Wednesday, March 4, 2009

Daily Memo - Whole Foods Market - FTC Settlement Deal Watch - Countdown to March 6

FTC v. Whole Foods Market, Inc. - Settlement Talks

Today passed without an announcement from the U.S. Federal Trade Commission (FTC) and Whole Foods Market, Inc. as to whether or not the two parties have reached a settlement deal in the ongoing FTC antitrust challenge to Whole Foods' 2007 friendly acquisition of Wild Oats Markets, Inc.

There are now only two days until the FTC's halt of legal proceedings in the antitrust case ends. That halt in legal proceedings ends Friday, March 6.

The FTC could extend the halt if it feels the ongoing settlement talks are progressing, but that all that's needed is more time. Of course, that assumes a settlement deal isn't reached by Friday.

Additionally, April 6 is the date the FTC has set to begin an administrative trial in FTC v. Whole Foods Market, Inc., its antitrust case against the natural grocery chain. That trial will be chaired by an FTC-appointed Administrative Law Judge, who will hear the respective legal arguments from both sides, and then rule on the status of the Whole Foods-Wild Oats merger.

Wild Oats Markets, Inc. no longer exists as a corporate entity. And Whole Foods Market, Inc. has basically fully-integrated Wild Oats' into the Whole Foods Market culture and operating system. Only about 6-10 of the about 100 former Wild Oats stores Whole Foods kept post-acquisition haven't been rebranded under the Whole Foods Market name.

Whole Foods volunteered to not rebrand those remaining stores until there is a resolution to the FT. v. Whole Foods Market antitrust case and issue.

With only two days remaining until March 6, both sides are working hard on reaching a settlement deal.

The countdown clock is ticking faster and faster though.

New FTC Chairman Jon Leibowitz

Meanwhile, as we reported last week, President Obama has named current FTC Commissioner Jon Leibowitz as the new Chairman of the federal regulatory agency responsible for antitrust enforcement and consumer protection.

Leibowitz, a Democrat known to be an antitrust hawk, was named FTC Commissioner by Republican President George W. Bush in 2004. And his appointment to the position by President Obama signals what the President has said will be a significant component of his term as President -- increased regulation, including stronger antitrust enforcement.

As an FTC Commissioner though Leibowitz has signaled a flexibility in being willing to reach a settlement in the Whole Foods-Wild Oats antitrust matter.

Ironically, from the standpoint of the Whole Foods case at least, many legal observers (and Democrats) consider the FTC to have overall been weak on antitrust enforcement during President Bush's two terms.

But in the case of Whole Foods Market's $565 million acquisition of Wild Oats in 2007, the FTC has been an antitrust enforcement hawk, pursuing its attempt to overturn the deal for about 18 months, including appealing federal judge Paul Friedman's original decision in 2008, which gave Whole Foods Market the green light to go forward and integrate the Wild Oats stores into Whole Foods.

A federal appeals court overturned the judge's ruling in favor of the deal last year. That's why the case is where it is today.

This selective antitrust enforcement makes the already bizarre desire by the FTC to overturn the deal even more bizarre.

First off, the natural products retailing industry, with all due respect, is hardly a vital, mainstream business in the U.S. in terms of being an essential way of feeding the majority of Americans. It is vital for other reasons. Maybe 20% (and that's probably a generous estimate) of American consumers purchase all or most of their food and groceries at natural foods class of trade stores, like Whole Foods, the former Wild Oats, Sunflower Farmers Market and others.

Second, the net result of Whole Foods' acquisition has been to add a grand total of about 100 stores to its "retailing empire" of about 279 total stores to date. By contrast, Wal-Mart operates nearly 4,000 stores in the U.S. and Safeway Stores, Inc. about 1,600 in the U.S.

Safeway has just about as many supermarkets (about 260), which merchandise a strong and rapidly increasing selection of natural and organic foods, in just Northern California alone, where it has its corporate headquarters, as Whole Foods has total number of stores in the entire U.S., (about 269; 11 are in the UK and Canada), for example.

Lastly, as we've argued since 2007, the entire premise of the FTC's antitrust action against the deal rests on its argument that a combined Whole Foods-Wild Oats (those about 100 added stores) is a monopoly retailer in 29 U.S. markets, in what the FTC has termed the "premium natural and organic retailing segment (PNOS).

This is pure folly. No serious participant in, or analyst of, the natural-organic foods retailing industry -- and food and grocery retailing in general -- really thinks that's true.

Rather, as we've argued often in Natural~Specialty Foods Memo (NSFM), natural and organic foods retailing in America today is a multi-corporate (and independent), multi-format retailing business. U.S. consumers today are just as likely to buy their natural and organic food and grocery products at Trader Joe's, Costco, Safeway and a host of other stores, as they are to purchase the goods at a store operated by Whole Foods Market, Inc.

So, why the selective antitrust enforcement by the FTC? And why the laser beam-like focus on Whole Foods' $565 million friendly acquisition of Wild Oats (tiny in terms of food retailing industry acquisitions), which in the end added only 100 stores to the natural grocery chains store-count and sales volume bottom line throughout the entire United States?

Additionally, doesn't the FTC realize that Wild Oats board tried to sell the company to numerous grocery chains before Whole Foods came along? That included shopping Wild Oats to Kroger Co, the largest U.S. supermarket chain and the third-largest seller of groceries in the U.S., after number one Wal-Mart and number two Costco? Kroger said no thanks.

We just can't believe the FTC really believes a combined Whole Foods-Wild Oats presents any real monopolistic barrier to Whole Foods Market, Inc.'s competitors, or that it poses a valid consumer protection issue for America's food and grocery shoppers.

We even know one of Whole Foods natural foods class of trade competitors who laughs at the whole Whole Foods as a monopoly concept and FTC argument. Hint: The natural foods chain this person runs is competing head-to-head against Whole Foods Market in numerous market regions in the U.S.

But since there are at least four, fast-growing natural foods chains taking on Whole foods on a regional basis in the U.S. in a big way by opening numerous new stores, your guess as to who the person is isn't so easy.

But the mere fact there are those four natural foods chains doing so should be enough to suggest Whole Foods' competitors, as well as the market in general, doesn't agree with the FTC.

Can you? (Feel free to offer your opinion by using the comments link at the bottom of this post.)

Daily Memo: Countdown to March 6, 2009 (February 25 -to- March 6):

>Read our Tuesday, March 3, 2009 Daily Memo at the link: Daily Memo - Whole Foods Market - FTC - Settlement Deal Watch - Countdown to March 6

>Read our Monday, March 2, 2009 Daily Memo at the link: [Daily Memo - Whole Foods Market - FTC Settlement Deal Watch - Countdown to March 6.]

>Read our Friday, February 27 Daily Memo at the link: [Daily Memo: Whole Foods Market - FTC Settlement Deal Watch - Countdown to March 6.]

>Read our Thursday, February 26 Daily Memo at the link: [Daily Memo: Whole Foods Market - FTC Settlement Deal Watch - 9 Days to March 6.]

>Read our Wednesday, February 25 Daily Memo at the link: [Daily Memo: Whole Foods Market - FTC Settlement Deal Watch - 10 Days to March 6. [Note: There's a bibliography of recent posts on FTC. v. Whole Foods Market, Inc. from Natural~Specialty Foods Memo (NSFM) at the bottom of the linked column.]

[You can follow Natural~Specialty Foods Memo (NSFM) around on at:]

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