Retail Memo - Breaking: Whole Foods Makes Settlement Offer to FTC; FTC Halts Action For 5 Days; Natural~Specialty Foods Memo Calls For A Settlement

News & Analysis: FTC. v. Whole Foods Market, Inc. - Time For A Settlement

In an interesting but not all together surprising move to Natural~Specialty Foods Memo (NSFM), the U. S. Federal Trade Commission (FTC) today temporarily halted for five days its challenge to Whole Foods Market, Inc.'s friendly 2007 acquisition of Wild Oats Market, Inc.

The FTC announced the temporary suspension of its challenge to the merger in a brief order filed today in which it stated it would "withdraw this matter from adjudication for five business days."

David Wales, the head of the FTC's Bureau of Competition, which is in charge of the agency's challenge to the merger, said in a statement today that Whole Foods Market, Inc. sent the FTC a settlement offer to end the case today. Therefore the FTC has halted any action on the case for the five business days in order to study the offer and negotiate with Whole Foods' legal counsel.

We see the move by the FTC as a goodwill gesture in response to Whole Foods' offer. Additionally the moves by both Whole Foods (the settlement offer) and the FTC (the halt) could portend a resolution of this long legal battle over the merger of Wild oats into Whole Foods Market, Inc.

"We're going to roll up our sleeves and take a look at what they're offering," Wales said today in a statement. "We're hopeful that a settlement can be reached."

Over at Whole Foods Market's Austin, Texas headquarters, company executive vice president Jim Sud, who's been the corporate voice on the issue of late rather then CEO John Mackey, said in a statement: "We welcome this opportunity to hold constructive discussions directly with the (FTC) commissioners as well as the FTC's attorneys."

Whole Foods desires settlement deal

A person very close to the FTC. v. Whole Foods case told Natural~Specialty Foods Memo (NSFM) today that the natural grocery chain is very engaged in wanting to work out a settlement with the FTC, both because of the ruling made against the company last week by the U.S. Federal Court of Appeals, which we reported on here, and because the natural foods retailer, which will report its 1rst quarter fiscal-year sales on February 16, is extremely concerned about how much the battle with the FTC is taking its focus away from what it does, the retailing of natural, organic and premium food groceries.

Last Friday the federal appeals court ruled against Whole Foods' lawsuit against the FTC in which the company sought to block the upcoming April 6 trial before an FTC Administrative Law Judge, as well as give it a ruling that would remove FTC jurisdiction over the case and have it settled in a U.S. Federal Court courtroom.

The decision against Whole Foods' lawsuit in favor of the FTC assured that the April 6 trial will be held.

If the outcome of that trial goes in the FTC's favor it could mean a complete unwinding of the 2007 Whole Foods-Wild Oats merger. The worse case scenario could be that Whole Foods Market, Inc. would have to completely rebrand all of the former Wild Oats stores its converted (about 100) to the Whole Foods banner, which are all but about 6-12, and set up a entirely separate corporate entity to operate Wild Oats, essentially resulting in taking the merger back to where it was on the day the companies announced the deal in the summer of 2007.

In fact, the FTC has a motion before U.S. Federal Judge Paul Friedman in which it's asking the judge to force Whole Foods to do just what we describe above -- rebrand about 100 converted Wild Oats stores from Whole Foods back to Wild Oats and set up a separate entity to operate them -- even before it holds the April 6 administrative trial on the merger. Judge Friedman will hold hearings next month, on February 15-16 (the 16th being the same day Whole Foods Market, Inc. announces its first quarter financials), on this motion by the FTC, and as we reported here on January 25, 2009, says he will make a ruling shortly (likely in days) after the hearings end.

In our analysis, this upcoming court challenge to the integration of the about 100 Wild Oats stores also provides further motivation for Whole Foods to have offered its settlement offer to the FTC. The natural grocer is running out of legal options -- and time. And its legal costs continue to mount. Meanwhile, U.S. taxpayers gets to pick up all of the legal costs expended by the FTC and federal courts in the regulatory agencies legal challenge against the merger.

FTC statement, position encouraging

The statement today ("We're going to roll up our sleeves and take a look at what they're offering," Wales said. "We're hopeful that a settlement can be reached") by FTC Bureau of Competition chief competition enforcer (his official title) David Wales that the regulatory agency plans to consider Whole Foods' settlement offer in such a serious way is positive news from the standpoint of the two entities eventually being able to reach an agreement and avoid the upcoming April 6 administrative trial.

This is the first time in recent case history that Wales has indicated an interest in settling the case short of unwinding the entire merger.

Natural~Specialty Foods Memo (NSFM) has learned that Whole Foods' settlement offer to the FTC includes the selling of a number of stores in most of the 29 U.S. markets in which the FTC argues the combined Whole Foods-Wild Oats is a monopoly in, in what the regulator calls the "premium natural and organic retailing segment (PNOS)."

Post-merger -- to today

Shortly after the merger Whole Foods Market, Inc. sold off the about 36 Henry's and Sun Harvest banner natural foods markets in Southern California and Texas that were part of Wild Oats Market, Inc., and were acquire by Whole Foods in the merger. Those stores were bought by Southern California-based Smart & Final LLC., which operates over 200 hundred non-membership warehouse format food and grocery stores in the Western U.S. and in Mexico, as well as now operating the Henry's Farmers Market (southern California) and Sun Harvest (Texas) banner natural foods stores, along with a new format the retailer created last year called Smart & Final Extra, which are 30,000 -to- 35,000 square foot hybrid supermarket-warehouse-type stores.

Additionally, since late 2007 when a federal court decision in favor of the merger, a decision the FTC since got reversed on appeal, which is why it continues to oppose the deal, Whole Foods has closed a number of former Wild Oats' stores that were either underperforming or that natural grocery chain says were located to close to newer and larger Whole Foods banner stores to make the units viable.

Nearly all of the former Wild Oats stores kept after the 2007 merger have now been converted to the Whole Foods banner, accept for about 6 -to- 10 stores. Earlier this month Whole Foods Market, Inc. co-president Walter Robb said only about a half dozen former Wild Oats stores were left to rebrand to Whole Foods. Our research counts a couple more than that left to convert. Therefore we use the 6-10 store range figure.

A settlement blueprint or template

In other words, the universe of stores we are talking about regarding a post-merger, combined Whole Foods-Wild Oats isn't much more than 100 nationally throughout the U.S. in these 29 markets where the FTC deems Whole Foods Market, Inc. a PNOS segment monopoly.

Our argument since the summer of 2007 has been that a post-merger, combined Whole Foods-Wild Oats isn't a monopoly. [You can read a recent story in which we made our argument as to why that's the case at the link here: 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.]

However, looking at FTC v. Whole Foods Market, Inc. today from a completely practical standpoint, we see no reason why the FTC and the natural grocer should not be able to achieve a settlement. After all, we are talking about a universe of just slightly more than 100 stores that the FTC is saying a "PNOS" category monopolist (Whole Foods) makes. We're also talking about just 29 specific U.S. markets. These two key facts need to be the starting point for negotiation, we suggest.

The FTC and Whole Foods need to look at each of these 29 markets and the number of stores the combined Whole Foods-Wild Oats has in each of the markets. Both parties then need to do an independent competitive analysis on each of these markets, including in the analysis not just natural foods class of trade retailers but also food retailers that are hybrid natural-organic-specialty supermarkets. These include retailers like Gelson's and Bristol Farms in Southern California, Raley's and Andronico's Markets in Northern California, The Fresh Market (chain), which has stores in the south, Midwest, Mid Atlantic and eastern regions, Wegmans in the east, Haggen Foods in the Pacific Northwest, and the numerous other natural-organic-specialty "hybrid" chains that fit this category in the 29 markets designated as monopolist by the FTC.

Once this real competitive analysis is done in the 29 U.S. markets, the FTC and Whole Foods then need to agree on Whole Foods' closing an agreed upon number of those 100-plus former Wild Oats stores in each of the respective markets. There still might remain 29 of those markets after the independent competitive analysis work is done, which is something that can be completed in a matter of a few days. But there also could be fewer than 29 remaining after the analysis.

The burden in the FTC's administrative process is on Whole Foods in reaching a settlement, that's why the natural foods grocery chain reached out to the FTC and submitted a settlement offer. In return the FTC suspended action on the case for five days. We think thus far that's a positive spirit of cooperation.

As all lawyers and negotiators know, first time settlement offers are seldom accepted. Instead they tend to be the opening entree to get settlement talks started. Whole Foods has served that opening entree with its offer. The FTC has responded in kind with the temporary halt of legal activity. Both moves are good negotiation openers. After all, another thing all good negotiators know is that the best negotiations come when both sides give a little something right at the start.

Natural~Specialty Foods Memo calls for a settlement

We strongly encourage the FTC and Whole Foods Market, Inc. to use a version of the simple but empirical framework we outlined above in their settlement negotiations on the 2007 merger. It's time to put this thing to bed.

If the two parties use what we suggest as a blueprint (assuming the FTC doesn't accept Whole Foods' first settlement offer, which we believe will be the case), then go from there, we think a settlement can be reached that doesn't render the deal a complete loss for Whole Foods Market, Inc., while at the same time satisfies the FTC's position that a post-merger, combined Whole Foods-Wild Oats is an anti-competitive retailer, providing the regulator with a negotiated settlement it can live with.

It's time for both the FTC and Whole Foods Market to follow new U.S. President Barack Obama's call for a less partisan Washington -- or in this case a less dogmatic regulatory agency (the FTC) and a more agreeable-to-compromise company, Whole Foods Market, Inc., along with helping to usher in the new U.S. President's inauguration day call for a "New Era of Responsibility" among the nation's governmental institutions and agencies, businesses and people.

The initial settlement offer by Whole Foods Market, Inc. started that ball rolling. And the FTC's temporary halt of legal activity on the merger has followed Whole Foods' offer in kind. Now its time to "roll-up those sleeves" and negotiate -- and work out a settlement.

