Wednesday, January 21, 2009

Retail Memo: An Argument in Favor of the FTC in FTC v. Whole Foods Market, Inc. -- Or At Least Against Whole Foods' Legal Tactics

FTC v. Whole Foods Market, Inc.

Natural~Specialty Foods Memo (NSFM) argues that in the FTC v. Whole Foods Market, Inc. case, in which the U.S. Federal Trade Commission is attempting to unwind the 2007 merger between Whole Foods and the former Wild Oats Market, Inc., that the FTC is wrong in its argument that a combined Whole Foods-Wild Oats represents a monopoly in 29 U.S. markets in what the regulator calls the "premium natural and organic retailing segment."

In fact, we've more than once said the entire argument and legal case against the deal is basically pure folly.

Our primary argument is two-fold: The "premium natural and organic retailing segment (PNOS)" is today a creative fiction. It's not relevant to how natural and organic foods are retailed today in the U.S. The retailing of category products is a multi-format, highly competitive business. Players range from mega mass-merchandisers Wal-Mart, Target and Costco, to national supermarket chains Safeway Stores, Inc. Kroger and Supervalu (as well as scores of big, medium and small regional supermarket chains and independents), along with numerous small, regional natural foods retailing class of trade chains and thousands of independents. Then there's online retailers like, FreshDirect (and others) and other emerging formats, not to mention Trader Joe's and a few others.

Since the segment (PNOS) created by the FTC is fiction, and sense natural and organic foods retailing today is a multi-format business that includes numerous players much bigger than Whole Foods, as well as many more smaller but just as good, the entire premise of the FTC's case really is a fiction.

In addition, since the deal in the summer of 2007, Whole Foods Market, Inc. has seen a drop in its net income in its latest quarter by over 40%, seen the value of its stock drop by a whopping 70-plus percent, had to sell of 17% of the company to the Leonard Green & Partners private equity firm, getting $465 million -- about 60% less than 17% of the company was worth about 18 months ago.

Additionally, the natural grocery chain has laid off about 100 employees at its corporate headquarters (in late 2008), froze hiring at the headquarters, cut back on hire at store-level, and has reduced the number of new stores it plans to open this year by over half -- from about 35 to about 15. [This is a brief summary of our argument. See the bibliography at the bottom of this piece for numerous, much more elaborate arguments on these points.]

Monopolists have to pass the empirical smell test. Based on its performance since the merger Whole Foods looks not like a monopolist but rather more like a struggling retailer and company. When is the last time you observed a monopolist that has lost 70% of its corporate value in the last 18 months?

Despite our position, we constantly are looking for articles that take the opposite point of view -- that agree with the FTC that Whole Foods market is a monopolist in the 29 U.S. markets the regulator says the company is. We can never find any. Its also very difficult to find people, including smaller natural foods chains and independent retailers, that think Whole Foods is a monopolist post the Wild Oats merger.

However, today we found an article from the Washington, D.C-based legal Web site Corporate Crime Reporter that agrees with the FTC position -- sort of. As you will see when you read it, the piece primarily attacks Whole Foods' legal strategy and team more than it offers a solid argument against the merger. It does however link to another article, actually a legal brief, that does make a legal argument against the deal.

We bring you that article (in italics) below:

Whole Foods, Lanny Davis, and the Attack on the FTC

23 Corporate Crime Reporter 3, January 21, 2009

Whole Foods has merged with Wild Oats.

The Federal Trade Commission says the merger was illegal.

The FTC wants to unwind the merger.

Whole Foods is fighting back hard.

It has hired Orrick partner Lanny Davis to beat back the FTC.

Davis practices not just law, but as he puts it – legal crisis communications.

What is that?

“Balancing the perspectives of litigators with the need to communicate effectively with the media and the public,” Davis says.

Translate – legal public relations.

So, for example, last week, Whole Foods...

[Click here to read the full article from the Corporate Crime Reporter Web site.

