FTC to Challenge the Whole Foods/Wild Oats Merger

THIS JUST IN … the Federal Trade Commission has filed a lawsuit to block the proposed merger between Whole Foods Market and Wild Oats (article). Anti-trust concerns are the issue as the FTC believes this merger would bring about anti-competitiveness in the marketplace.

Speculation is the FTC will “…argue the marketplace is defined by natural and organic food stores and not the broader supermarket industry.”

I’m a little close to this subject but it seems to me organics has infiltrated the entire supermarket scene to the extent that the separation between natural/organic grocers and conventional grocers no longer exists. I can go to Wal-Mart or Kroger now and buy organic produce and natural snacks just as I can at Whole Foods and Wilds Oats. I'm having a hard time understanding the logic behind the FTC's decision.

Could it be the strength of the Whole Foods Market brand is influencing the FTC's actions? The big picture view tells us Whole Foods has very little market share with customers, but its mind share with the public is huge. Or ... has swift politics persuaded the FTC to challenge Whole Foods?

When I shared my stance on the Whole Foods/Wilds merger earlier this year, I felt no reason to think the FTC would challenge it. Much more to come ...

Comments

[finn mckenty]

I'm far from an expert on the law, but from the perspective of a layperson, this seems perfectly stated:

"[O]rganics has infiltrated the entire supermarket scene to the extent that the separation between natural/organic grocers and conventional grocers no longer exists."

Also, I agree that the WFM brand is coloring their perception of the situation. You know better than I do, but isn't Kroger a much more dominant player in grocery than WFM is likely to be any time soon? If so, shouldn't the FTC be scrutinizing them? Again, I'm no expert, but this seems odd to me.

[sarah gilbert]

Kroger... Safeway... Wal-mart... Trader Joe's. *everyone* is into organics these days and I see the Whole Foods brand as going head-to-head with more competitors every day, from little cooperatives to local mini-chains to the truly big guys. there IS no monopoly in organic/natural food and the FTC must be motivated by more than just the brand (grocery lobbyists, perhaps?)

the whole situation just makes my blood boil. a wild oats in my neighborhood was actually put out of business by a local grocery store... funny, no one was crying about anticompetitive practices then.

[Mary Brace]

It matters little. The educated organic consumers that helped both WO and WH flourish have become disillusioned with both already and are spending more time at farmers' markets & stands, and CSAs. More and more, the only real reason for walking into WO (we have no WF in Nashville yet) rather than a traditional grocer is the cheese counter.

[Michael]

"The FTC countered that the Whole Foods and Wild Oats compete in a market that is separate from the traditional grocery market and seek out different customers than traditional grocery stores.

"'Whole Foods' and Wild Oats' customers are buying something more than just the food product -- they are seeking a shopping "experience," where environment can matter as much as price,' the FTC said."

I shop almost exclusively at a Wild Oats store and completely agree with this statement. The experience, as well as the products, are drastically different than "mainstream" grocery stores. It isn't about whether mainstream stores also carry organics.

Yes, some of the natural and organic products have "infiltrated" into mainstream stores. The difference is the effort required to find them. When I'm forced to enter a Vons/Safeway I have to hunt for natural foods hidden in shelves and shelves of crap. When I enter my Wild Oats store I can shop in an environment where the products on the shelves are the products I want. Very little filtering is required.

I hope the FTC is successful in blocking this purchase.

[johnmoore (from Brand Autopsy)]

Michael ... help me to better understand your thinking as to why you support the FTC blocking this merger.

Do you believe a merged WFM & OATS will result in higher prices? After all, prices (not "filtering") are the issue here.

I have a hard time believing prices will increase if WFM is allowed to purchase OATS. Price should decrease. With a combined WFM & OATS, the company will have more leverage with suppliers to extract lower prices. That's one of the benefits size brings, just ask Wal-Mart.

It's my belief the vibrant grocery marketplace, which is increasing its organic/natural offerings, will keep WFM honest with pricing.

[Michael]

I didn't cover the issue of prices in my original response. I was explaining why I disagree with your assertion that WFM and OATS are part of the same market as Kroger, Walmart, etc.

I don't shop at WFM because of their high prices. If they merge I have no reason to think the WFM prices won't become the standard for the former OATS stores. Price pressure from other stores isn't an issue because they don't, and most likely won't, directly compete with "mainstream" grocers.

[Fixed Gear]

Well the FTC obviously doesn't think that "regular" grocery stores are even in the same market with organic/natural grocery stores.