Monday Morning Java

Analysis: The Futility of the FTC's New Appeal of the Whole Foods' Acquisition of Wild Oats Markets

Last week the U.S. Federal Trade Commission (FTC) filed an appeal with the U.S. Federal Court for the District of Columbia seeking to block the acquisition of Wild Oats Markets, Inc. by Whole Foods Market, Inc. even though Whole Foods is well on its way to merging the former supernatural retailing rival it acquired into its corporate culture and retail operations.

At the end of August, 2007, the U.S. Federal Court in Washington D.C. approved the merger despite an original objection filed by the FTC (which was dismissed by a federal judge) and an appeal after that, which the same judge also dismissed, ruling in Whole Foods' favor at the time, and paving the way for the acquisition/merger to go through.In their August appeal, asking for a temporary injunction against the merger, the FTC sighted anti-competitive arguments for not allowing Whole Foods to acquire Wild Oats. Essentially the FTC argued the merger/acquisition would result in a serious lack of competition in the supernatural grocery retailing sector by giving Whole Foods a monopoly over the selling of natural and organic grocery products in the category.

In its ruling, the United States District Court for the District of Columbia rejected this argument by the FTC. The court said that "premium natural and organic supermarkets (how the FTC refers to Whole Foods and Wild Oats) was not a relevant product market. A relevant market is one in which a hypothetical, multi-store monopolist , owning all stores in the category (and eliminating competition among them), would raise prices," the court stated in its ruling. Based on a number of economic studies it reviewed the court said a Whole Foods/Wild Oats' merged company would not meet its test of a monopolist, and as such it ruled against the FTC's August, 2007 pre-merger appeal and for Whole Foods. ( you can read the D.C. federal court's ruling here as well as testimony from FTC experts and Whole Foods and court experts here.)

However, almost two months after the federal court ruling in favor of Whole Foods, and over a month after the supernatural grocer first began integrating Wild Oats' operations and stores into the Whole Foods retailing system, the FTC is back with an unusual new appeal. The appeal is unusual in that the federal regulator very seldom, if ever, has filed a new appeal once the federal court has made a final ruling on an acquisition or merger, and once the acquiring company is well on its way to integrating the purchased company into its operations.

This time around the FTC is still arguing against the merger based on anti-trust grounds, saying the deal will stifle competition and raise prices. The FTC is sighting what it says its research demonstrates is a high estimated "diversion ratio" between Whole Foods banner stores and Wild Oats stores. In other words, when Wild Oats goes out of business, 50% of its customers automatically go to Whole Foods stores, the FTC says. This means a "diversion ratio" of half, which economists say is very high, if true. The FTC sights this argument as evidence of anti-competition, saying the 50% "diversion ratio" figure amounts to a monopoly in the supernatural retail grocery category. The commission also argues this "monopoly" will then result in Whole Foods eventually raising prices.

This argument was used by the FTC however (along with expert testimony) in its original appeal, so we're hard pressed to see why the commission thinks it will work with the court this time around, by merely giving it more weight and emphasis. Most anti-trust legal experts agree with us, saying it's highly unlikely the FTC will be successful with their new appeal.

Last Monday, when the FTC filed its latest case, it said a new appeal also is warranted in part because Whole Foods continues to operate many of the Wild Oats stores separately. We really aren't sure what significance the FTC puts in this fact.

First off, Whole Foods has only been integrating the Wild Oats stores into its retailing system for about a month. Some Wild Oats stores are being rebranded as Whole Foods stores, others are being closed, a number still have the Wild Oats banner, and some are even getting new names, like a former Wild Oats store in Boulder, Colorado (Wild Oats' former corporate headquarters), which Whole Foods has rebranded as Alfalfa's Market, a name the grocer obtained the rights to in the acquisition. (Alfalfa's was a popular Boulder-based chain of natural foods stores that Wild Oats acquired in the 1990's.)

Second, Whole Foods has told its stockholders it plans on changing most if not all of the Wild Oats banner stores remaining to the Whole Foods banner--and a few more to banners like Alfalfa's when it makes marketing sense. Public corporations aren't likely to tell their shareholders facts like this unless they mean it. There's no upside to doing so for Whole Foods. Lastly, even if Whole Foods keeps a number of stores under the Wild Oats banner, so what. Food retailers create and eliminate store banners/brands all the time. The Wild Oats brand is intellectual property Whole Foods acquired in the merger and we see nothing wrong with them using the name in any manner the grocer sees fit to do.

We don't understand how still having stores operating under the Wild Oats banner is evidence of anti-competitive behavior or "price raising," which are the FTC's chief arguments from an anti-trust perspective against the merger. Is the FTC saying Whole Foods' continuing to operate stores under the Wild Oats banner is part of a master plan by the grocer to acquire its rival but keep stores under its name because they believe they can control the category by having both? Doesn't make since. Wouldn't work if the grocer wanted it to.

Let's examine the logic (or lack thereof) of the FTC's argument. First, the FTC is saying Whole Foods already is a monopolist because of the merger. As such store names should hardly matter. Second, Most companies pay a premium in an acquisition because of the brand equity a company offers. In fact, seldom does an acquiring company eliminate the brands it obtains in a acquisition at all. Therefore, the FTC argument just doesn't make much sense. And it surely isn't the basis for an new appeal in our view. We asked for some elaboration from the FTC but they aren't commenting on the appeal; not even to the New York Times and Wall Street Journal, according to editors at both papers.

Whole Foods Market, Inc. has filed a motion, asking the D.C. appellate court to dismiss the FTC case as moot because the two companies (Whole Foods and Wild Oats) completed the merger transaction on August 28, 2007 after being given the green light from the federal court. The FTC is asking the appellate court for an expedited review. Most anti-trust lawyers are saying the appeal is considered a long shot. We agree.

We also think this dog is long dead and that the FTC should spend its time on more productive and important endeavors. The natural, organic and premium food and grocery industries are moving so fast, and are far too dynamic, for Whole Foods to gain a monopoly. There are far too many retail formats--with more coming online seemingly every month--to allow Whole Foods to stifle competition and raise retail prices on category products in any significant way.

Additionally, Whole Foods has an organized consumer opposition movement that refers to the grocer as "Whole Paycheck," among other negative epitaphs. Should the grocer raise its retail prices more than a couple percentage points at any one time, based on the natural increases in cost of goods, inflation and the like, it will find itself with an "anti Wal-Mart type" opposition movement, which is the last thing Whole Foods wants, especially post the Wild Oats acquisition. In other words we think the market as it is at present will be an strong enough check on Whole Foods' retail pricing behavior.

Does Whole Foods benefit having acquired Wild Oats? Yes. Does the grocer benefit to the extent it will allow it to be a monopolist? No. Whole Foods now owns the supernatural retailing category. We have no doubt of that. However, the point is that there are plenty of other retail formats--upscale national, regional and independent supermarket chains, mass merchandisers like Wal-Mart and Target, Trader Joe's and the many similar specialty grocers in the U.S., and more--where natural, organic and premium foods and grocery products can be purchased by consumers. Whole Foods may own the supernatural retailing category, but it doesn't own anywhere near the exclusivity in retail sales of products in these categories.

In fact, the supernatural retailing category is slowely blurring and going away. Why? Two reasons. First, the channel-blurring between natural foods supernatural stores, supermarkets, mass merchandisers, specialty grocers and others who sell natural and organic foods is making the supernatural category less relevant. In the past, when the only places a shopper could find natural and organic foods was at Whole Foods, Wild Oats or other natural foods stores, the category had meaning. Since that's no longer the case today--you can even buy a limited assortment of natural and organic foods at drug stores and traditional convenience stores--the entire concept of the supernatural category is being turned on its head and being rendered less meaningless and significant.

Second, the retail food industry is constantly evolving. New formats like Tesco's Fresh & Easy Neighborhood Markets (upscale, convenience-oriented grocery markets featuring fresh, prepared foods and natural, organic, basic and specialty groceries), Trader Joe's new larger stores with more fresh natural and organic foods, H.E.B's huge new 112,000 square-foot Cypress Market banner (which carries as many natural and organic groceries as a Whole Foods store), Safeway Stores Lifestyle format (which is evolving into a Whole Foods-like store but with basic groceries as well), and many others, are constantly redefining food retailing.

In an industry as fast moving as natural, organic and premium food marketing and retailing, there really isn't much time for a retailer like a Whole Foods to become a monopoly. The fact is, only a month or so after the merger, Whole Foods is already looking over its shoulder at the food retailers mentioned above, and many others. It's a dynamic industry. And the next hot format (or more likely format combinations) could change the retail landscape considerably.

Whole Foods also is considerably smaller than most supermarket and mass merchandising chains that sell natural, organic and premium foods. Safeway, Kroger and Supervalue, for example, are five to six times the size of Whole Foods in terms of gross sales and store count. H.E.B., Publix, Wegmans (and a number of others), all upscale grocery chains and major players in the natural and organic grocery retail space, are two to three times bigger than Whole Foods in terms of annual sales. And Wal-Mart, the world's largest retailer and a major player in natural and organic grocery sales, does over $300 billion in annual sales with stores located globally, compared to Whole Foods annual sales of about $6.5 billion.

As these huge, major food retailers (and numerous others) move more and more into natural and organic grocery retailing, as they're doing, it would be a big mistake to discount the notion that Whole Foods itself might become a takeover target. We don't think an acquisition offer or hostile attempt is on the radar screens of these mega-food retailers now or in the near future for a number of reasons. However, it's potential isn't lost on them (or not discussed behin closed doors). Nor is the potential of either a friendly or not so friendly acquisition lost on Whole Foods' management.

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

The ongoing FTC-Whole Foods Market, Inc. legal case and saga

"When the going gets weird, the weird turn pro." -- the late Gonzo Journalist Hunter S. Thompson.

For the second time in as many years (two) Whole Foods Market, Inc. is attempting to obtain the confidential financial and other records, including new store plans and strategies, of nine-store, Portland, Oregon based natural foods retailer New Seasons Market, as part of the supernatural foods retailer's ongoing legal battle and saga with the U.S. Federal Trade Commission (FTC) over its merger with Wild Oats Market, Inc. last year.

