FTC, Whole Foods Battle Over Wild Oats Buy

AUSTIN, TX-Today, the Federal Trade Commission is filing a complaint in the US District Court for the District of Columbia seeking a temporary restraining order and preliminary injunction to halt Whole Foods Inc.’s planned $700-million acquisition of Wild Oats Markets Inc. Locally based Whole Foods was notified of the FTC’s intentions yesterday and has vowed to challenge the FTC’s opposition.

According to the FTC complaint, the merger “would violate federal antitrust laws by eliminating the substantial competition between these two uniquely close competitors in numerous markets nationwide in the operation of premium natural and organic supermarkets.” If the transaction continues unopposed, the FTC contends in a statement, “Whole Foods is likely to raise prices and reduce quality and services unilaterally.”

The merger agreement was announced on Feb. 21, as GSR previously reported, and was expected to close this April, pending regulatory approval. On June 5, the commission voted 5 to 0 to authorize moves to block the deal pending an administrative trial.

Calling the two organic grocery chains “each other’s closest competitors in premium natural and organic supermarkets,” Jeffrey Schmidt, director of the FTC’s Bureau of Competition, says in a statement, they are “engaged in head-to-head competition in markets across the country. If Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality, and few choices to consumers. That is a deal that consumers should not be required to swallow.”

“We are very disappointed by this decision and we intend to vigorously challenge the FTC in court,” responded John Mackay, Whole Foods’ chairman and CEO, in a statement. “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 Market.

“Evidently the FTC does not appreciate the many benefits for consumers of the proposed merger, including our plan to invest capital in and improve many of the stores currently owned by Wild Oats,” Mackay adds. The Whole Foods statement goes on to say it believes “that the FTC’s position is without basis and contrary to its position in past merger reviews, where its definition of supermarkets has included conventional supermarkets as well as Whole Foods Market and Wild Oats.”

The FTC statement says, “In defining the relevant markets, the Commission found that premium natural and organic supermarkets, such as Whole Foods and Wild Oats, are differentiated from conventional retail supermarkets in several critical respects. These include the breadth and quality of their perishables . . . and the wide variety of natural and organic products and services they offer.

“In addition, premium and organic supermarkets seek a different customer than do traditional grocery stores,” the FTC statement continues. “Whole Foods’ and Wild Oats’ customers are buying something more than just the food product. They are seeking a shopping ‘experience’ where environment can matter as much as price.”

Greg Mays, chairman and CEO of Wild Oats, issued a statement saying his company also disagrees with the FTC’s position. Wild Oats is confident, he says, that the court “will agree that this merger is pro-competitive and the FTC’s application for an injunction will be denied, thus allowing us to proceed forward with the merger.”

The FTC files a complaint when it has reason to believe that a law has been or is being violated and it “appears” that an FTC complaint is in the public interest. A complaint is not a finding or a ruling that the parties named in the complaint have violated the law.

An acquisition of Boulder, CO-based Wild Oats would add approximately 110 natural food stores in 24 states and Canada to Whole Foods’ approximately 195 stores in the US, UK and Canada.