Natural~Specialty Foods Memo: FTC-WFM Settlement Agreement

Showing posts with label FTC-WFM Settlement Agreement. Show all posts

Monday, April 6, 2009

Retail Memo: David Wales, Who Headed Up the FTC's Nearly Two Year Legal Challenge Against Whole Foods' Acquisition of Wild Oats is Leaving the Agency

FTC v. Whole Foods Market, Inc.: Settlement Agreement Post-Mortem

David P. Wales, the Acting Director of the U.S. Federal Trade Commission's (FTC) Bureau of Competition, and the man who in that role spearheaded the nearly two year antitrust legal challenge by the regulatory agency against Whole Foods Market, Inc.'s acquisition of Wild Oats Markets, Inc., is leaving the FTC to, as they say, pursue other interests.

Mr. Wales' departure comes just one month after the FTC and Whole Foods Market reached a settlement agreement over the Austin, Texas-based natural grocery chain's 2007 acquisition of Wild Oats Markets, its then main rival in the natural foods retailing class of trade segment.

New FTC Chairman Jon Leibowitz offered some strong praise about the departing Acting Director of the FTC's Bureau of Competition, which among other tasks is charged with enforcing antitrust regulations and bringing charges of antitrust violations involving mergers and acquisitions, saying about Mr. Wales: "Dave has done a terrific job in leading the Bureau of Competition during an active period of antitrust enforcement and a successful time for the agency in court. American consumers owe him a debt of gratitude, and all of us at the Commission are grateful that Dave agreed to stay on to help ensure a smooth transition."

Chairman Leibowitz's comment about Wales' staying on has to do with the fact that he was the Bureau of Competition's Acting Director.

Mr. Wales joined the FTC in April 2006 as Deputy Director of the Bureau of Competition.

As Acting Director of the competition bureau since August 2008, he has supervised nearly 300 lawyers and staff in the merger and non-merger enforcement divisions and led the bureau in bringing more than 20 enforcement actions, according to Chairman Leibowitz.

According to the FTC's public affairs office, David Wales directed several litigated enforcement efforts that blocked proposed corporate mergers in CCS/Newpark Environmental Services, Oldcastle/Pavestone, and CCC/Mitchell.

In CCC/Mitchell, the Bureau obtained the first preliminary injunction order from a district court in nearly seven years.

Wales also led the Bureau in challenging several consummated mergers in court, including Polypore/Microporous and Ovation Pharmaceuticals, both of which are still pending, and he oversaw the continuing litigation and subsequent March 6, 2009 settlement involving Whole Foods/Wild Oats.

He also helped lead the FTC in obtaining important relief for consumers in other merger matters, including Reed Elsevier/ChoicePoint, Fresenius/Daiichi Sanyo, Dow/Rohm & Haas, King Pharmaceuticals/Alpharma, Hexion/Huntsman, Teva/Barr Pharmaceuticals, Herff Jones/American Achievement, Getinge/Datascope, and Lubrizol/Lockhart, according to the FTC's public affiars office.

Additionally, according to the public affairs office, in the anticompetitive conduct area, Mr. Wales oversaw the Bureau’s two lawsuits against pharmaceutical firms that entered into exclusion payment agreements – Cephalon and Solvay Pharmaceuticals.

The departing head of the competition bureau also helped lead the FTC in obtaining critical relief for consumers in other conduct matters in the health care, retail, consumer product, and real estate industries, including Dick’s Sporting Goods, Boulder Valley Independent Practice Association, AllCare IPA, Inverness, ESL Partners/ZAM Holdings, West Penn MLS, National Association of Music Merchants, and Bristol-Myers Squibb, the FTC says.

Further, in the energy sector, Mr. Wales oversaw several regional gas price investigations, as well as the Commission’s rulemaking to prohibit market manipulation in the petroleum industry, according to the FTC Office of Public Affairs.

David Wales' departure in many ways helps turn the page on the FTC v. Whole Foods Market, Inc. legal case and overall issue. As the Assistant Director of the Bureau of Competition in 2007 Mr. Wales played a major role in the FTC's challenging Whole Foods' acquisition of Wild Oats Market's in 2007.

And as the bureau's Acting Director since August 2008, Mr. Wales was in-charge of the FTC's legal challenge against the deal until the settlement agreement was reached on March 6 of this year.

