This Bloomberg article on Austin-based Whole Foods’ proposed acquisition of Wild Oats Markets confirms that officials at the Federal Trade Commission do not have enough to do:
U.S. antitrust regulators plan to file suit to block the proposed merger between Whole Foods Market Inc. and Wild Oats Markets Inc., the largest and second- largest natural-foods grocers. [. . .]
The agency is concerned that the combined company will control too much of the U.S. natural-foods market and increase prices. . .
“If Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality, and fewer choices for consumers,” Jeffrey Schmidt, director of the FTC’s Bureau of Competition, said in a statement. “That is a deal consumers should not be required to swallow.”
The commission voted 5-to-0 to authorize staff to seek a temporary restraining order.
I mean, what on earth are these people at the FTC thinking? Since they haven’t moved to block a retail merger in a decade that it’s time to try and block one? What else could explain attempting to block a relatively small $600 million deal that would result in a combined company with just over 300 stores? Besides, it’s not as if Whole Foods is doing all that great, anyway.
The FTC seems to be saying that Whole Foods and Wild Oats are in a different market than conventional grocery chains. But that’s just plain silly. Not only will customers move to non-organic products if Whole Foods and Wild Oats price an organic alternative too high, virtually every retail grocery operation is now offering their own organic section in their stores. For goodness sakes, even Wal-Mart is offering an organic product section in many of its grocery stores these days.
Dana Cimilluca over at the WSJ DealJournal speculates that the FTC action is a pure political move to chill the overheated merger market. Maybe so, but that’s sure a petty reason to deny a relatively small group of shareholders an opportunity to realize some increasingly rare equity upside in the brutally competitive grocery business.
The FTC seems to be saying that Whole Foods and Wild Oats are in a different market than conventional grocery chains. But that’s just plain silly.
This is one of those comments I honestly don’t know the proper way to respond to, as it’s somewhat dumbfounding. (I respect and enjoy your blog, so I do not want to come off as being snarky; but I am at a loss for words.)
Wild Oats and Whole Foods are night-and-day different from a most supermarkets. The people who shop at both stores are different. The cars in the parking lot are different. The prices are different. The selection is different.
If I blindfolded you, put you in the middle of a grocery storye, removed the blind fold, and said: “Are you at Wal-Mart or Wild Oats,” you would have no problem answering – assuming, of course, you have shopped at both stores. They are just *that* different.
Wild Oats and Whole Foods serve such a different market that you can *feel* it when shopping there. (My wife and I, actually, are always complaining about how *obnoxious* and rude the people who shop at WO/WF are. We even have some pet “theory” – that’s not favorable – about people the types of people who shop at these stores.)
I am not, of course, saying that prices for organic food is inelastic. Nor am I saying that the FTC’s intervention is a good idea. (As someone who thinks Wild Oats is a better store for a number of reasons, I’m personally glad the merger isn’t going forward just yet.)
But as someone who has shopped in everything from a small-town Wal-Mart to a metropolitan Wild Oats, I see a stark difference between the markets served.
Here is an e-mail I sent to both the FTC antitrust division and Sen Bobby Rush, head of the Senate sub-committee for Trade.
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
Iím writing in response to legal actions taken against Whole Foods Market and itís 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 itís 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 Foodís ìnicheî market. Itís 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 itís 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 donít 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 canít 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 Bureauís decision are the mega grocers like Wal-Mart, Kroger, Safeway and the agitated private competitor Trader Joeís, not the mom and pop health food stores.
Mike, in Houston and several other Texas urban markets, conventional grocery chains such as HEB, Kroger and Safeway have converted large portions of new stores to offering the type of organic and natural products that Whole Foods and Wild Oats offer. I would agree with you that the “culture” of the Whole Foods and Wild Oats stores are different than conventional grocery stores and that there are customers who shop for their groceries exclusively at those stores. However, my sense is that the vast majority of Whole Foods and Wild Oats shoppers are like you and your wife and my wife and me — we shop at both Whole Foods or Wild Oats and conventional stores for different products and purposes. Given the transformation of some of the conventional stores to compete with the Whole Foods/Wild Oats stores dramatically decreases the anti-competitive effect of the proposed merger. Thanks for reading Clear Thinkers.
I agree with Mike, both in his stated respect for Tom and this blog, and in his assessment that the two serve extremely different markets. And, as a longtime reader of this blog, I would be interested in hearing about a particular business practice that you (Tom) think violates antitrust law (state or federal).
(you don’t have to answer this, but you’re an unapologetic economic libertarian, so I’m interested in hearing about where you draw the line).
Daniel, my view is simply that, as a general proposition, the cost of reasonable governmental regulation of the questionable business practices should not far exceed the cost of the business practice being regulated. But that view is not incompatible with reasonable regulation, even in the anti-trust arena. A good example of a clear violation of the anti-trust laws is the professional football and basketball owners’ restriction of compensation to young football and basketball players, which they get away with through the price-fixing charade of NCAA football and basketball and unnecessary collective bargaining agreements between the owners and the players. As always, thanks for the kind words and for reading Clear Thinkers.