Whole Foods has filed a subpoena for these financial and related records from the privately-held, Portland, Oregon-based natural foods retailer, according to Brian Rohter, the CEO of New Seasons Market. Privately-owned companies like New Seasons aren't normally required to make financial information public like publicly-held companies such as Whole Foods Market, Inc. are.

Rohter wrote about Whole Foods' legal attempt to obtain the company's financial records and more, which New Seasons is fighting at a significant financial cost to the small retail chain, in the company Blog on November 24. Below is Brian Rohter's post from the New Seasons Market Blog:

Monday, November 24, 2008
We're Just Trying To Mind Our Own (Local) Business
By Brian Rohter - New Seasons Market Blog

You may have heard that New Seasons Market has found ourselves caught in the crossfire of an ongoing legal dispute between the Federal Trade Commission (FTC) and Whole Foods Market. The disagreement has to do with whether or not the Whole Foods merger with Wild Oats should be “allowed to proceed”. Yes, we know that seems like a crazy thing to be fighting about since all the Wild Oats stores that were around here have already been closed or turned into Whole Foods stores, but neither the federal government or Whole Foods asked us for our opinion about that.

You also are probably trying to figure out what this could possibly have to do with us. That’s a great question. Since we’ve been minding our own (local) business and have never expressed an opinion one way or the other about this merger, we were wondering the same thing.

As it turns out, because of their legal dispute with the FTC, Whole Foods has an opportunity to try and force us to give them copies of some of our most confidential financial records – for instance what our sales are, week by week, at each of our stores. They’ve also demanded all of our files that detail our strategic plans, all of our marketing plans and all of our studies about where we are considering opening new stores.

You can see the entire subpoena here, and below is a partial list of what they’re trying to get (quoted directly from the subpoena):

3. All documents relating to Whole Food’s acquisition of Wild Oats, including documents discussing the effect of the merger on you.

4. All documents discussing competition with Whole Foods or Wild Oats, including responses by you to a new Whole Foods or Wild Oats store and responses by you to prices, product selection, quality, or services at Whole Foods or Wild Oats stores.

5. All market studies, strategic plans or competition analyses relating to competition in each Geographic Area, including documents discussing market shares.

6. All market studies, strategic plans or competition analyses relating to the sale of natural and organic products, including the sale of natural and organic products in your stores.

7. All documents relating to your plans to increase the shelf space at your stores allocated to natural and organic products, the number of natural and organic products sold in your stores, or the sales of natural or organic products in your stores.

8. All documents discussing your plans to renovate or improve your stores to sell additional natural and organic products or to open stores emphasizing natural and organic products.

9. Provide documents sufficient to show, or in the alternative submit a spread sheet showing: (a) the store name and address of each of your stores separately in each Geographic Area; and (b) for each store provide the total weekly sales for each week since January 1, 2006 to the current date.

I have to believe that any reasonable person would agree that it’s really over the top for Whole Foods to be asking for this information, especially since we have nothing to do with their lawsuit. It takes away the level playing field, creates an unnecessary risk for our business and has the potential to have a negative impact on our network of local growers, ranchers and suppliers. It also could permanently damage the fragile regional food system that we’ve been working to create and, in the end, could reduce options for Portlanders who choose to shop at locally owned stores.

New Seasons Market is a small, locally owned company that competes against large, multi-national chains including Whole Foods. Whole Foods has about 270 stores in cities all over North America and in England. We have 9 stores in the Portland area. Allowing Whole Foods to look through all of our private information about how we operate and what our plans are for the future unfairly adds to their already large size and financial advantage. We’ve been able to build a successful local business being David against their Goliath, and we’re happy to keep doing that, but we do object to having one hand tied behind our back.

Whole Foods says that we should give our information to their lawyers and they claim the lawyers won’t let anyone else in the organization see them. That’s like trusting the fox to guard the hen house – and we don’t have any faith it’s going to work like that.

I’m sorry to say this, but some of the people at Whole Foods have a history of less than stellar behavior when it comes to competing fairly. There are two obvious examples of this. First, last year, their CEO John Mackey was caught posting derogatory information online about Wild Oats, using a made up screen name. Here’s a New York Times story about that.

Second, during the first round of this law suit last year, the FTC released a bunch of e-mails that some Whole Foods executives had sent over the previous few years. You can find the entire (really lengthy) FTC report here, but just to give you a flavor of it, below are a few excerpts of Whole Foods’ comments in regards to Wild Oats:

“Wild Oats needs to be removed from the playing field...”“…[m]y goal is simple – I want to crush them and am willing to spend a lot of money in the process.”“...elimination of a competitor in the marketplace, competition for sites, competition for acquisitions, and operational economies of scale. We become the Microsoft of the natural foods industry.”

Yikes!

This case has been going on for about 18 months. This is the second time Whole Foods has tried to get access to our records. Last year they also filed a motion to try and get our financial records turned over to them; not just to their “outside” lawyers, but to executives who are on the Whole Foods payroll and work in the Whole Foods corporate offices in Austin, Texas. What possible reason do we have to believe they won’t just try and do that again?

When I received this subpoena my immediate reaction was disbelief. I was confident there was no way our legal system would force us to give our private business records to one of our competitors. It looks like I may have been wrong about that. We’re fighting this (and running up whopping legal bills in the process) and here's a copy of the motion we filed with the Federal Trade Commission. Amazingly, our lawyers tell us that there’s a chance we’ll lose the case and will be required to turn over the information.

Of course I asked what would happen if we refused. The answer was that we could be held in contempt of court and subject to large fines or even jail time. In case anyone is planning on visiting me there, I really love doing the daily Oregonian crossword and also M&M Peanuts. (My wife Eileen doesn’t think this is very funny.)We’ll keep you posted on this as the situation evolves.

[End of brain Rohter's November 24 post.]

As regular readers of Natural~Specialty Foods Memo know, we've been writing since last year, when the FTC first raised its objections to the Whole Foods-Wild Oats merger, about how wrong, foolish and a waste of U.S. taxpayers' money we believe the FTC's ongoing legal case and argument that the acquisition/merger (which is about as merged by now as mergers can be) should not go through was and is. The basic FTC argument is a merged Whole Foods-Wild Oats provides Whole Foods Market, Inc. with an anti-competitive position in the natural foods retailing segment, which will allow it to raise retail prices and behave in other "anti-competitive" and "monopolistic" ways.

The FTC's argument, and thus lawsuits,was wrong over a year ago and it's even more wrong today. All the FTC need do to see how foolish its legal saga and argument is in the face of it is to look at the demonstrable, empirical evidence of a combined Whole Foods Market-Wild Oats Market in the real world as of today, December 1, 2008.

The anti-FTC legal case and argument evidence:

1. Whole Foods Market's post Wild Oats'-acquisition stock share value today is about 70% less than it was at the very best time following the merger.

2. Whole Foods had a 40% drop in income in its last quarter.

3. Whole Foods is so in need of cash for regular operations that it recently sold 17% of the company to an investment firm from Southern California.

4. Whole Foods laid off about 100 corporate headquarters employees in Austin, Texas in the last two months. More layoffs are in the works. Store managers are being told to cut costs across the board dramatically.

5. Whole Foods has cut in half, from about 30 to 15, the number of new stores it had planned on opening next year. We hear the retailer will most likely not even open 15 stores in 2009.

6. Whole Foods has put its expansion plans in the United Kingdom on hold. It's also sold a couple of its Wild & Natural banner stores in the nation. It also might sell its one and only Whole Foods Market in the UK, it's huge, nearly 80,000 square foot market in London, England, if it could get a buyer, which it likely can't.

7. Whole Foods Market, Inc. senior executives and upper management are essentially going without bonuses and their famous stock options, which few really want right now anyway.

8. Whole Foods would like to sell more of the Wild Oats stores, beyond those it has already sold, but can't find any buyers willing to pay a price close to what the retailer needs to sell them for.

We ask you, does a retailer experiencing the above eight (and we could have listed a few more but were starting to get depressed) negative factors look like a natural foods retailing monopolist company to you? To us, and many others, it looks more like a fledgling company struggling to survive -- and a potential takeover candidate, based on its stock share value.

Meanwhile, there are competitor natural foods chains beating Whole Foods on price, and thus taking business and market share away from its stores. These include fast-growing Sprouts Farmers Market, just as fast-growing Sunflower Farmers Market, Trader Joe's, and even Henry's in Southern California, which Whole Foods sold to Smart & Final, Inc. after acquiring the 36 Henry's and Sun Harvest banner natural foods stores in the Wild Oats markets' merger.

There are other regional multi and single-store natural foods retailers -- PCC in Washington state, Mrs. Green's in New York, New Seasons in Portland itself in fact, along with others -- that are competing head-to-head with Whole Foods Market, Inc. stores and doing well, even in the current recessionary economy.

Then there are the supermarket chains, as we've detailed previously in Natural~Specialty Foods Memo. Safeway with its Lifestyle stores nationally, Publix in Florida, H-E-B and United Supermarkets' Market Street in Texas, Wegmans in New York, Raley's in Northern California, Fresh Market in the South (even Wal-Mart, Costco and Target) and dozens more, all are challenging Whole Foods with upscale supermarkets that feature lots of natural, organic, specialty and premium, prepared foods items and other in-store features similar to those offered by Whole Foods. Plus these chains sell conventional groceries as well, giving them a big benefit especially in the current down economy.

If anything, we see Whole Foods Market, Inc. being squeezed from both ends -- by aggressive regional natural foods retailers on one end and upscale supermarket chains and discounters heavily into the natural and organic categories at the other end.

And of course, surrounding both ends is the recession and financial crisis, which is forcing all food and grocery retailers to lower prices, promote more and put a much more significant emphasis on value.