The first page-turner at the FTC was the naming in late February, 2009 by President Obama of then FTC Commissioner Jon Leibowitz as the regulatory agency's new Chairman. Just a couple weeks after Mr. Leibowitz took over as the FTC's new Chairman, the agency reached the March 6 settlement agreement with Whole Foods Market, Inc., as we reported and wrote about in this piece: Daily Memo: It's A Done Deal: Whole Foods Market and the FTC Reach A Settlement Agreement On Wild Oats' Acquisition Antitrust Challenge.

Take our word for it, that timing wasn't accidental. The fact a settlement agreement was reached so soon after Chaiman Leibowitz assumed his position involved more cause than effect in turns of the settlement deal getting done. Chairman Leibowitz is a registered Democrat but was appointed an FTC Commissioner by Republican President George W. Bush. [Suggested reading: Retail Memo - Breaking: FTC Commissioner Jon Leibowitz Odds On Favorite to Be Named Chairman; Positive Development For Whole Foods' Settlement Talks.]

FTC Chairman Leibowitz has yet to announce who will replace David Wales as the competition bureau's chief. However, we expect the Chairman's choice to be a person who is proactive and strong on antitrust actions, as well as consumer protection issues. Mr. Leibowitz has said he plans strong enforecemnet of both antitrust, competition and consumer protection during his tenure at the FTC.

Meanwhile, perhaps the FTC, as a gesture of good will, should have one of the Washington, D.C. Whole Foods Market stores provide the food and drink, paid for by taxpayers of course, for David Wales' retirement party from the regulatory agency.

After all, it at least would be a small gesture in terms of giving Whole Foods Market, Inc. and its shareholders a little cash back towards the about $30 million the natural grocery chain spent defending the company against the taxpayer-financed, wrong-headed, nearly two-year false premise-based antitrust challenge to Whole Foods' acquisition of Wild Oats, which tried as it might in 2006-2007 to find a buyer, but couldn't until Whole Foods Market, Inc. came along.

It's just a thought.

Reader Notes:

>Natural~Specialty Foods Memo (NSFM) predicted that the settlement agreement between WHole Foods Market, Inc. and the FTC would have as its central proposition or condition the divestment and sale of certain stores by Whole Foods. We were correct. You can read an overview piece about it here: Retail Memo: The FTC-Whole Foods Market Settlement Agreement Looks Much Like Our January 'Blueprint-Template For A Settlement Deal' Proposal
>Follow Natural~Specialty Foods Memo (NSFM) on Twitter.com at www.twitter.com/nsfoodsmemo.

>Below is a linked bibliography to Natural~Specialty Foods Memo's (NSFM) coverage and analysis of FTC v. Whole Foods Market and related issues and topics.

FTC v. Whole Foods Market, Inc. Recent Bibliography

Post March 6, 2009 Settlement Agreement:

March 31, 2009: Retail Memo: The 'Legal Times' Offers A Legal Legacy of the FTC-Whole Foods' Settlement Agreement; We Offer an Antitrust Case Blast From the Past

March 19, 2009: Retail Memo: Whole Foods Market Opens New Store in Santa Cruz, California Today ... And There's Plenty of Competition

March 12, 2009: Retail Memo: Whole Foods Market is Selling Brand 'Wild Oats'- We Offer Three Retailers We Suggest Could Benefit From Buying the Brand

March 8, 2009: Retail Memo: The FTC-Whole Foods Market Settlement Agreement Looks Much Like Our January 'Blueprint-Template For A Settlement Deal' Proposal

March 6, 2009: Daily Memo: It's A Done Deal: Whole Foods Market and the FTC Reach A Settlement Agreement On Wild Oats' Acquisition Antitrust Challenge

Pre-Settlement Agreement

March, 2009:

Tuesday, March 31, 2009

Retail Memo: The 'Legal Times' Offers A Legal Legacy of the FTC-Whole Foods' Settlement Agreement; We Offer an Antitrust Case Blast From the Past

FTC v. Whole Foods Market, Inc. - Post Mortem

As regular readers of Natural~Specialty Foods Memo (NSFM) are aware, we've been reporting on and offering extensive analysis about the U.S. Federal Trade Commission (FTC) v. Whole Foods antitrust case, which ended on March 6, 2009 in a mutual settlement agreement signed off on by both the FTC and Whole Foods Market, Inc. [Regular and less than regular readers alike can click here to view a recent bibliography of our FTC v. Whole Foods Market, Inc. coverage.]

