Whole Foods sows Wild Oats, FTC sues

BOULDER, Colo. The Federal Trade Commission's suit to block the merger of Whole Foods Market and Wild Oats, announced June 6, came as a shock to food retailing observers. Whole Foods isn't taking the decision sitting down though and has said it will take on the agency in federal court.

While the FTC routinely reviews food retailing acquisitions, it rarely takes action other than requiring disposition of specific assets, and the wholesale decision to prevent retail companies from combining is rare. Rare or not, all five FTC commissioners voted to instruct agency staff to file suit against the merger.

Given the degree of cross-channel competition today, never mind competition between sectors within a given channel, the merger seemed to be in little jeopardy before the FTC informed Whole Foods of its intention on June 5. Yet, in defining markets to determine if the merger might constitute a restraint on trade, the FTC determined that the premium natural foods sector functioned separately from the conventional edibles retail segment.

Interestingly, that's the direct opposite of what Whole Foods ceo John Mackey determined. In announcing the merger, he said the pressure of competition from conventional food retailers, who have been expanding their organic and natural food assortments, had been a factor in prompting the company to bid for Wild Oats.

According to the FTC complaint, completion of the Whole Foods acquisition of Wild Oats would violate federal antitrust laws by eliminating the substantial competition between two uniquely close competitors in numerous markets nationwide in the operation of premium natural and organic supermarkets as defined by the agency. If the transaction continues unopposed, the FTC stated, Whole Foods would likely raise prices and reduce quality and services unilaterally.

In a statement, Jeffrey Schmidt, director of the FTC’s bureau of competition, “Whole Foods and Wild Oats are each other's closest competitors in premium natural and organic supermarkets and are engaged in intense head-to-head competition in markets across the country. If Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality, and fewer choices for consumers.”

The FTC's contention that Whole Foods move to "devour" Wild Oats would result in such a loss of competition in so many markets as to make the entire transaction untenable is again ironic contrasted with Whole Foods determination that a major benefit of the Wild Oats acquisition would be the introduction of its banners into markets that it has not or at least not significantly penetrated.

Whole Foods decision to take the FTC on in court is predicated on its belief that the agency just doesn't understand the marketplace.

"We are very disappointed by this decision and we intend to vigorously challenge the FTC in court," Mackey said. "The FTC has failed to recognize the robust competition in the supermarket industry, which has grown more intense as competitors increase their offerings of natural, organic and fresh products, renovate their stores and open stores with new banners and formats resembling Whole Foods Market. Evidently the FTC does not appreciate the many benefits for consumers of the proposed merger, including our plan to invest capital in and improve many of the stores currently owned by Wild Oats."