NSFM Reader Resource

Below is a bibliography of recent stories and posts published in Natural~Specialty Foods Memo (NSFM) on the FTC. vs. Whole Foods Market, Inc. legal case and merger issue:

January, 2009:

January 19, 2009: Retail Memo: Concerned With Fast-Looming FTC Hearing Date Whole Foods Re-Files Lawsuit Taking it Directly to Washington, D.C. Federal Appeals Court....January 19, 2009: Retail Memo - Breaking News: Portland's New Seasons Market and Whole Foods Market, Inc. Reach Agreement; New Seasons Will Provide Trade Secrets....January 16, 2009: Read Memo: Colorado Newspaper Columnist Joins NSFM's 'Whole Foods Market Isn't A Monopoly' Bandwagon....Friday, January 16, 2009: Retail Memo - Exclusive: Supermarket Industry Investor Ron Burkle Looking For A Seat On Whole Foods Market's Board of Directors....

Thursday, January 15, 2009: Retail Memo: Natural-Organic Foods and U.S. Retail Marketplace Realities; Why the FTC's Case Against the Whole Foods-Wild Oats Merger is Pure Folly....Thursday, January 15, 2009: Retail Memo: Fresh & Wholesome Market Fears Not A Whole Foods Market Monopoly; In Fact Part of its Competitive Strategy is to Be the Anti-Whole FoodsRetail Memo: Whole Foods Offers Carrot and Stick to Retailers That Have Yet to Comply to Subpoena For Trade Secret Data and Information....

Monday, January 12, 2009: Retail Memo - Breaking News: Whole Foods Press Conference Tomorrow; Objective: Get Retailers to Comply With Subpoena; Need: Urgent....Monday, January 12, 2009: Retail Memo: FTC Asks Judge to Force Whole Foods to Put Most of the Wild Oats' Genie Back in the Bottle Pending A Resolution of its Merger Challenge....

December, 2008:

December 29, 2008: Retail Memo - Breaking News: New Seasons Market Doesn't Turn Over Trade Secrets to Whole Foods Market Despite Deadline to Do So Being Today....December 29, 2008: Independent Grocer Memo: Natural-Organic, Local, Fresh and Premium Keys to Pacific Northwest USA's Haggen Foods; Now Adding Value....December 28, 2008: Retail Memo: Web Site and Blog-Driven Viral Boycott of Whole Foods Market Stores in Portland, Oregon Region Going On; Could it Intensify?....December 28, 2008: Retail Memo: Tomorrow Deadline For Portland, Oregon's New Seasons Market to Turn Over Trade Secrets to Whole Foods Market's Legal Counsel....

December 24, 2008: Christmas Eve Memo 2008: 'Twas the Night Before Christmas' - FTC v. Whole Foods Market, Inc. Version....December 24, 2008: Independent Grocer Memo: From Mrs. Gooch's to the Auto Body Business, Then Back to Retail, Chris Kysar is On A Healthy Organic Foods Retailing Roll....December 24, 2008: Retail Memo: It's 'Deja Vu All Over Again' - Judge Paul Friedman to Whole Foods Market, FTC: 'What's My Role Here?'....December 23, 2008: Retail Memo: FTC Postpones Scheduled February 16 Administrative Hearing on Whole Foods-Wild Oats Deal Break-Up Until April 6, 2009....

December 23, 2008: Independent Grocer Memo: National Grocers' Association Asks President-Elect Obama to Look Out For Independent Grocers When He takes Office in January....December 22, 2008: Retail Memo: Only Slightly More Than Half the 93 Natural Foods Retailers Issued Subpoenas By Whole Foods in its Case against the FTC Have Complied.... December 22, 2008: Retail Memo: Whole Foods Market Wants to Depose and Obtain Internal E-Mails From FTC Commissioner, Suggesting Possible Conflict of Interest Situation....December 22, 2008: Retail Memo: At Hearing Today Judge Tells FTC to Provide Road Map of How Whole Foods Could Take About Merged Companies Should Ruling Go In its Favor....