Potential FTC-Whole Foods settlement legal legacy

In today's Legal Times, a professional legal trade journal, writer Jenna Green has an interesting piece about the potential legal legacy of the FTC-Whole Foods Market, Inc. antitrust settlement, in which the FTC dropped its nearly two year attempt to overturn the 2007 acquisition of then Wild Oats Markets Inc. by Whole Foods, in return for Whole Foods Market, Inc. (the combined Whole Foods-Wild Oats) agreeing on March 6, 2009 to sell 13 current operating stores, 19 closed stores, and the Wild Oats brand and related intellectual property.

As we've written, the agreement is much ado about nothing, as the net result of it actually is to only force Whole Foods to sell the 13 existing operating stores.

The 19 closed stores are...well, already closed. Many were already on the market for sale prior to the March 6 settlement agreement.

And Whole Foods has essentially killed the Wild Oats brand since acquiring the company in 2007. Therefore, selling the brand and its related intellectual property, assuming a buyer even emerges, won't materially hurt Whole Foods, except that the natural grocery chain would most likely prefer to see the brand die rather than possibly get brought back to life by another food retailer.

But the Legal Times piece offers a look at the settlement agreement from more of an antitrust legal precedent perspective in that it suggests the divestiture agreement (selling the stores) between the FTC and Whole Foods could set an example for future deals.

Such agreements between government regulators and merging and acquiring food retailing chains aren't really new however.

An antitrust blast from the past: The American Stores - Lucky merger

For example, in a major case in California in the late 1980's, then state Attorney General John Van de Kamp held-up the post-acquisition integration of the Lucky Stores supermarket chain by then Salt Lake City, Utah-based American Stores Company (which was later acquired by then Boise, Idaho-based Albertsons, Inc., which was later acquired by Supervalu, Inc. and private equity firm Cerebus) until American Stores agreed to divest a number of its existing Alpha Beta and acquired Lucky stores in the state.

American Stores was at the time the third-largest supermarket chain in the U.S., after Kroger and Safeway.

A brief history: Right after the deal was announced, Van de Kamp asked the Federal Trade Commission to void it, claiming that a combined (over 400 stores in California) Lucky-Alpha Beta would cost California consumers $400 million by reducing competition. The FTC refused to void the deal, although it did force the divestiture of 37 Alpha Beta stores, which were sold in December 1988, the same month 38 Lucky stores in Arizona were also sold.

Van de Kamp then took his case to court, and on September 29, a federal judge in Los Angeles issued a preliminary injunction against the merger. American Stores appealed, and in April 1989, an appeals court judge in San Francisco overturned the injunction. Van de Kamp appealed this reversal to the U.S. Supreme Court.

In April, 1990 the U.S. Supreme Court ruled in favor of the California attorney general. Subsequently, and wishing to avoid additional, lengthy litigation, American Stores reached an agreement with Van de Kamp, whereby the company was allowed to convert 14 Alpha Beta stores to the Lucky name, but also had to sell--within five years--161 southern California stores -- 152 Alpha Beta markets and nine Lucky supermarkets.

Sound familiar? The difference though was that in the American Stores case there were real antitrust results in our analysis because (1) the combined Lucky-Alpha Beta stores gave American Stores Company too much of a supermarket concentration in California; and (2) the stores were supermarkets, where the majority of shoppers, especially in the late 1980's, bought there food.

The concentration therefore didn't offer consumers enough competitive choice in the market (California), although despite the merger there still was quite a bit of competition, mostly from Safeway and numerous regional chains and independents.

At the time, Lucky was the number two market share leader in Northern California, after Safeway. Alpha Beta was number two. The deal put the combined Alpha Beta and Safeway about tied for number one in Northern California, eliminating an independent number two, Lucky.

The combined Lucky and Alpha Beta placed as the number two market share leader in Southern California. Vons and Ralphs were prior to that numbers one and two. Lucky a very strong number three. Alpha Beta number four. The deal eliminated a strong, independent number three, Lucky.

We essentially agree with the U.S. Supreme Court and the California Attorney General on the merits of the American Stores-Lucky merger, although we would have been a bit less harsh on the number of stores the company was ultimately forced to sell. It was too many.

After the multi-year legal challenge and resulting store sell-off, American Stores never was able to get its footing back as a supermarket chain, despite its increased size. It eventually sold the company to then Boise, Idaho-based Albertsons, Inc., which also went away a couple years ago when Supervalu, Inc. and the private equity form Cerebus acquired it.