Whole Foods is focusing on value as well -- but its "Whole Paycheck" reputation, right or wrong, is making doing so difficult, thereby opening up greater opportunity for Sprouts, Sunflower and the others which operate on a much lower cost model than Whole Foods does, resulting in lower everyday prices across all natural and organic product categories in their stores.

Having said this -- that we believe the FTC is out to lunch with its ongoing legal fight to stop the Whole Foods-Wild Oats merger -- we do not approve in any way, shape or form of Whole Foods Market, Inc. trying to obtain the private information from New Seasons Market, or from any other small, privately-owned similar natural products retailer, which should likely be the case since it would seem the supernatural retailer would want similar data from more than just New Seasons, wouldn't it? [The Whole Foods Market subpoena to New Seasons looks somewhat boilerplate in its nature. Therefore we are searching for other natural products retailers who may have received such a subpeona as well.]

It's like Whole Foods has adopted the FTC's wrong-headed and heavy-handed methods as a way to defend itself against the FTC's wrong-headed and heavy-handed methods. 'I have seen the monster (FTC) and have now become the monster (Whole Foods) in order to fight the monster on equal footing.'

We understand what the Whole Foods legal team is trying to do, which is to build a data base of financial and related data from competitors in the markets, like Portland, Oregon, where the FTC is claiming Whole Foods has too high of a concentration of stores post the Wild Oats merger.

But Whole Foods is going about it the wrong way. Why not ask various retail competitors to testify to the FTC as to if they see Whole Foods Market, Inc. today in a monopolist position? For example, we would find it hard for Sunflower Farmers Markets and Sprouts to answer yes to this question with any credibility since it would be rather hard to explain why the natural foods retailers are building so many stores and going right at the heart of Whole Foods throughout the Western U.S. As a self-proclaimed ethical retailer, Whole Foods Market needs to ask itself if the means justify the ends in this case.

We defended CEO John Mackey after the U.S. federal government cleared him of any wrong doing over his postings under an assumed screen name on the Yahoo Finance Internet financial boards during the run up to the Wild Oats acquisition, saying we thought it was unethical and just plain dumb, but that he should be allowed to move on after learning his lesson.

However, we aren't so sure now.

The attempt by Whole Foods Market, Inc. to obtain so much proprietary data from New Seasons via the courts smacks of "Wacky Mackey," the form of behavior John Mackey exhibits on occasion that has earned him that particular nickname -- "Wacky Mackey." We are rather sure John Mackey's and Whole Foods' corporate statement as to why they want this data from New Seasons would go something like this: It's the lawyers, not us.

But CEO's can tell lawyers no. And they should when legal requests cross the line, which we believe is the case in Whole Foods Markets' formal, legal request for New Seasons' proprietary financial and other information. We know John Mackey hasn't been afraid to tell lawyers no before, such as when they made certain suggestions to him during the time the federal government was deciding if he broke any laws with his Yahoo Finance posts under the assumed screen name. Mackey was cleared of any legal wrong doing in the matter.

The subpoena of New Seasons Market's financial and related records is just another sad commentary on what has been a foolish saga, the FTC's continued legal quest, based on non-market realities, to invalidate the Whole Foods Market-Wild Oats merger. which earlier this year John Mackey said if he had to do all over again he would not do.

But the subpoena demanding New Seasons' financial and related records, which any business would fight just like the nine-store natural products retailer is doing at an expense it doesn't need in this recession, makes Whole Foods Market, Inc. look as stupid as the FTC in this matter. It's wrong in our analysis and opinion -- and we bet it is going to backfire in terms of hurting Whole Foods reputation as an ethical retailer.

In fact, if things keep going the way they are for Whole Foods Market, Inc., it just might be forced to ask one federal government agency, the Treasury Department headed by "Bailout King" Hank Paulson, for some of Treasury's rapidly diminishing $700 billion in bailout funds, while at about the same time attend a hearing forced by (the FTC has a hearing on the Whole Foods-Wild Oats merger set for February, 2009) another federal agency, the FTC, in which that agency claims Whole Foods Market, Inc. is a monopolist, and that its acquisition of Wild Oats should be reversed.

We could imagine this scene happening in February, 2009:

Whole Foods' lawyer at the February, 2009 FTC hearing on the Whole Foods-Wild Oats merger hearing: I call former U.S. Treasury Secretary Hank Paulson to the stand please.

'Former Secretary Paulson, isn't it true that in early January, 2009, before President Barack Obama was sworn in and you were replaced by the new Treasury Secretary, that my client, Whole Foods Market, Inc., requested $500 million in federal bailout money in order to survive as a corporationthrough 2009?'

Former U.S Treasury Secretary Hank Paulsen (the former CEO of Goldman Sachs prior to being named Treasury Secretary by then President George W. Bush), who in February, at the time of the hearing, is back on Wall Street: 'Yes Sir, Whole Foods Market, Inc. did request $500 billion in bailout money via a letter signed by the company's CEO John Mackey. But we obviously didn't give the company the money for two reasons: First, that $700 billion is for Wall-Street, which is what I said all along as Treasury Secretary, right up until the day I left Washington and returned to Wall Street. That's why I named the bailout TARP (Troubled Assets Repair Program). There's nothing about grocery markets in Tarp Sir.'

'Also, the head of the FTC told us at Treasury that Whole Foods Market, Inc. was a monopolist that controlled the natural foods retailing segment in the U.S., whatever that means.' 'So, yes Sir, Whole Foods asked -- but we didn't give.'

Whole Foods' lawyer: 'Thanks former Secretary Paulson. For your answer that is...but not for turning down Whole Foods' request for a tiny share of that bailout money, which could have meant the company's not having to soon be acquired, assuming there's an entity somewhere out there willing to acquire the retailer.' And, by the way: ' Congratulations on being appointed the new Chairman and CEO of Citicorp, Mr. Paulsen.'

Hank Paulsen: 'Thank you Sir...it's great to be back home on Wall Street. And, regarding the bailout request...Well, I'm sorry. But Lehman Bros. went down -- and its a whole lot older than Whole Foods Market is. Plus, I was on a first name basis with all the players over at Lehman. I mean, does America really need a national organic grocer, which I am told is what Whole Foods Market is? We love the store in the Time Warner building in Manhattan though, even with its recent downscaling.'

We offer this little narative to point out the absurdity of the entire FTC's ongoing legal case and its argument. For example, what can be done now regarding the merger anyway, even if let us say one assumed Whole Foods was in a monopolist position like the FTC argues. Most legal experts say the FTC will end up demanding Whole Foods sell a bunch of the former Wild Oats stores in selected regions in the U.S., so as to shrink the chain's store count, should it win its case.

If it has a buyer Whole Foods would likely beat the FTC to the punch in many regions, since at least about half of the current remaining former Wild Oats stores that have been and are being turned into Whole Foods banner stores are either very loudly barking retail dogs or had a bark when they were acquired last year that was far bigger than their current sales bite is.

Therefore, ironically, Whole Foods Market, Inc. just might have to sell many of these stores anyway, assuming it can find find a buyer or multiple buyers for the stores -- a situation we doubt will happen anytime soon in the current recession -- in order to generate operational cash to make it through next next year.

Whole Foods has no reason to legally or ethically ask for a legally-binding, court-mandated financial data and related records dump from privately-owned New Seasons Market though, just like the court said it didn't in 2007. Ethically, doing so seems the opposite of organic and sustainable. It's really down right toxic, come to think about it.

Resources:

Click here, here and here for a selection of past posts on the FTC-Whole Foods-Wild Oats merger issue in Natural~Specialty Foods Memo.

Retail Memo: Whole Foods Market, Inc.'s Plans For its First of the Format 'Whole Foods Express' Small-Format Market in Boulder, Colorado On Hold

Whole Foods Market, Inc.'s plans to convert the Wild Oats natural foods market at 2584 Baseline Road in Boulder, Colorado, Wild Oats' former corporate headquarters town, into the first store of its Whole Foods Express small-format, fresh foods-centric natural and organic foods format store has been put on hold, Natural~Specialty Foods Memo has learned.

As we reported last year and updated throughout this year, Whole Foods' has planned to have the Whole Foods Express market in the converted Wild Oats' store open by the end of this year, possibly as early as late summer. However, the lease on the Wild Oats market building is coming due, and Whole Foods is currently in negotiations with the landlord of the building, which is located in Boulder's Basemar Shopping Center, over the terms of a lease extension, according to Will Paradise, Whole Foods Market, Inc.'s Rocky Mountain region president.

A spokesperson for the landlord would only say the lease discussions are ongoing and that no agreement has been reached as of yet.

When Whole Foods acquired Boulder-based Wild Oats Markets, Inc. last year, it inherited a number of Wild Oats banner and owned natural foods markets in the hometown city. These stores include: A Wild Oats store at 1651 Broadway; a Wild Oats Natural Foods Marketplace (a larger store) at 303 Marshall Road in nearby Superior, Colorado; the Wild Oats banner store at 2584 Baseline in the Basemar Shopping Center (the one set to be turned into the Whole Foods Express store); and Ideal Market (at 1275 Alpine Avenue), a Wild Oats'-owned store it bought from a local independent many years ago but retained the name because the store and the store name have historic significance in Boulder.

Whole Foods is currently remodeling Ideal Market, and will keep the name, according to Paradise. The remodeled historic boulder store is set to open in August, paradise says.

The supernatural foods retailer converted the larger former Wild Oats Natural Marketplace store into a Whole Foods Market banner store in January.

Another project coming up in Boulder is to remodel the Wild Oats store at 1651 Broadway. Whole Foods has a unique plan for this store, which is to completely remodel it and rename it Alfalfa's, which was the popular Boulder-based natural foods store chain Wild Oats acquired in the late 1990's, according to Rocky Mountain region president Will Paradise. Wild Oats renamed all the Alfalfa's stores Wild Oats.

It's doubtful Whole Foods is attempting to create a new national, or even regional, banner by bringing back the Alfalfa's name, although they might use it to a limited extent elsewhere in the Rocky Mountain region.

Rather, Whole Foods has approached the Rocky Mountain region, and especially Wild Oats' hometown of Boulder, Colorado, in a unique way because of its history of being where the no longer Wild Oats Markets, Inc. was founded, along with the fact Whole Foods inherited numerous stores in the city.

Prior to the Wild Oats acquisition-merger, Whole Foods had only one Whole Foods Market in Boulder. That store, which is located on Pearl Street in the city, still remains open along with the others mentioned above. Whole Foods has plans to enlarge and remodel that store as well. Plans are to have the project completed by late 2010 or early 2111, according to Paradise.

Meanwhile, with the lease negotiations for the Wild Oats building, which is set to be converted to the first of the format Whole Foods Express, still in progress, it appears the conversion of the store into the new fresh, prepared foods-focused 15,000 -to- 20,000 square foot natural and organic small-format food store is in limbo at present.

Since Whole Foods has had problems arriving at the lease extension terms with the landlord thus far, the retailer has yet to begin converting and remodeling the store to the Whole Foods Express format. Therefore, it's unlikely that even if the parties agreed on the terms of a lease extension this week, it would be possible for Whole Foods to open the Express store this year.

The supernatural foods retailer hasn't given up on or shelved the Whole Foods Express format though, according to Paradise. Rather, it's a lease extension issue on the Wild oats store building, not a format issue.

Converting the store into the Express format though is key to Whole Foods' Boulder strategy, which is to have two Whole Foods banner stores, one Alfalfa's (which will have some format differences as well), one Ideal Market (which is a bit different format than a Whole Foods market), and the Whole Foods Express small-format combination fresh, prepared foods and natural foods market.

If the lease negotiations fall through, it's likely Whole Foods would close the Basemar Shopping Center Wild Oats banner store.

The conversion of the Basemar Shopping Center store also is important in that it will be Whole Foods' first Whole Foods Express format store and thus a model for any others the retailer might want to open in other parts of the U.S.

It also would spell Whole Foods Market, Inc.'s introduction into what Natural~Specialty Foods Memo calls the small-format food retailing revolution currently going on in the U.S. and internationally--with players like Trader Joe's, Tesco's Fresh & Easy, Aldi, SuperValu's Sav-A-Lot, Safeway's "The Market" format and numerous others all leading the charge in America.

We will report on any new developments regarding the lease negotiations between Whole Foods Market, Inc. Rocky Mountain region and the Basemar Shopping center Wild Oats store's landlord as information becomes available. At present though, it's our best analysis that it's unlikely the Whole Foods Express store will be able to open at the Boulder location this year.

Retail Memo: Some Midwest USA Region Consumers Want Their Former Wild Oats Markets to Get More of A 'Whole Foods-Style Treatment'

As our readers know, we've been covering, writing about and analyzing the Whole Foods Market, Inc. acquisition of its once rival Wild Oats Markets, Inc. since the buyout first occurred late last Summer. (2007). [You can read a selection of some of those pieces here. Also, type Whole Foods in the search box at the top of the blog.]

Shortly after Whole Foods announced its intention to acquire Wild Oats--with Wild Oats Markets, Inc.'s blessing (both calling it a merger in fact)--the U.S. Federal Trade Commission (FTC) announced it would oppose the acquisition/merger on the grounds it was anti competitive and would give Whole Foods a monopoly in the supernatural grocery retailing category, allowing the Austin, Texas-based chain to raise prices to consumers at will.

The U.S. Federal Court in Washington, D.C. denied the FTC claim, ruling the merger would neither result in category monopolization or anti-competitiveness primarily because it viewed Whole Foods Market, Inc.'s primary competitors as being higher-end supermarket chains like Safeway Stores, Inc.'s Lifestyle format, Wegmans, Publix, H.E. Butt, Fresh Market and many others with thousands of stores throughout the U.S. in regions where there are both Whole Foods and Wild Oats' banner stores. (This is an argument Whole Foods lawyers made in court, by the way.)

However, the FTC appealed the decision in the late fall, putting a hold on Whole Foods' ability to start integrating the Wild Oats stores into the Whole Foods Market, Inc. operations and retailing system.

Once again, towards the end of 2007, the Federal Appeals Court in Washington, D.C. denied the FTC's anti-competitive and monopolistic claims, upholding the previous U.S. Federal Court's ruling in favor of Whole Foods.

Since the appeal ruling in Whole Foods Market, Inc.'s favor came down at the end of last year, the supernatural grocery chain was only able to really start integrating and re-branding (from the Wild Oats to the Whole Foods banner) the former Wild Oats stores beginning in January of this year.

It's been a big job; some say even bigger than Whole Foods anticipated. The integration process also has been compounded by the fact the FTC filed a second appeal in U.S. Federal Court in late January, attempting to halt the integration process despite the fact Whole Foods was well into the process, having been given the green light by the U.S. Federal Appeals Court.

In fact, when it filed its now third lawsuit regarding the merger and second appeal in less than nine months, the FTC asked the U.S. Federal Court for an immediate halt of the Whole Foods-Wild Oats integration until the court agreed to hear the FTC brief. The court denied the FTC's request. Further, it hasn't heard the second appeal yet, nor set a date for a hearing thus far.

The filing of the FTC's second appeal didn't stop Whole Foods from continuing the Wild Oats store integration process it began in earnest in January. In fact, the chain reports its making progress in its efforts to eventually re-brand all of the the Wild Oats stores (except two or three in Boulder, Colorado, which will carry the Alfalfa's and another local banner) to the Whole Foods banner.

There is some trouble in paradise however. We've heard comments of disappointment from a few readers about the treatment some of the former Wild Oats stores are getting. It seems many shoppers, and perhaps rightly so, expect that when Whole Foods comes in and converts a former Wild Oats grocery market, which have generally always been much more "bare bones" than a typical Whole Foods superstore, that the supernatural grocer is going to give that store the "Whole Foods treatment."

What's the "Whole Foods treatment?" That would include adding a wider-variety of natural and organic grocery products, more specialty and gourmet fresh foods and grocery products, additional premium food items which Whole Foods is famous for, and a general up-scaling of the store's product selection.

We've talked to consumers in some areas of the U.S. where Whole Foods Market has made these additions to Wild Oats stores it's already converted. However, people in other parts of the country say it isn't, or hasn't yet happened. One region where we've particularly heard this complaint is in the Midwestern U.S.--specifically in the Chicago, Illinois Metro region--and now in Indiana.

Indianapolis, Indiana is the home of the food blogger Braingirl, who writes a popular food and drink blog called: "Feed Me/Drink Me: Indianapolis food, wine and commentary." Food blogger Braingirl is an advocate and promoter of quality food and drink in Indianapolis and the surrounding region, including writing about food and grocery stores, restaurants and much more.

Indy-based gourmet Braingirl shopped at the Wild Oats market in Indianapolis before the chain was acquired last year by Whole Foods Market, Inc., despite the fact she says it offered a rather poor selection of specialty foods and specialty ingredient items. Therefore, she was rather pleased when she heard the natural foods' grocery chain would be converting the store from a "Wild Oats" into a "Whole Foods" store.

However, in a piece in her blog today, she reports the "assimilation" of the former Wild Oats market is near-complete--and the store essentially hasn't up-scaled and added specialty, gourmet and premium items, which the chain is famous for, as of yet.

As you can imagine, food blogger Braingirl isn't pleased at this development. Read her essay in today's edition of Feed Me/Drink Me to get her report on what's happening at the former Wild Oats' store, what she is being told about the conversion and integration process regarding that store, and how she feels about the natural foods' market's not getting the "Whole Foods treatment" as it relates to enhanced specialty product selection.

Since we've heard comments from more than one other person about their hoping that a former Wild Oats store in their area would become more like a Whole Foods store in terms of expanded specialty and premium product selections once that store was converted to the Whole Foods system and banner, we think Whole Foods Market, Inc. executives might want to listen to what Braingirl has to say.

Perhaps there are near-future plans to make the former Wild Oats grocery markets like the one in Indianapolis described by food blogger Braingirl more specialty and premium product-inclusive like existing Whole Foods banner stores. (If so, somebody might want to shoot her an email to that effect.) If such current plans don't exist, it's something the grocer should consider, as it appears there's added sales potential for such former Wild Oats stores in Whole Foods' doing so.

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

Analysis: FTC v. Whole Foods Market, Inc.

Natural~Specialty Foods Memo (NSFM) believes the U.S. Federal Trade Commission's (FTC) legal case and argument against the merger of Wild Oats Market, Inc. and Whole Foods Market, Inc., the friendly acquisition by Whole Foods of Wild Oats that the regulator has been fighting in court since the summer of 2007, is folly.

NSFM has no affiliation with Whole Foods Market. We have nothing to gain from the merger's holding firm. In fact we think part of the reason the FTC continues to so strongly oppose the deal, despite the fact its been over 18 months since it was done and is now near fully-completed in terms of integration, is because of the decade-plus public comments of Whole Foods' CEO John Mackey and a couple of other company executives about "dominating" natural foods retailing in the U.S.

We also think part of the reason for the FTC's resolve has to do with John Mackey's silly postings on Yahoo Finance message boards during the run up to the deal in which using an assumed screename he described Wild Oats essentially as a bankrupt company in need of a new owner; that new owner being of coourse Whole Foods Market, Inc. We happen to agree with Mackey that Wild Oats was basically that, as do most of the investors who were four-sqaure behind the deal with Whole Foods, but his method of communicating that opinion was less than stellar. Mackey was investigated by the federal government for the postings and was foound to have broken no laws.

However, neither of these are or should be valid reasons for the FTC to continue to challenge the merger, assuming as we suggest they might play a part in the regulator's doing so.

The FTC's central argument against the deal is that a combined Whole Foods-Wild Oats is a monopoly retailer in 29 U.S. markets in what the regulatory agency has termed the "premium natural and organic foods retailing segment." As a result the FTC says Whole Foods Market, Inc. presents an anticompetitive position vis-avis other retailers in the selling of natural and organic foods in these U.S. markets.

The creation of this food retailing segment by the FTC forms the entire central premise of its ongoing attempt to unwind the merger.

But the problem is the "premium natural and organic food retailing segment" is at best irrelevant and at worse a creative fiction in terms of the retailing of natural and organic foods and related consumer goods in today's U.S. market.

Instead, natural and organic foods retailing in today's America is what we call a multi-retailer and multi-format business.

At one end of this spectrum there are serious and strong regional competitors in the natural-organic retailing class of trade that are dealing a serious blow to Whole Foods Market, Inc. These retailers include such regional natural foods chains as Sunflower Farmers Market, Sprouts Farmers Market, Henry's Marketplace (which Whole Foods sold to Smart & Final, Inc. after acquiring it in the Wild Oats deal in 2007, Natural Grocers by Vitamin Cottage, PCC Natural Foods Co-op (Washington State) and New Seasons Market (Portland, Oregon Metro region) and a number of others in the Western U.S.

Elsewhere in the U.S. other fast-growing natural foods chains like Mrs. Green's Market (New York state region), which is owned by Canada's Planet Organic, Inc., Earth Fare (southern U.S.), Fresh & Wholesome (eastern U.S.) My Organic Market (Washington D.C./Maryland/Virginia region) and others are strongly competiting against Whole Foods in those and other U.S. regions.

Further, along with these small but in most cases fast-growing natural and organic foods chains, there are thousands of independent and co-op natural foods stores that competite head-to-head with Whole Foods stores in their respective U.S. markets.

Along with the natural foods class of trade described above, the biggest development in category retailing in the last decade has been the entry of supermarkets into natural and organic products retailing. This includes mega-chains like Safeway Stores, Inc. with its Lifestyle format supermarkets (1,750 in the U.S. and Canada and growing), Kroger Co., including its new "Fresh" format, as well as mega-regional chains like H-E-B in Texas, Publix in Florida, Raley's in Northern California, Wegemans on the east coast and so many others. These retailer's stores offer nearly as much variety of natural and organic food and grocery products as a Whole Foods market does and generally offer the category items at a lower everyday price that Whole Foods does.

But the supermarket class of trade's major and fast-growing position in natural and organic foods retailing isn't all there is in terms of the competitive landscape today in the U.S. Huge mass merchandisers like Wal-Mart, Target, Wal-Mart's Sam's Club, Costco, B.J's Wholesale and other national mass merchandiser chains are in the natural and organic products retailing business in a major and serious way.

For example, all of the mass merchandisers mentioned above offer their own private label brands of natural and organic foods, selling the products a lower everyday prices than Whole Foods stores do. These retailers also offer organic foods and consumer packaged goods marketed by national and regional manufactuers (brands), as well as selling organic fresh produce, meats and other perishables in their respective stores.

On top of all this competition are what we call the discount and hybrid natural and organic foods retailers. This category includes the mighty Trader Joe's, which with about 312 small-format disount natural and specialty foods stores throughout the U.S. is a major force in natural and organic products retailing. Trader Joe's is a natural-organic category killer retailer and steals much market share away from Whole Foods throughout the country.

Examples of the hybrid category include Cost Plus World Market which sells lots of natural and organic food products in its nearly 300 combination specialty foods and imported consumer goods stores located throughout the U.S. In the last couple years Cost-Plus has created numerous natural and organic food products across all categories under its World Market store brand, becoming a competitor for share of stomach with Whole Foods Market and all of the other retailers in the U.S. that retail natural-organic category products in their stores, regardless of format.

Another hybrid is the fast-growing Fresh & Easy Neighborhood Market, which is owned by United Kingdom-based Tesco, the third-largest retailer in the World. (Wal-Mart is the number one global retailer and France's Carrefour is number two. In just a little over a year, Tesco has opened about 110 of its small-format Fresh & Easy combination fresh foods and grocery markets in Southern California, Nevada and Arizona, with more to come. Along with selling basic grocery items and lots of fresh, prepared foods, including organics, the stores offer a solid selection of natural and organic packaged foods, groceries and perishables under its fresh & easy store brand. The natural and organic items are priced below those at natural foods stores like Whole Foods Market and are designed to steal away business from Whole Foods and traditional supermarkets.

Another hybrid retailer is Beverages & More, which has numerous stores throughout the Western U.S. The stores are beer, wine, spirits and specialty and natural foods category killers, offering items in each of these respective categories at discount prices. Every package of organic cereal, bottle of Vitamin Water or jar of organic mustard bought at a Beverages & More store could have been purchased at the monopolistic Whole Foods, for example.There are numerous other examples of hybrids located throughout the U.S.

There also are what we call hybrid upscale/specialty/natural foods superstores. These retailers include regional chains such as Fresh Market in the southern and Mid-Atlantic regions of the U.S., United Supermarkets' Market Street chain in Texas, Supervalu, Inc.'s Bristol Farms in California and numerous others. They retail specialty, natural and fresh foods, along with basic groceries, in very upscale (every bit as upscale as Whole Foods) stores ranging from 30,000 -to- 60,000 square feet, putting an emphasis on most of the same categories and practices that Whole Foods focuses on.

But we aren't finished yet with our natural-organic category retailing competitive review. In addition to all of the competition we've detailed above, American consumers can today buy natural and organic food and grocery products at drug stores owned by huge chains like Walgreens, CVS and Rite Aid, at 99 cent and dollar stores, online through retailers like Amazon.com and others, and in the case of organic fresh produce at thousands of farmers markets across the U.S. Although these alternative channels offer limited item selections, taken with the retailers described above they add significantly the the competitive natural-organic retailing landscape in the U.S. today.

The point is, looking at natural-organic products retailing through the blurred lense the FTC is using -- its "premium natural and organic retailing segment (PNOS)" -- is like the old philosophical saying of failing to see the forest through the trees. Create a definition, PNOS, and then use that non-realistic definition of today's market as the basis for your argument against the merger is how we view what the FTC is doing in continuing to oppose the Whole Foods-Wild Oats merger under this framework.

But this is not merely our analysis or opinion. The marketplace agrees with us. For example, Sunflower Farmers Market and Sprouts Farmers Market both last year raised tens of millions of dollars to expand their respective businesses and store counts, which both chains have been doing aggressively. Both natural foods chains, as is the Natural Grocers By Vitamin Cottage natural foods chain, are going right at Whole Foods Market, opening stores in its home state of Texas, along with taking Whole Foods on in Colorado, California, New Mexico, Utah, Arizona, Nevada and elsewhere. Would these retailers really risk this if they believed Whole Foods held category retail monopoly power? Of course they wouldn't. Many of the states mentioned above are part of the 29 in which the FTC says Whole Foods Market, Inc. post-merger holds a monopoly, by the way.

Add to this market-based evidence Safeway Stores' march into the natural and organic foods retailing business over the last few years. The national supermarket chain, which has about seven times the annual gross sales of Whole Foods Market, Inc., has converted nearly all of its about 1,750 (Whole Foods has about 280 stores) supermarkets in the U.S. into its upscale Lifestyle format, which among other things puts a major emphasis on natural, organic and prepared foods, which are the three key merhcandising pillars of Whole Foods' business. Safeway has had huge success doing so.

For example, a little over years ago Safeway introduced its "O' Organics" store brand of organic food, grocery and non-foods items. Today the brand has over $500 million in annual sales and is growing fast. It's estimated 2008 sales will be about $700 million for the brand. O' Organics sales are growing so fast in fact that Safeway is in the process of marketing the brand to competitor supermarket chains in the U.S., along with marketing it globally. France's Carrefour is already selling numerous "O' Organics" brand items in its stores in Asia and Central America, for example.

Just over a year ago Safeway introduced its "Eating Right" store brand of healthy foods. The brand includes natural and healthy products across all categories, from dry grocery and dairly to fresh produce. Sales of the brand already are at about $300 million. Safeway says first year sales of 'Eating Right" were even higher than those of "O' Organics." The supermarket chain also is in the process of marketing "Eating Right" to competitor retailers, along with doing so to global chains outside the U.S.

Does anybody really believe that a significant portion of this nearly $1 billion worth of annual sales in just these two Safeway natural, healthy and organic store brands didn't in part come out of the sales hide of Whole Foods? Of course it did. Shoppers who just a decade ago had to seek out Whole Foods and otehr natural foods retailers for such items can now find most all they need in the natural and organic categories at supermarket chains like Safeway.

Many of Safeway's newest Lifestyle format supermarkets look very similar in upscale design and product selection to a Whole Foods natural foods supestore. However Safeway's stores have the added benefit of selling conventional food and grocery products along with the natural-organic.

It's our analysis that the FTC either has failed to understand the dynamics and realities of how natural and organic foods are retailed today in the U.S. or that it intentionally has decided it wants to break-up the Whole Foods-Wild Oats merger for reasons other than actual real competitive ones. In looking at Whole Foods' performance since the deal was finalized in late 2007, there is zero evidence of a monopolist at work. Just some of the empirical and performance-based evidence that Whole Foods looks not like a monopoly but rather more like a struggling retailer:

>Whole Foods' income was down by about 40% in its last quarter. It had a similar drop in net income the previous quarter.
>Whole Foods' stock share price is off by about 70% compared to its high after the Wild Oats merger.
>In the last quarter of 2008 Whole Foods fired about 100 workers at its Austin, Texas headquarters in order to conserve operating cash on hand.
>In December, 2008 Whole Foods sold 17% of the company to private equity firm Leonard Green & Partners for a mere $465 million because it needs the cash. One year ago a 17% stake in Whole Foods was worth more than double that $465 million.

In addition to all the evidence we've presented in this piece, there's a far more simple and telling test as to why a combined Whole Foods-Wild Oats isn't a monopolist retailer of any sort. That test is that not one natural foods chain -- not Sunflower, not Sprouts, not Henry's -- or even an independent we've been able to find -- has spoken out publicly, saying that a combined Whole Foods-Wild Oats is a monopolist and because of it that retailer can't compete. Even when the merger was first announced, and when the FTC first issued its formal opposition to the deal in the summer of 2007, did we hear any natural foods retailers speak out and say they felt seriously threatened by a combined Whole Foods-Wild Oats. Instead there has been a deafening silence of concern from natural foods retailers over any real anti-competitive aspects of a combined Whole Foods-Wild Oats.

As we write this, Whole Foods Market, Inc.'s energy is being near-used-up fighting its legal case against the FTC, rather than in doing food retailing. Meanwhile, the combination of the severe recession and the competitive environment, in which all of the various format retailers we've discuss are in many cases offering natural and organic food and grocery products at prices considerably below Whole Foods, is taking a toll on the company.

For example, last week supermarket industry investor Ron Burkle bought a 7% stake in Whole Foods Market, Inc. through his Yucaipa Cos. investment and private equity firm, saying he believes the natural grocery chain is undervalued based on its problems with the FTC and in the current bad economy. The last time Burkle said something similar was when he bought an 18% stake in Wild Oats, and then as a powerful member of Wild Oats' board he played a major role in engineering the merger with Whole Foods. Could he have a similar plan in mind with his 7% Whole Foods stake? Investors think so. After Burkle disclosed his stake in Whole Foods last Thursday the company's stock rose by 23%. Its still down about 52% over a year ago though.

With Ron Burkle's 7% stake and Leonard Green & Partners' 17% stake in Whole Foods, that now puts 24% of the natural grocery chain's ownership in the hands of just two entities. Leonard Green & Partners also placed three people on Whole Foods' board as a result of its investment. A 24% ownership isn't a majority but its enough to play a major role in engineering an acquisition or merger should Burkle and Leonard Green & Partners, both of which are based in Southern California, decide to get together and talk potential deal creation.

We wonder if the FTC would cry monopoly for example if Safeway Stores, Inc. or Kroger Co. acquired Whole Foods? What about Wal-Mart or Target? After all, none of these mega- retailers, all of which are super-giants in terms of annual sales compared to Whole Foods Market, Inc., aren't technically players in the "premium natural and organic retailing segment." Therefore, adding a mere 280 stores and a little over $6 billion (Whole Foods annual sales) wouldn't, using the FTC's logic and argument against why a combined Whole Foods-Wild Oats is a monopoly, make any of these retailers monopolistic, not even Kroger which has about 12 times Whole Foods' annual sales or Wal-Mart, which has about 50 times Whole Foods' annual sales, right?

Therein lies the folly of the FTC's argument. It's created a fiction it calls the "premium natural and organic retailing segment," then used that non-market-reality-based definition to argue a combined Whole Foods-Wild Oats is a "category monopoly," leaving out the fact that the reality of natural and organic foods retailing today is what we've described it as -- a multi-retailer, multi-format, highly competitive business in which no one retailer, including Whole Foods Market, Inc., at present holds any type of monopoly. And in select markets where one retailer might monopolize category business to a certain degree, be it Wal-Mart, Safeway or Whole Foods, the effect is so minimal as to be irrelevant.

Even more significant is that nature of food and grocery retailing in the U.S. is so dynamic that something new -- think Sunflower, Sprouts, Tesco's Fresh & Easy -- all of which didn't exist in any significantly competitive way three years ago -- keeps coming along and changes the dynamics of the market. That's the true competitive reality of natural and organic foods retailing in the U.S. today.

Retail Memo: Fast-Growing NF Chain Sunflower Farmers Market Responds to Whole Foods Market, Inc. Subpoena For Sales, Financial and Related Information

The FTC, Whole Foods Market and 96 Natural Products Retailers

Boulder, Colorado-based Sunflower Farmers Market, one of the fastest-growing natural foods retailing chains in the U.S., has submitted a response to the subpoena it received from Whole Foods Market, Inc. asking the natural products retailer for three years' worth of sales data, its strategic plans, market analysis reports and other related documents, including any that might discuss its plans to compete with Whole Foods, according to CEO Mike Gilliland, who just happens to be the founder of Wild Oats Markets, Inc., which Whole Foods acquired last year.

The U.S. Federal Trade Commission (FTC) continues to dispute the Whole Foods-Wild Oats merger, which is now pretty much completed, which is the reason Whole Foods Market, Inc. says it had to subpoena the sales and related information from 96 natural products retailers, including Sunflower Farmers Market.

The FTC is holding a hearing on the Whole Foods-Wild Oats merger in February of next year in order to determine the combined company's fate post-merger. Whole Foods' legal council has subpoenaed the records of these retailers in order to build and prove its case that the combined Whole Foods-Wild Oats does not represent an anti-competitive natural segment retailing force in about 18-29 markets where the FTC says that is the case.

Sunflower Farmers Market received the same subpoena that Portland, Oregon-based nine-store New Seasons Market and 94 other natural products retailers received from Whole Foods Market, Inc.'s lawyers.

As we've been writing about in a series of pieces over the last week, New Seasons Market CEO Brian Rohter is disputing the Whole Foods subpoena for his company's proprietary sales, financial and related records, and took the issue public on the natural grocer's company Blog.

See these posts from Natural~Specialty Foods Memo:

>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

>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 2, 2008: Retail Memo: Portland, Oregon-Based New Seasons Market CEO Brian Rohter Responds to Whole Foods Market's Paige Brady

>December 3, 2008: Retail Memo: More on the Whole Foods Market-New Seasons Market Subpoena Issue; FTC Holding Firm For February, 2009 Hearing

Sunflower Farmers Market CEO Mike Gilliland did not describe the content of the natural foods retailer's response to Whole Foods Market, Inc.'s subpoena.

It is well known within the natural products industry that Gilliland and Whole Foods Market CEO John Mackey don't like each other. They even avoid one another at industry trade shows and related functions.

Gilliland, the founder of Wild Oats, left the company long before it was acquired by Whole Foods last year.

A few years ago he founded Sunflower Farmers Market in Boulder, Colorado, the same city in the same state where he started Wild Oats, and where its corporate headquarters remained until merging with Whole Foods last year.

Gilliland is competing head-to-head in a number of markets against Whole Foods Market with Sunflower. He recently has opened stores in Whole Foods' home state of Texas, for example. Last year Sunflower Farmers Markets received a $30 million investment to expand the chain by opening numerous new stores over the next five years.

The Sunflower Farmers Market stores are much smaller than Whole Foods' natural foods stores are. They average about 15,000 or so square feet and are relatively no frills in design. They operate on an everyday low-price model which Sunflower says offers everyday low prices across all natural and organic products categories that are at least 15% less than Whole Foods'

The Sunflower format, which reminds us a bit of Gilliland's original model for the Henry's stores which Whole Foods sold to Southern California-based Smart & Final, Inc. after it acquired Wild Oats last year, puts a major emphasis on fresh produce, including organic, at low prices. The large produce departments are located in the center of the store like a farmers market in order to draw attention to the "fresh" aspect of the Sunflower stores.

New Season's Market CEO Brian Rohter says his company has been forced into the "crossfire" of the FTC's continued legal challenge to the Whole Foods-Wild Oats merger, the result being the subpoena for the natural grocer's sales, financial and related proprietary information.

New Season's lawyers filed a brief with the FTC last week to kill or limit Whole Foods' subpoena, saying in the legal brief it will cost New Seasons Market over $250,000 to comply with the subpoena's demands, along with arguing that disclosing the proprietary sales and related information will open the door for Whole Foods to engage in anti-competitive conduct against the Portland-based retailer because it will have this inside information.

Whole Foods Market, Inc. says the law does not allow its outside counsel to share any of the proprietress information obtained from the retailers via the subpoena with operational employees of Whole Foods at any level. It says the information is strictly for the lawyers use in arguing the retailer's case against the FTC.

The brief filed by New Seasons Market's lawyers also contains quotes it says have been made by Whole Foods Market, Inc. CEO John Mackey and other executives referring to its wanting to "crush," "punish" and "eliminate" competitors such as Wild Oats and Earth Fare, a 15-store chain on the East Coast.

As a result of this behavior... "New Seasons has no reason to believe that Whole Foods would not relish the opportunity to do to New Seasons what it did to Wild Oats and what it does to other competitors such as Earth Fare ..." the lawyers wrote in the brief to the FTC to stop the subpoena.

CEO Rohter also says the numerous postings Whole Foods CEO Mackey made using a fictitious screen name in various Yahoo Finance online message boards during the run up to the Wild Oats acquisition, postings in which he made comments about the incompetence of the then Wild Oats CEO for example, demonstrate a pattern of behavior in which Whole Foods is willing to do whatever it takes to crush and eliminate its competition.

Mackey was investigated by the U.S. Securities and Exchange Commission for the postings and was cleared of any illegal activity. However, numerous ethical and judgement questions have been raised about the behavior.

Whole Foods Market's social media director Paige Brady posted a company response to New Seasons Market's position in Natural~Specialty Foods Memo on December 2, following our publication the day before about the issue. [See the December 2 link above.]

Whole Foods spokeswoman Kate Lowery says Whole Foods was put in the position of having to issue the subpoenas by the FTC because the agency lumped it, Wild Oats, Earth Fare and New Seasons into the four-member class of groceries called "premium natural and organic supermarkets" during federal court proceedings last year.

It is in this natural products retailing market segment (which doesn't really exist in the minds of most people in the food and grocery retailing industry. The lines are far to blurred.) the FTC continues to argue the merged Whole Foods-Wild Oats presents a monopolistic and anti-competitive force in.

A federal court in Washington D.C. has twice ruled against this claim being made by the FTC and in Whole Foods' favor. Despite the ruling, the FTC reopened its administrative case on the merger after getting a green light from a court to do so. That is the hearing scheduled for February 16, 2009 in Washington, D.C.

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

FTC v. Whole Foods Market, Inc.

The ongoing legal battle and saga between the U.S. Federal Trade Commission (FTC) and Whole Foods Market, Inc. took a serious turn today when the FTC filed a brief asking U.S. Federal Judge Paul Friedman to order a complete halt to the integration of Wild Oats into Whole Foods (and more), a process that after more than 18 months since the 2007 merger is nearly completed. Whole Foods-Wild Oats: Two peas in a pod no more if the FTC gets its way from the judge.