December 19, 2008: Retail Memo: Whole Foods' Lobbying Effort Baring More Fruit - House Committee Leaders Send Letter to FTC Chair Similar to One Sent By Senate Leaders....December 18, 2008: Retail Memo: 'This Isn't Over Yet' - New Seasons Market CEO On Judge's Decision the Natural Gorcer Must Turn Over Trade Secrets to Whole Foods Market.... December 18, 2008: Retail Memo: The 'Whole Primary Source Scoop' -- FTC and U.S. Federal Court Documents on the FTC v. Whole Foods Market, Inc. Case....December 17, 2008: Breaking News: Judge Orders New Seasons Market to Comply With Whole Foods' Subpoena and Submit Sales Data, Financial Records and Other Trade Secrets....

December 16, 2008: Retail Memo: Whole Foods, Wild Oats and Boulder, CO...And the Rocky Mountain News' Editorial Take On FTC v. Whole Foods Market, Inc....December, 15, 2008: Retail Memo: Eight Members of U.S. Senate Judiciary Committee Send Letter to FTC Chairman Regarding FTC's Legal Case Against Wild Oats' Acquisition....December, 13, 2008: Retail Memo - Analysis & Commentary: More On FTC v. Whole Foods Market, Inc. and Whole Foods Market, Inc. v. FTC....

December 9, 2008: Organics Category Memo: Wither Organics? Organic Food & Grocery Category Sales Down; But Double-Digit Growth Still Likley With Mass Market Lift....December 9, 2008: Retail Memo: Whole Foods Markets' 'Whole Legal Paycheck:' Three Top Washington, D.C. Law Firms Teaming Up On The Natural Grocery Chain's FTC Lawsuit....December 9, 2008: Retail Memo: Whole Foods Market CEO John Mackey and Team Launch First Aggressive Attack Against the FTC's Legal Case at Press Conference This Morning....

December 8, 2008: Retail Memo: Mr. Mackey (and the Whole Foods Market Troops) Goes to Washington....December 8, 2008: Retail Memo: Breaking News - Whole Foods Market, Inc. Files Lawsuit Against the FTC; Argues the Regulator Violated the Company's Due Process Rights....December 7, 2008: Retail Memo: New Seasons Market CEO Brian Rohter and Whole Foods Market Co-President Walter Robb Discuss and Debate the Subpoena Issue Online....

December 7, 2008: Retail Memo: New Seasons Market CEO Brian Rohter Speaks Out Again Today on the Whole Foods Market, Inc. Subpoena of His Company's Data....December 7, 2008:Retail Memo: Whole Foods Market Retains Top Washington D.C. lawyers and Politically-Connected Lobbyists to Plead its Case Against the FTC....December 6, 2008: Retail Memo: Fast-Growing and Scrappy Sunflower Farmers Market Ventures Deep in the Heart of (Whole Foods Country) Texas....

December 3, 2008: Retail Memo: More on the Whole Foods Market-New Seasons Market Subpoena Issue; FTC Holding Firm For February, 2009 Hearing....December 2, 2008: Retail Memo: Whole Foods Market, Inc. Closes $425 Sale of Stock to Private Equity Firm; Adds Members of the Firm to its Board of Directors....December 2, 2008: Retail Memo: Portland, Oregon-Based New Seasons Market CEO Brian Rohter Responds to Whole Foods Market's Paige Brady....

December 2, 2008: Retail Memo: Whole Foods' Paige Brady Responds to Yesterday's New Seasons Market Piece; Lots of E-Mails; Issue Heats Up On the New Seasons Market Blog....December 1, 2008: Retail Memo: Whole Foods Wants A Court-Mandated Financial Records Dump from Portland-based New Seasons Market; it Says For its Battle Against the FTC.

Natural~Specialty Foods Memo (NSFM) Archives

FTC v. Whole Foods - Linkage from the NSFM archives:

Click here, here and here for stories about the FTC-Whole Foods issue from our archives, including pieces about mass market and natural foods class of trade retail competitors.

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