As Whole Foods Turns

Yesterday's Wall Street Journal reported on the opening of the hearing in a US District Court on the Federal Trade Commission's motion for a preliminary injunction blocking Whole Foods' proposed merger with Wild Oats, another organic supermarket chain ("Court Hears Two Sides To Whole Foods Deal", p. A4). As expected, the principal bone of contention is what the definition of the market that Whole Foods and Wild Oats compete in. The FTC contends that it should be upscale organic supermarkets, while Whole Foods believes that it should be all grocery stores and farmers' markets. Also at issue are the effect on prices that the merger would have on the markets where Whole Foods directly competes with Wild Oats.

I am very sympathetic to Whole Foods in its fight with the FTC. As I have previously written, to argue that Whole Foods only competes with other upscale organic markets ignores the reality that mainline grocery stores are increasingly copying the type of product that Whole Foods sells and the way it sells it. Were I Whole Foods management, I would be much more afraid of what Kroger and Safeway can do with their deep pockets than a competitor like Wild Oats. For those who are interested in an articulate and powerful defense of Whole Foods' position, see this blog post by John Mackey, Whole Foods' CEO. He comprehensively lays out the reasons why Whole Foods wants to buy Wild Oats and why the FTC's complaint does not make a very good argument. Among other things, he points out that Whole Foods doesn't even regard Wild Oats as its principal competitor: that distinction belongs to Trader Joe's, Central Market, and Wegman's; and the competition that these chains offer constrain Whole Foods' prices more than Wild Oats ever could. There's a ton of good stuff there, and not just about the competition angle of the suit.

And thanks to Sara for her links to stories in the Austin American Statesman about Trader Joe's and John Mackey.