The FTC says in its motion it wants the federal judge to force Whole Foods to stop any further integration activities while the multiple disputes between the regulator and the natural grocer over its acquisition of Wild Oats is handled in court. Judge Friedman is currently preparing to rule on motions filed by the FTC regarding the acquisition/merger, along with ruling on Whole Foods' lawsuit against the FTC in which the natural grocery chain is asking that the entire issue be removed from FTC jurisdiction and settled in Judge Friedman's federal courtroom.

The FTC said in its legal filing that the request is "appropriate, and reasonable" to preserve the assets of Wild Oats until the conclusion of the hearings.

This is the trifecta of pain the FTC wants to put Whole Foods Market, Inc. through: It wants the judge to order Whole Foods to rebrand (change the signs on the stores) the about 100 Wild Oats stores it's converted to the Whole Foods banner back to Wild Oats. It's legal filing also asks the judge to order Whole Foods to stop converting any remaining Wild Oats banner stores into Whole Foods. There still are a few left to be converted. Lastly, and most ominous for the natural grocer, The FTC wants former Wild Oats stores now operating as Whole Foods locations to be put in the hands of a third party, and their original signs returned, until its challenge to the merger is resolved.

The federal regulatory agency said in its filing today that if the judge rules that it has a strong enough case, it's likely it will attempt to unwind the entire merger and force Whole Foods Market, Inc. to establish Wild Oats as a standalone company and operate it that way.

The FTC has set a trial for April before an agency-picked Administrative Law Judge in which the fate of the deal is to be determined. Whole Foods' lawsuit before U.S. Federal Judge for the District of Columbia Paul Friedman asks, among other things, for that hearing to be cancelled and the FTC to be removed from determining the legal status of the merger. Instead Whole Foods wants the judge to hear the case and decide on the deal once and for all.

It appears to Natural~Specialty Foods Memo that the dramatic legal move today is the FTC's response to Whole Foods' lawsuit, which it filed in early December, 2008, as well as the natural grocer's high-profile lobbying and public relations campaign against the FTC, which we've reported on and written about extensively.

In other words, the gloves are now completely off on both sides.

Whole Foods Market CEO John Mackey shot back at the FTC today through a spokesperson and through his legal counsel, calling the FTC's request "absurd" and saying the process of integrating Wild Oats is done.

"They want us to put the toothpaste back in the tube," lead Whole Foods Market, Inc. attorney, uber-Washington, D.C. lawyer, and friend of the (Bill and Hillary) Clinton's Lanny Davis said in a statement late today. "How can you halt something that is already done?"

If the judge rules in the FTC's favor and orders Whole Foods to change the 100 or so stores back to the Wild Oats banner, stop any further integration of the few remaining stores, and to place what was Wild Oats in the hands of a "third party" as requested in the regulator's court filing today, it's our analysis that doing so would basically be the death of Whole Foods Market as you know it, a retailer that's already near death's door in so many ways.

Those ways include: a loss of income of about 42% in its last quarter; a drop in the value of Whole Foods Market, Inc. stock of about 75% in the last year; an ongoing erosion in sales, customer counts and store customer market basket purchase sizes because in the current, severe recession shoppers are trading down; and growing competition from discount-priced natural foods retailers like Sunflower Farmers Market, Sprouts Farmers Market and others, as well as increased competition from mass merchandisers like Wal-Mart, Costco and Target and supermarket chains, all increasingly selling natural and organic foods, in most cases for less than Whole Foods Market does.

We see the FTC's demands as both unrealistic -- the merger is near completed for heavens sake -- and draconian -- the financial cost of doing what the FTC is asking in this severe recession and financial/credit crisis environment amounts to basically wishing a bankruptcy filing on Whole Foods Market, Inc., or at best forcing the company to fire hundreds or even thousands of employees as a way to conserve cash; cash it will need to do the expensive things contained in the FTC's filing.

We don't like to make predictions but we must: Judge Friedman has shown himself to be a fair and even-handed judge throughout the FTC-Whole Foods legal saga since the summer of 2007 when the case was assigned to him. Therefore, it's our belief that the judge will deny all or most of the requests being made by the FTC. However, we think he might grant one, which is that Whole Foods cease any further integration of remaining Wild Oats stores into Whole Foods. But even doing that would be difficult. Why? there's no Wild Oats entity anymore. It exists essentially only in FTC world.

Of course, we could be wrong. And if we are, and if the judge were to rule completely in favor of the FTC on its filing today, we expect a drop in Whole Foods' stock share price that will be so dramatic that it could likely render the value of the retailer so low that its new, major stockholders -- supermarket industry magnate Ron Burkle, who like Lanny Davis is a BFF of the former first family (particularly Bill Clinton), and the private equity firm Leonard Green & Partners, L.P., get together and engineer some sort of an acquisition of Whole Foods Market, Inc.

Leonard Green & Partners acquired 17% of Whole Foods Market, Inc. for $425 million on December 2, 2008.

Legendary supermarket industry investor Ron Burkle, who as a major investor (he held an 18% stake in Wild Oats at the time of Whole Foods acquisition) and board member was the driving force from the Wild Oats corporate side behind the merger with Whole Foods in 2007, revealed in a filing with the Security and Exchange Commission last Thursday that his Yuciapa Companies investment firm, which counts among its investors the once poor-as-President but now multi-millionaire (thanks in part to Burkle's efforts on his behalf) former President Clinton, bought a 7% stake in Whole Foods Market, Inc.

Burkle, a billionaire, is an activist investor. He made his fortune over a two-decade period primarily by buying supermarket chains and combining them, resulting in his ultimate deal, which was the sale of his huge supermarket holding company to Kroger Co. in the 1990's for billions of dollars.

Private Equity firms like Leonard Green & Partners and activist shareholders like Ron Burkle (his Yuciapa Cos. is essentially a private equity firm) both play the same endgame -- they acquire stakes in company's, get involved in how those companies operate, and eventually look for an exit strategy that makes them a substantial profit. This most often involves a merger or acquisition.

Mark our words, with Leonard Green & Partners and Ron Burkle now holding a combined 24% ownership stake in Whole Foods Market, Inc., the natural foods grocery chain, whatever the outcome of the FTC legal case, will not end up being the same company a couple years from now (or in less time) than it has been historically or is today. After word got out on Thursday that Burkle took a 7% stake in Whole Foods, the natural grocer's stock shot up by 23% above its previous day's share price.

Meanwhile, FTC v. Whole Foods Market, Inc. continues. Stay tuned.

Natural~Specialty Foods Memo (NSFM) Linkage:

>In this story [Retail Analysis Memo: Growth and A Tale of Two Retailers-Tesco and Whole Foods Market: Is One Ripe For Acquisition and the Other Ripe For Acquiring?] on August 16, 2008 we suggested Whole Foods Market, Inc. could (then) be ripe for an acquisition. Nearly five months later, and in much more dire straights, we think the probability is even higher that it is. The only limiting factor: Does anybody want Whole Foods in Today's economic climate? Not to mention it's little FTC problem as well.

>Linked below are a couple past stories from Natural~Specialty Foods Memo (NSFM) about billionaire supermarket industry investor Ron Burkle:

~Food & Politics Memo: Billionaire Supermarket Industry Investor Ron Burkle Makes Millions For The Clinton's Post-Presidency

~Retail Memo: [Heard on the Street]: Will SuperValu, Inc. Be Supermarket Industry Investor Ron Burkle's Next Play

>More on Ron Burkle: Click here to read a piece from August, 2007 about Burkle and the Whole Foods-Wild Oats deal. As a note: NSFM has been the only publication we found to suggest in the past that we could see Burkle making a major investment in the combined Whole Foods-Wild Oats. He did just that on Thursday, January 9, 2009.

Supermarket chains v. Whole Foods: The FTC is so "1986" when it comes to understanding the food and grocery retailing industry in the U.S.:

>Our argument regarding why the FTC is wrong in its legal case in which it is claiming that a combined Whole Foods-Wild Oats is a monopoly in what it calls the natural and organic premium retailing segment basically boils down to this: such a classification by the FTC is a fiction because it is irrelevant to the reality of the retailing of natural and organic products in the U.S. today in which retailers of all types and formats -- from Wal-Mart, Target, Costco, Safeway, Kroger Co., Trader Joe's, regional supermarket chains, independents and even Amazon.com, to fast-growing natural foods chains like Sunflower Farmers Market and Sprouts Farmers Market and many others -- all are battling it out in the category arena.

In August, 2007 we wrote this piece [Will the Big 3 Supermarket Chains Challenge Whole Foods in its Niche? Our answer today: Yes, in the 17 months since we wrote the piece the "Big 3" have increased their merchandising in the natural and organic foods categories significantly. For example, at the end of 2008 sales of Safeway Stores' "O' Organics" organic products store brand was over $500 million in its 1750 supermarket in the U.S. and Canada. Four years ago the brand didn't even exist.

Additionally, on the market for just a bit over a year, Safeway's "Eating Right" healthy foods brand has over $200 million in annual sales. Such sales doesn't come only from new customers. Rather, most of it comes from stealing other retailers' and manufacturers brand sales. A significant share of these new stomachs for the Safeway brands comes from consumers who used to buy like products at Whole Foods Market stores.

More NSFM Linkage:

Natural~Specialty Foods Memo reported extensively on, wrote about and offered analysis on the FTC v. Whole Foods issue and related topics in December, 2008. Below is a linked bibliography of all of our December stories and posts:

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 6, 2008: Retail Memo: Fast-Growing NF Chain Sunflower Farmers Market Responds to Whole Foods Market, Inc. Subpoena For Sales, Financial and Related Information....

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.

FTC v. Whole Foods - Linkage from the Natural~Specialty Foods Memo 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.

[Note: Natural~Specialty Foods Memo holds no Whole Foods Market, Inc. stock at present.]