Thursday, February 26, 2009

Daily Memo: Whole Foods Market - FTC Settlement Deal Watch - 9 Days to March 6

There was no announcement at the end of business today, Thursday, February 26, 2009, regarding a settlement deal between the U.S. Federal Trade Commission (FTC) and Whole Foods Market, Inc. on the FTC's legal challenge to overturn Whole Foods' 2007 friendly acquisition of Wild Oats Market, Inc.

The FTC halted its legal proceedings in its ongoing case against the deal until March 6 while the federal government agency responsible for antitrust and consumer protection issues and the Austin, Texas-based natural foods grocery chain hold talks designed to negotiate a settlement to the FTC's now about 18-month challenge to the merger.

While the clock is ticking towards March 6, the FTC could extend its legal proceedings halt beyond that date if it feels negotiations are promising but that all that's needed is more time to arrive at a settlement deal.

However, the FTC has an April 6 date set for an administrative trial in which an agency-appointed Administrative Law Judge will hear arguments from both parties on the acquisition-merger and at the end of the proceeding make a decision on the status of the combined Whole Foods-Wild Oats. Whole Foods has virtually completed integrating all but a handful of the Wild Oats stores into its culture and corporate operations, rebranding all but about 6-10 of the former Wild Oats stores that it hasn't sold or closed (about 100) to the Whole Foods brand.

[Read our first column of the countdown to March 6 here: Daily Memo: Whole Foods Market - FTC Settlement Deal Watch - 10 Days to March 6. The link also includes (at the bottom of the post) a compete bibliography of our recent coverage and analysis of FTC v. Whole Foods Market, Inc. from December 2008 to the present, as well as containing archival links to past stories from NSFM on the topic and issue going as far back as the summer of 2007.]

FTC. V. Whole Foods Market: News and Notes

A wise old Motley Fool:

The financial and investment publication "Motley Fool" appears to agree with Natural~Specialty Foods Memo's (NSFM) analysis and argument, which we've been making since August, 2007, that the FTC's 18-month challenge to Whole Foods Market, Inc.'s friendly $565 million acquisition of Wild Oats is folly.

Here's what Motley Fool writer Alyce Lomax wrote about the FTC. v. Whole Foods case in a general piece in the online publication on February 17, 2009 about government regulation and federal regulatory agencies like the FTC: "Regulators vs. reality: Meanwhile, I’ll bet we can all think of examples when regulators have done things that simply didn’t seem to make sense. How about the Federal Trade Commission’s bizarre and ongoing witch hunt against Whole Foods Market (Nasdaq: WFMI)? Whole Foods’ CEO John Mackey contended that the FTC asked for more documentation from his company when it was trying to acquire Wild Oats than it demanded when ExxonMobil (Nasdaq: XOM) hooked up. Meanwhile, the whole thing was absurd, since Whole Foods faces competition from everybody from Wal-Mart to Trader Joe’s."

Sounds about right to us.

[You can read the full piece, "The Trouble With Regulation, here.]

Whole Foods and its competitors:

The FTC's central antitrust argument regarding a combined Whole Foods-Wild Oats is that Whole Foods Market, Inc. now constitutes a monopoly in various U.S. markets in what the regulator calls the "premium natural and organic retailing segment (PNOS)." We argue this is wrong because the FTC-created category is non market reality-based and doesn't depict how natural and organic foods are retailed in the U.S. today.

That reality is that Whole Foods has plenty of competitors -- from fast-growing natural foods chains and independents to discounters like Trader Joe's, mega-discounters getting deeper into the categories like Wal-Mart, Costco, Target and others, mega-supermarket chains like Safeway Stores, Inc. with its Lifestyle format (1,750 stores in the U.S. and Canada), Kroger Co. and Supervalue, along with scores of big regional chains like Publix in Florida, H-E-B in Texas, Wegmans in New York, Raley's in Northern California and dozens more, topped off by scores of multi-store upscale independents and even more single store independents, all deep in natural and organic products merchandising and sales.

Three of those fast-growing natural foods class of trade chains agree with us based on their behavior. Those natural grocers -- Colorado-based Sunflower Farmers Market, Colorado-based Natural Grocers and Arizona-based Sprouts Farmers Market -- all are opening stores in Whole Foods Market stronghold markets throughout the Western U.S., taking the competitive battle right to the leader. These states include Colorado, New Mexico, Arizona, California -- and now Texas, where Whole Foods is headquartered, and where some might think it owns the natural and organic foods retailing market.

Not so. Sunflower Farmers Market just opened its latest Texas natural foods market right in Austin, Whole Foods' home town. It has, and is building, additional stores throughout the state. Sunflower now calls its Texas stores Newflower. The grocer hasn't confirmed it but the change from Sunflower in Texas (and it's just in Texas) to Newflower could be because there is a long time health foods store in the state that uses the Sunflower name.

Sprouts and Natural Grocers also have stores in Texas and plan more. Sprouts announced this week in fact it has just signed a lease for another Texas natural foods market. Sunflower-Newflower will be announcing shortly leases for two more new store sites in Texas, according to one of our sources.

Would these three fast-growing natural foods retailers really challenge Whole Foods on its home turf if they thought it was a powerful monopoly natural products retailer? Of course not. They are doing so for the complete opposite reason: They believe the Whole Foods Market business model and format is vulnerable to their smaller, fewer-frills, everyday low price formats, which is something all three of these Western U.S.-based chains have in common.
Maybe the FTC should just watch the market -- and the behaviors of Whole Foods Market's competitors? Just a thought.

FTC Chairman watch: Tomorrow?

On Tuesday in this piece [Retail Memo - Breaking: FTC Commissioner Jon Leibowitz Odds On Favorite to Be Named Chairman; Positive Development For Whole Foods' Settlement Talks] we wrote that current FTC Commissioner Jon Leibowitz, a Democrat, appears to be a lock as the new chairman of the regulatory agency. We said President Obama was likely to make the announcement before the end of this week. We are told by our sources the President will do so tomorrow. But President Obama is a rather busy President these days, so it might not happen on Friday. However, we continue to believe Leibowitz is the man.

Lanny Davis: The Zelig of Washington D.C.

Speaking of busy people, Washington D.C. lawyer (partner in the Orrick law firm) and Democratic Party major player Lanny Davis, who is the lead outside counsel and head lobbyist for Whole Foods Market, Inc., as well as the lawyer heading up the current settlement talks with the FTC for the natural grocery chain, (there are three Washington, D.C. law firms retained on the case) in its battle against the FTC., still has time not only to handle other clients for his firm, and to appear as an analyst at least once a week on CNN or Fox News (along with a few other projects), but he's also doing some Op Ed writing this week.

Davis, who was a fraternity brother at Yale College with former President George W. Bush, went to Yale Law School with former First Lady, Senator from New York and now Secretary of State Hillary Clinton, and has been best friends with her since then (including being one of her top advisers in her run for President last year), as well as serving as Special Counsel to Bill Clinton when he was President, is a volunteer with the Israel Project, an American nonprofit group that describes itself as being organized to get out facts about Israel to the media.

As part of that fact-communicating project, Lanny Davis wrote an opinion piece titled, "A Nuclear Iran; Just Suppose..." in Monday's (January 21) edition of the conservative Washington, D.C. daily newspaper The Washington Times. You might find his opinion and position on the issue interesting. [Click here to read the opinion piece.]

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