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We reported yesterday that the US Federal Trade Commission (FTC) will file a lawsuit designed to block the $565 million acquisition of Wild Oats by Whole Foods, with the FTC saying that the deal would result in less competition, higher prices, and lowered quality and service. Whole Foods plans to challenge the FTC’s decision.

We commented: There are two ways to look at the industry when considering the merger of Whole Foods and Wild Oats.

One is that they are the two dominant players in a small natural/organic retailing industry.

The other is that they are the biggest niche players in the much larger US supermarket industry.

The FTC decided to look at the industry in the first way, but the FTC is flat wrong. After all, how can Whole Foods and Wild Oats be an industry unto themselves when virtually every major supermarket in the country has organic foods and is expanding the selection in this category?

Once again, the guys in Washington have proven they see the world through the prism of bureaucracy, unable to see past the Beltway and get out of their own way.

Further proof of this is the assertion that by joining forces, Whole Foods and Wild Oats will raise prices and lower quality and service – when it seems to us that having greater buying power could in fact lower prices. And Whole Foods’ entire business model is quality-centric and customer-focused…so going in the opposite direction would be antithetical to everything that has made the company successful.

When the FTC takes actions like these, it is our tax dollars at work.

We want a refund.

One MNB user wrote:

I agree on the Whole Foods/Wild Oats FTC decision. The FTC is going to get egg on their face with this one.

WF and WO are grocery chains, same as Kroger, Albertson’s Safeway! Just because they happened to have a certain product selection is no reason to single them out! If that is how the game is played, well then Kroger, Supervalu etc. should not be allowed to buy up the Dillons, Smiths and Giant Eagles of the market.

Another MNB user wrote:

It seems to me that the merger should be examined in a “whole spectrum of groceries” light. Sure, for those of us who shop mostly these stores, it looks like a scary merger. But whither we go, the mainstream goest, too.

Mainline groceries would love to get those of us who willingly plunk down cash (credit and checks) at “Whole Paycheck.”

We’d love to have more options in mainline stores, without looking for the six linear feet of shelf space with dusty boxes. (I’m talkin’ to you, King Soopers!) Frankly, if WO is willing to sell, and they need to sell, let WF bid. I’d love to see the name and locations kept as much as possible. A Wild Oats is considerably smaller than a Whole Foods, even here in Wild Oats’ home territory of Colorado.

It is similar to choosing a neighborhood scale grocery over a supercenter.

Wild Oats grew by purchasing smaller chains and single-store companies. So too, has Whole Foods, especially overseas.

This is a time that will test the long-term viability of the one-stop heath food, natural food and gourmet store. If I don’t like what they become, back to the co-ops and Vitamin Cottages I‘ll go.

MNB user Mark Post wrote:

I couldn’t agree with you more. The FTC obviously hasn’t looked outside the beltway or themselves visited a grocery store in the past 5 years. Organics and natural foods are everywhere even in their backyards. They should talk to their wives and housekeepers and might actually learn about what’s taken place with the selection of organic foods in almost every grocery outlet in the US. Whole Foods is struggling to compete against the big retailing machines. They need all the help to leverage their purchasing power for lower prices to be more competitive.

MNB user Adam Erickson wrote:

I could not agree with you more and was thinking the exact same thing while reading of the FTC’s decision regarding the potential acquisition. Whole Foods is tiny as a retailer of food compared to big box and supermarket retailers, who are also getting heavy into organics. Wal-Mart actually sells more organics than any other company, so how could the FTC possibly come to the conclusion that Whole Foods would become dominant? If anything this sounds like Wal-Mart lobbying dollars at work. I think a merger between Whole Foods and Wild Oats would actually increase competition nationally by enabling them economies of scale to compete on price with much larger retailers of grocery. What was once a niche market really is mainstream, which is why Whole Foods, Trader Joe’s, etc. are expanding rapidly. In my opinion they should be rewarded, not inhibited, for this.

Another MNB user wrote:

I couldn't have said it better. The FTC is wasting our tax dollars. Having been required to provide information on this and other prior mergers, it is painfully clear that the FTC is void of anyone with an ounce of business sense. They clearly do not get our business nor how consumers view their choices.

Yet another MNB user wrote:

I agree that there are two ways to look at it, but if you read the article in the WSJ, it points out, correctly, that WF will shutter many Oats stores, thus reducing choice for consumers and getting a rival out of the way in many markets. The natural and organic marketplace is much broader and has more choice than what supermarkets currently carry and its vibrancy is based on entrepreneurs being able to gain a foothold in the marketplace. Many small vendors were really concerned about the merger as WF will only carry a certain number of brands; Wild Oats carried many others. Also, both are serviced by UNFI and it allows UNFI to have an even bigger stranglehold on the distribution of natural and organic products. I think the FTC has a case…that being said, I think WF can do a lot with Wild Oats if they are willing to make some concessions to the concerns raised by the FTC. I do think WF can make the best use of Wild Oats potential assets as well, so I am actually rooting for the merger to happen with some conditions.
KC's View: