation that many of these chains did a very good job in picking out and selecting locations to serve their customers, and with that underlying structure, with the stores in the right locations, it really is a question of what's the format," Mark Gross, principal of Surry Investment Advisors, Keene, N.H., told SN.

"Retail investments are predictable - and it's very easy to monetize your investment, as opposed to investing in something like biotechnology," Stern added. "You're drilling for oil on those stocks whereas retail is predictable in terms of the cash coming in."

On the flip side, private investors also appear to have caught onto the notion that the industry is surviving in spite of the spectacular growth of Wal-Mart's supercenter - at least faster than traditional markets appear to have.

"There's renewed interest in food retail, despite a very competitive landscape, in part because people eat every day - several times a day - and the predictions of the death of supermarkets were wildly premature," Gross said. "There are numerous formats that are capable of being run efficiently and being successful."

Specific activity in the market may go unexplained. Hedge funds in particular tend to be notoriously secretive, fearful that competitors might copy or otherwise upset their strategies, leaving industry observers to wonder, for example, why Silver Point Capital last month revealed it owned 5% of Ingles Markets. Silver Point officials declined to comment.

"The biggest fundamental difference in a private investor, as opposed to a traditional investor in the retail space, would be that a retailer would look at their business and say, I'm trying fundamentally to be a retailer. How do I best deploy my assets and succeed in the retail marketplace," Stern said. "A private equity guy looks at the business and says, 'Here are my assets. What's the best way to deploy them, period.' It's a simple difference but it's very different. They're looking at real estate as a value. Looking much more financially at the decisions they make. There's more to look at than a retailer seems to look at."

JON SPRINGER

46) Michael F. Jacobson

Founder and executive director, Center for Science in the Public Interest

Key development: Compelled FDA to change trans fat labeling rules.

What's next: Get restaurants to address trans fats; petition FDA for sodium limits in food.

Michael Jacobson bears the unusual distinction of having sued or threatened legal action against several of the companies on this year's Power 50 list.

But, as a vanguard of the growing food activism movement, his Center for Science in the Public Interest has become an undeniable force shaping public opinion and legal precedent over how food is raised, prepared and labeled in the United States.

Most recently, the U.S. Food and Drug Administration's requirement that nutrition labels list trans fat content, implemented earlier this year, was the fruition of more than a decade of collaboration and formal petitioning between CSPI and the FDA. This requirement, as well as a mounting body of medical evidence linking partially hydrogenated oils to heart disease, has helped spur hundreds of "better for you" product reformulations in recent years.

"The labeling requirement really stimulated the packaged food industry to address the trans fat issue, and replace partially hydrogenated oils with vegetable oils or canola oil," Jacobson told SN, arguing that these changes could help save "tens of thousands" of lives each year.

Although Jacobson said that more people are concerned about nutrition in their diets today than they were when he launched CSPI in 1971, he said that these consumers are still a minority, and that most people "have more immediate, day-to-day concerns in their lives."

Thus the organization views its role - generating a constant drumbeat of publicity for these issues through venues such as its own "Nutrition Action" newsletter, while simultaneously pushing for government regulation or labeling requirements for what it says are the more dangerous components of the food we eat today.

Currently, CSPI is focusing its efforts on extending labeling requirements for trans fats into the restaurant community and, as part of that effort, it has recently sued the quick-service restaurant chain KFC, a subsidiary of Louisville, Ky.-based Yum! Brands.

These types of lawsuits, as well as the press they often generate, have made CSPI a thorn in the side of many food industry leaders. Jacobson, however, said that litigation was often the only way to accomplish his organization's goals.

"The FDA tells us it doesn't have the resources to crack down on deceptive labeling, and that was part of the impetus for our starting a litigation unit - to make progress where we just weren't getting any," Jacobson said. "Believe me, we get a much faster and more sincere response from companies when we sue them or tell them we're going to sue them."

Regardless, Jacobson said that, for a variety of reasons, several food manufacturers appeared to be turning over a new leaf with regard to their views.

ConAgra, he noted, has said it will systematically review the sodium and trans fat content of its entire product line. PepsiCo has made Diet Pepsi its flagship brand. Meanwhile, hundreds of products have been launched or reformulated in response to the recent whole-grains trend.

"It doesn't matter what the motivation is - whether it's a philosophical conversion or whether it's a realization that there's money to be made - I think that these are good trends, and I think they will continue," Jacobson said.

MATTHEW ENIS

47) Katherine Albrecht

Founder and director, CASPIAN

Key developments: Publication of "Spychips" book on RFID; massive media exposure.

What's next: A new book on consumer privacy; work on an RFID-labeling law in New Hampshire.

For all of the publicity generated by Wal-Mart Stores' big RFID tagging program, it's notable that the retail giant - as well as most of the other retailers testing RFID - has limited tests to the tagging of pallets and cases. Item-level tagging has been largely absent from their efforts, though the impact of RFID at the item level is certainly of interest to retailers and manufacturers.

Probably the biggest reason for the lack of item-level testing today is that early tests triggered an activist-led public relations storm over RFID's potential for invading consumers' privacy. One activist in particular, Katherine Albrecht, founder of Nashua, N.H.-based CASPIAN (Consumers Against Supermarket Privacy Invasion and Numbering), has undoubtedly been the most visible and effective critic of organizations attempting to use RFID to identify individual consumer items.

"We've played a large role in making [the rarity of item-level tagging] be the case," said Albrecht, whose website, www.spychips.com, is a clearinghouse of information on her anti-RFID crusade. Albrecht, who said she has appeared in over 2,000 media outlets since starting CASPIAN in 1999, is making her first appearance on SN's Power 50 list.

Albrecht, a frequent speaker, has testified on RFID technology before the Federal Trade Commission, the California state legislature, the European Commission and the Federal Reserve Bank. Her future plans include lobbying for an RFID-labeling law in New Hampshire. CASPIAN is a grass-roots group that consists of Albrecht, a dozen volunteers and a membership of about 13,000.

In 2003, CASPIAN called for a worldwide boycott of Italian clothing manufacturer Benetton when the company announced plans to use RFID tags on women's undergarments. CASPIAN's "I'd Rather Go Naked" campaign generated media coverage at National Public Radio, Business Week, Reuters and dozens of other outlets. Benetton canceled its plans.

Also that year, CASPIAN's publicity campaign led Gillette to pull back a "smart-shelf" test of RFID tagging at a Brockton, Mass., Wal-Mart and at a Tesco store in the U.K.

Last October, Albrecht raised her profile yet again by publishing (with co-author Liz McIntyre) "Spychips: How Major Corporations and Government Plan to Track Your Every Move with RFID." The book, which she said has been on Amazon.com's non-fiction best-seller list, won the 2006 Lysander Spooner Award for advancing the "literature of liberty."

"Spychips" details Albrecht's view that RFID technology, despite benefits such as fresher products, safer drugs and fewer out-of-stocks, represents too great a threat to consumer privacy when applied at the item level. (She has no problem with RFID tagging at the pallet or case level.) The book, which has provoked pointed rebuttals from the RFID industry, takes aim at companies such as Wal-Mart, Gillette, Tesco, IBM and NCR.

"Saving 50 cents or five minutes because of RFID is not worth it in the long run," Albrecht said. "RFID threatens to be one of the most powerful surveillance technologies ever developed."

While RFID has been Albrecht's main focus since 2003, her original cause centered on her opposition to supermarket loyalty cards. She has continued working in that area, recently receiving a doctorate in education from Harvard for which she did research on loyalty cards. Her anti-cards website is www.nocards.org.

Loyalty cards remain fairly widespread in the supermarket industry, but Albrecht argues that is because, according to her doctoral research, 75% of consumers are unaware that supermarkets use the cards to track their shopping habits.

MICHAEL GARRY