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 (NYSE: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: