By Peter Lattman
The WSJ has three stories related to Whole Foods. In one, we learned that the natural-foods grocer is opening its first store in London. In another, we learned that the traditional grocers like Kroger and SuperValu are fighting back after being crushed from Wal-Mart on the low end and Whole Foods from on high.
But it’s the third story that really turns us on. The FTC said yesterday that it would file a complaint today to block the proposed merger between Whole Foods and Wild Oats, arguing that the merger would lead to higher prices for natural and organic products in markets where the two chains compete. Whole Foods announced in February that it planned to acquire Wild Oats for $565 million. It’s an unusual move for the Bush adminstration; the WSJ cites a study showing that the administration rarely meets a merger it doesn’t like.
Says Jeffrey Schmidt, director of the FTC’s bureau of competition: “If Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality and fewer choices for consumers.”
“Grass-fed organic baloney!” say Whole Foods and Wild Oats executives. They say that Whole Foods not only competes with natural and organic food stores, but more traditional chains as well. (Indeed, they might consider emailing the FTC today’s WSJ story on traditional supermarkets.) A Wall Street analyst told the Times that 74 percent of natural and organic foods were now sold through conventional supermarkets and the like.
Stephen Calkins, a law professor at Wayne State and former FTC general counsel, told the Times the FTC’s challenge was reminscent of its block of a merger in 1997 between Staples and Office Depot. Though the stores argued that office products were widely available, the FTC said that prices at both stores depended on the proximity of other office superstores. He told the Times: ”In terms of Whole Foods, the single most important question will be: Are the prices higher when the other store is not present?”
The WSJ says the move to block the merger boils down to a different question: Are Whole Foods and Wild Oats natural-food chains or grocery stores?
I agree with the WSJ question. I think as in the Staples case, the real question is the market definition. I think it only makes sense to view organic/healthy food as a wider market than office supplies, and as a result competition from other grocers should be taken into consideration in this merger analysis. The big picture question is always will the merged entity be able to raise prices and restrict output. I’d guess that should the merged Whole Foods/Wild Oats company price its products as a monopolist would, savvy retailers such as Giant, Safeway and other established grocers would destroy them. the FTC should allow the merger, and let the GROCERS fight it out
The FTC seems like they haven’t been food shopping since 1987.
Who is the FTC protecting?
Large political donors somewhere are gettign their money’s worth. There is absolutely no reason for the FTC to even contemplate an action where the 2 companies at issue control a very small percentage of a grocery market where the other larger participants have clearly emulated their product and directly compete.
A disgrace. How about lookign into stocking arrangements at drugstores and supermarkets and find out why even the cheapest toothbrush costs $3.
How many of us have lived in a locale where there was only one store that sold organic or natural foods? Was that then not a monopoly; did FTC or anyone challenge that?
Wow man! Overpaying for ‘health foods’ - has that ever happened.
I am just amazed at the FTC. This is the deal that you want to kill after all of the other mega mergers that created much more of a monolopy and anti-competitive enviroment. Whole Foods and Wild Oats have about 2% of the overall food market. Yea, they are really going to dominate the marketplace. Especially as all of the grocery stores roll out all of their competeing products like Safeway’s O organic line that now sells about $150 million a year. Lets not forget that Wild Oats is a very poorly run company that has no permanent management team and if not allowed to be bought out will proably be forced to sell itself for a lower price. That will really help the overall market.
This reminds me of the Sirius-XM merger. The government says that it will be a monopoly and will do nothing buy harm consumers. Ummm, to get all four of the major sports on the radio I have to subcribe to both, have two radios and two bills. Only having to have one service and one bill would be nothing but a help and savings of money to me. But again, the government says it will not help me and if they raise prices I will be far too stupid to cancel. So glad big brother is there to save me. The best part of the whole thing is the regular radio stations arguing that deal should not go through because it will be a monopoly, but we don’t actually compete head to head. We only are paying big bucks to lobbyist to kill a deal, but they don’t think they compare head to head. Love that have your cake and eat it too argument.
Now if this terrible Whole Foods and Wild Oats deal is allowed to go through they could raise the prices to $50 for a loaf of bread and I would just have to pay it. I mean, I have no other choice. Whew, so glad the FTC is smart enough to save me.