In an ironic twist, Cerebus bought what was then Albertsons' Northern California division in the Albertsons, Inc acquisition with Supervalu, Inc., which included all of the former Lucky banner supermarkets in that part of California. Albertsons had long before changed the name of the former Lucky stores to Albertsons. In 2007 Cerebus sold the division to Modesto, California-based Save Mart supermarkets. After operating the about 200 Northern California Albertsons stores for a number of months, Save Mart decided that rather than rebrand them as "Save Mart," which it originally planned to do, it would rebrand the Albertsons banner stores back to the old Lucky name, which is the banner they fly under today.

Whole Foods on the other hand is a niche retailer. And as we've argued, a combined Whole Foods-Wild Oats never presented any anti-competitive threat in 2007, or today.

Below (in italics) is the first part of the piece in today's Legal Times by Ms. Greene. After the text, just click the link to read the full story.

Having covered and written about FTC v. Whole Foods Market, Inc. extensively since the deal was announced in the summer of 2007 -- and still doing so in what we are calling our "post mortem pieces -- Natural!~Specialty Foods Memo (NSFM) suggests reading Ms. Greene's piece, as she does an excellent job detailing the antitrust legacy post settlement.

Whole Foods-Wild Oats Deal Leaves Controversial Legacy
By Jenna Greene
Legal Times
March 31, 2009

As corporate mergers go, the purchase of natural foods grocer Wild Oats by its rival Whole Foods Market looked like small potatoes (organic yellow fingerling, perhaps). Nobody expected the proposed $565 million acquisition to spark a food fight of epic proportions.

But on March 6 -- after two years, $28 million in legal fees and expenses, and dozens of lawyers -- Whole Foods cut a deal to end the battle. And the Federal Trade Commission carved another notch in its reputation for aggressive antitrust enforcement.

The most important result of the battle may be a controversial opinion out of the U.S. Court of Appeals for the D.C. Circuit that some fear will make it too easy for the FTC to effectively block future mergers. As one antitrust expert says, "so long as their lawyers don't get up there and fall asleep at the podium," the FTC wins. Less than a week after Whole Foods and the FTC settled, a $1.4 billion merger collapsed in part due to the D.C. Circuit opinion.

As for the dispute over merging grocery chains, it's not clear who actually won. The FTC, which snatched significant concessions from the jaws of initial defeat, asserts it came out on top. "Obviously, [the settlement] wasn't the maximum relief we could have obtained," says David Wales Jr., acting head of the FTC's Bureau of Competition, discussing the case at length for the first time. "But we feel it substantially restores competition and did so a lot sooner than if we had continued to litigate."

Whole Foods points out that the merger survived; it wasn't forced to unscramble all the eggs. "It was a settlement -- nobody got what they wanted," says lead lawyer Paul Denis, a partner in Dechert's D.C. office. "If everybody leaves unhappy, you must have gotten it right."

Still, agreeing to divestitures in the face of an antitrust agency's opposition looks a lot like business as usual. Why did Whole Foods spend so much money to reach that settlement? In retrospect, the company may have been too determined to go toe to toe with the FTC -- and caught off-guard by the FTC's similarly battle-ready approach.

GOING FROM 0 TO 60

When the merger between the two grocery chains was announced on Feb. 21, 2007, analysts' reaction was largely positive. UBS called it "a slam dunk," while Morningstar said it was "strategically and financially sound." No one, it seems, had any inkling of the antitrust train wreck ahead. Standard & Poor's was lukewarm on the deal for the opposite reason: The stores faced "increased competition from traditional grocers."

Whole Foods, which is based in Austin, Texas, didn't even start off with specialized antitrust counsel -- it used its M&A lawyer, Bruce Hallett of Dallas' Hallett & Perrin, to submit the required pre-merger notification, a 15-page form with information about each company's business. Whole Foods, with 194 stores, would buy Boulder, Colo.-based Wild Oats, which owned 110 stores total, 74 of them under the Wild Oats brand, for $18.50 per share of stock. The two chains were prime competitors in just 22 markets.

While the FTC and the Justice Department's Antitrust Division sometimes fight over which agency will review a merger for its potential effects on competition, supermarket mergers have always gone to the FTC.
"In the overwhelming majority of cases, it makes absolutely no difference which agency reviews a merger," says Ronald Wick, an antitrust partner at Baker Hostetler not involved in the case.

