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Whole Foods isn't a monopoly EDITORIAL The FTC's move to block a merger with Wild Oats doesn't make sense for consumers.
From the Los Angeles Times, June 14, 2007, Copyright 2006 Los Angeles Times
HOW DOES A retailer that controls about 10% of a market and is competing with much larger players become a monopolistic threat? That's a question the Federal Trade Commission needs to answer before it blocks the proposed merger of Whole Foods Market and the struggling Wild Oats Markets natural foods chain.
The FTC warns that the deal, which aims to create a company with sales of $6.8 billion a year, would "tend to create a monopoly in the operation of premium natural and organic supermarkets." That point may be arguable in the $28.3-billion natural-products specialty supermarket niche. But it's clearly wrong in the overall market for natural and organic products, which topped $56 billion last year, with an annual growth rate of nearly 10%.
This market is not only growing but changing rapidly. Wal-Mart got into the organic-foods game last year and is already a major player, as is Costco. Every supermarket chain worth its gourmet sea salt now does a brisk business in natural and organic products; supermarkets and big-box stores account for an $18-billion chunk of the sector. In this highly competitive market, Whole Foods, with $5.6 billion in annual sales, is highly successful but hardly monopolistic.
In its effort to define the natural-foods retail market as narrowly as possible (and thus make Whole Foods seem more dominant than it is), the FTC's injunction makes some dubious judgment calls — for example, noting that these stores provide an "emphasis on service and consumer education" that other supermarket chains don't. By this logic, any attempt to differentiate your business or offer a value-add that your competitors don't means you're creating a brand-new market — in which you can't help but be the monopoly player. (Interestingly, the FTC has in the past categorized both Whole Foods and Wild Oats among general-purpose supermarkets — a field in which the two companies, with their combined 305 stores nationwide, are clearly pikers.)
But there's a more serious issue here. All antitrust and trade law is supposed to benefit consumers. How will natural-foods shoppers be better off if the FTC manages to stop this merger and Wild Oats simply goes out of business?
From the Los Angeles Times
From the Associated Press, August 1, 2007, Copyright 2006 Los Angeles Times
WASHINGTON — A federal judge Tuesday questioned a central part of Whole Foods Market Inc.'s argument that it should be permitted to buy rival Wild Oats Markets Inc.
The Federal Trade Commission has filed suit in federal court to block the $585-million deal, claiming that the two companies compete in a specific market of natural and organic food and that their combination will lead to reduced service and increased prices.
David T. Scheffman, an expert witness called by the two companies, disputed that contention and said the two chains competed with other supermarkets, such as Safeway Inc. and Trader Joe's.
"They're supermarkets," said Scheffman, an economic consultant previously employed by the FTC. "They're one-stop shopping."
However, Judge Paul L. Friedman said Safeway's stores might not provide one-stop shopping if a customer was interested in organic food.
CEO spoke of eliminating rivals, From Times Wire Services, IN BRIEF / GROCERY, From the Los Angeles Times, June 20, 2007, Copyright 2006 Los Angeles Times
Whole Foods Market Inc. Chief Executive John Mackey told his board that if it bought its leading rival, the company would "eliminate forever" the possibility that anyone else could create a nationwide competitor in the natural and organic grocery business, regulators say.
Federal Trade Commission lawyers reported Mackey's comments in a request this month for a temporary injunction to block Whole Foods from buying Wild Oats Market. A federal judge approved the request.
A Whole Foods spokeswoman said the FTC took comments "absolutely out of context."
Whole Foods CEO belittled rival anonymously before bid, From the Associated Press
From the Los Angeles Times, July 12, 2007, Copyright 2006 Los Angeles Times
DALLAS — The chief executive of Whole Foods Market Inc. wrote anonymous online attacks against a smaller rival and questioned why anyone would buy its stock, before Whole Foods announced an offer to buy the other company this year, according to Federal Trade Commission documents.
The postings on Internet financial forums, made under the name "rahodeb," said Wild Oats Markets Inc. stock was overpriced. The statements predicted the company would fall into bankruptcy and then be sold after its stock fell below $5 a share.
In February, Whole Foods announced it would buy Wild Oats for about $565 million, or $18.50 a share.
The company acknowledged that the postings by "rahodeb" were written by CEO John Mackey.
They were made public this week as part of a lawsuit by the FTC to block Whole Foods from buying Wild Oats on antitrust grounds.
Regulators say the sale would combine the two largest organic and natural foods retailers and raise prices for consumers by concentrating too much power in one company.
Austin, Texas-based Whole Foods defended Mackey's postings, saying they were being taken out of context years later.
"Mr. Mackey made those postings from 1999 to 2006 under an alias to avoid having his comments associated with the company and to avoid others placing too much emphasis on his remarks," Whole Foods said.
The company added that many of Mackey's opinions in the postings "now have far less relevance than when they were written. In addition, like most people, Mr. Mackey's opinion about some things has changed over time."
Whole Foods concluded by saying the comments were Mackey's, not those of the company.
One posting, from January 2005, questioned why anyone would buy shares of Wild Oats at their price then of about $8 each, the Wall Street Journal reported.
"Would Whole Foods buy [Wild Oats]? Almost surely not at current prices," rahodeb wrote. "What would they gain? [Their] locations are too small."
Rahodeb also said Boulder, Colo.-based Wild Oats' management "clearly doesn't know what it is doing." The company, he wrote, "has no value and no future."
Carlyle Group Owns 7.6% of Whole Foods common stock
David W. Dupree, 47, has served as director of the Company since August 1996. Mr. Dupree is a Managing Partner and founder of The Halifax Group, a limited partnership founded to pursue small and mid-cap investment opportunities. He was the Managing Director of The Carlyle Group, a Washington, D.C. based merchant banking concern, from 1992 to 1998. Mr. Dupree also serves as a director of Insight Health Services Corp.
Totally unrelated, but a company that makes organic milk, but dioesn't supply Whole Foods has been smacked aboot...