Whole Foods: FTC's Challenge To Wild Oats Takeover Is Mystifying

The Federal Trade Commission said it will block Whole Foods Market's (WFMI) pending $565 million takeover of competitor Wild Oats Markets (OATS). The companies plan to challenge the FTC's suit, which follows a request in March for additional information on the $18.50 per-share deal. The FTC claims the transaction will result in an unacceptable limitation on competition in the natural and organic food market. Are they kidding?

Whole Foods Chairman and CEO John Mackey replied, "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 Markets (WFMI)." Here is a quick quiz, do you know who the largest seller of organic milk is in the US today? The answer is below.

Organic food sales totaled nearly $17 billion in 2006 (22% growth), representing 3% of total retail sales of food and beverages in the United States, the Organic Trade Association announced at the All Things Organic show, citing findings from their 2007 Manufacturer Survey. Conventional supermarkets accounted for approximately 31% of total organic food sales, while leading natural food supermarkets — such as Whole Foods, Wild Oats and Trader Joe’s — accounted for 24%. Independent natural food stores netted 22% of organic sales. Another 20% growth is forecast for 2007, putting total sales at over $20 billion this year.

With just over $1 billion in sales, Wild Oats is only 5% of the market. That is 5% of a sub-market, that is only 3% of the whole retail food market. Why is the FTC even bothering with this? I posted in the past that the merger was almost insignificant to Whole Foods future.

With news that Wal-Mart (WMT), the #1 grocer in the US, plans to double organic food, the merger being attempted is not to dominate an industry, but to keep pace. Consider that Walmart is already the #1 seller of organic milk in the US and recently Karen Burke, a Walmart spokesperson, said "Organic apples are one of the top selling organic produce items at Wal-Mart, along with carrots, citrus, lettuce and packaged salads." Far from “backing off,” sales for Wal-Mart’s organic produce for 2006 were at a growth rate well above the industry average of 13.7 percent, based on data from the Organic Trade Association.

The FTC's decision, should it stand, all but assures Wal-Mart (WMT) will also dominate here very soon.

WFMI 1-yr chart:

Comments

[spinachlatte:]

This baseless quash of WFMI's need to expand is so obviously mega grocer dollars at work in the hands of high paid lobbyists. Here is an e-mail I directed at the FTC Competition Bureau and copied to Sen. Bobby Rush, Senate chair of the subcommittee for trade.

Sir or Madam
I would like to believe that since the FTC is an agency serving citizens of the United States such as myself, that the person receiving this e-mail will have the conscience, decency and sense of duty to make sure this message gets to desktops of those that matter at the FTC. I am merely a single voice yet I speak for the consensus and opinion of millions of American citizens. I ask that my voice be heard and acknowledged by the Competition Bureau

I’m writing in response to legal actions taken against Whole Foods Market and it’s proposed acquisition of Wild Oats. I must first say that I have never seen a more misinformed decision by the FTC. The Competition Bureau has truly not done it’s homework on the retail grocery sector. The mere notion that Whole Foods is seeking a monopoly is purely blind bureaucracy. If you fully understood the changing market place for grocers you would appreciate the true motives for the proposed acquisition. Whole Foods is seeking to compete against the giant mega-corporations that are not only emulating Whole Foods in everything from product lines, design and architecture, but are siphoning off market share from what the FTC calls, Whole Food’s “niche” market. It’s a matter of survival against the huge mega grocers. These are some of the same mega corporations for who the FTC routinely allows mergers and acquisitions that allow their huge companies to monopolize the grocery sector even further. If anything poses a threat to fair trade it is truly the FTC by laying down and letting the mega-corporations lobby the agency to maintain status quo monopolistic tactics. Whole Foods Market has acquired many smaller companies in the past and maintained truth in what Whole Foods calls it’s core values greater than ever before. The point your agency misses is that Whole Foods is looking to grow more stores in order to adequately compete. To compete. a grocer like Whole Foods is not looking to monopolize and bring retail prices out of reach, but use the larger size and procurement power to keep prices down in a more mainstream retail profile. If you compare retails on natural and organics you will find that the mega grocers can afford mass procurement yet fail to pass the savings on to retail customers. That in itself is monopolistic price setting considering the growing popularity and demand for natural and organic. I have found that Whole Foods prices on natural and organics are less expensive than at regular grocery stores and in most cases by a large margin. The other point missed is that with healthy food awareness being prevalent and growing rapidly in American society, the number of manufacturers, producers and growers of natural and organics has grown exponentially. This has been a catalyst for healthy competition on the wholesale side which has helped bring retails down. The retail grocery landscape has radically changed as has the eating and buying habits of grocery customers. You truly don’t understand the true mission of Whole Foods which is indeed to bring better products to all those who want them and to keep them affordable. What the FTC can’t grasp is that natural and organics are now popular mainstream products. If natural and organic products were not as such, then the big grocers would not be carrying these products in the amounts that they are, they would not be emulating Whole Foods from simple ad fonts to remodel architecture and would not be so vigorously pursuing every last penny of market share from Whole Foods Market. You have to understand that this acquisition is what the American public wants, yet the FTC, an agency that serves the people of the US, gives in to lobby pressure from the mega grocers that pose the biggest threat of monopolistic price control and are most responsible for the demise of smaller producers and farmers. What is apparent is that there is a large helping of hypocrisy topped with double standard and maybe even a few grains of corruption. When this goes to court it will be apparent that the true lobby behind the Competition Bureau’s decision are the mega grocers like Wal-Mart, Kroger, Safeway and the agitated private competitor Trader Joe’s, not the mom and pop health food stores and specialty stores

2007 Jun 06 03:05 PM