But as Whole Foods would soon discover, sometimes differences in the two agencies' statutory authority can prove crucial.

The filing was routed to the FTC Mergers IV group, which specializes in retail sector transactions. The deal, Wales says, "quickly jumped out as having potential overlap, potential competitive significance." A partner at Cadwalader, Wickersham & Taft before joining the FTC in 2006, Wales, 39, has been acting director of the Bureau of Competition since Jeffrey Schmidt left in August 2008.

A team quickly took shape. Mergers IV lawyers led by Assistant Director Matthew Reilly began gathering information, talking to the parties, their competitors, and their customers. Less than three weeks later, on March 13, 2007, the agency issued a second request for documents. "It was not a close call," Wales says.

Even before the second request was officially made, Whole Foods got the hint that trouble loomed. But in seeking experienced counsel, it still looked for a familiar firm. The company turned to antitrust lawyer Neil Imus and commercial litigator Alden Atkins, partners in the D.C. office of Houston-based Vinson & Elkins. Atkins had previously handled litigation for Whole Foods involving a store in Washington, D.C. Although Whole Foods would run the litigation, Wild Oats retained Clifford Aronson of New York's Skadden, Arps, Slate, Meagher & Flom.

If settlement with the FTC was desirable or even possible at that point, Whole Foods' lawyers had little time to explore the option. They were too busy fulfilling the second request. The companies turned over 16.5 million pages of material, one of the largest document productions in recent agency history. While once this would have meant 10,000 boxes stacked in a conference room, the data largely came on hard drives -- along with a computer virus. ("Obviously we didn't think they did it on purpose," Wales says). Dozens of FTC staff lawyers began their review.

Then on June 6, 2007, the FTC filed suit in U.S. District Court for the District of Columbia seeking a preliminary injunction to halt the merger. All five commissioners -- three Republicans, one Democrat, and one independent -- voted in favor of bringing the case.

[Click here to read the full story from today's Legal Times.]

[You can follow Natural~Specialty Foods Memo on Twitter.com at www.twitter.com/nsfoodsmemo.]

Thursday, March 12, 2009

Retail Memo: Whole Foods Market is Selling Brand 'Wild Oats'- We Offer Three Retailers We Suggest Could Benefit From Buying the Brand

Whole Foods Market, Inc. - FTC Settlement Agreement: Post-Mortem Analysis

As we reported in this piece [Daily Memo: It's A Done Deal: Whole Foods Market and the FTC Reach A Settlement Agreement On Wild Oats' Acquisition Antitrust Challenge] on March 6, 2009, the settlement agreement reached between Whole Foods Market, Inc. and the U.S. Federal Trade Commission (FTC) over the FTC's antitrust legal challenge to Whole Foods' 2007 acquisition of Wild Oats Markets, Inc. included three elements or terms. Those terms are:

>The selling of 13 (12 former Wild Oats' units, one existing Whole Food's unit) stores currently being operated by Whole Foods Market, Inc.;

>The selling of 19 closed stores; 10 closed by Wild Oats before the acquisition and nine closed by Whole Foods Market, Inc. post-acquisition and;

>The selling by Whole Foods Market, Inc. of the "Wild Oats" brand and all related intellectual property.

As part of the settlement agreement, a third-party receiver is handling the sale of the 32 stores and the "Wild Oats" brand and intellectual property.

It is the third element of the settlement agreement -- the selling of the brand -- that we focus on in this piece today.

It's our analysis that having to sell the brand is something that hurts Whole Foods Market not at all.

In fact, since acquiring Wild Oats Markets, Inc. in 2007, Whole Foods' has done pretty much all buried the brand by design and strategy. Therefore, we see no downside -- nor do we believe Whole Foods Market, Inc. does -- in the natural grocery chain's selling of the "Wild Oats" brand.
If Whole Foods Market gets a decent price for the brand and related intellectual property, it's our analysis and opinion that the retailer probably will view that aspect of the settlement deal as pure blue sky. [We don't think the selling of the stores hurts Whole Foods in anyway either, as we mentioned in our March 6 story. It's all blue sky for Whole Foods.]

Natural~Specialty Foods Memo (NSFM) does see some value in the "Wild Oats" brand -- not particularly to Whole Foods Market, especially at this point in time since the natural grocery chain already made a strategic decision not to use the brand long before the FTC settlement requirement to sell it -- but to a handful of other retailers.

In this vein, we offer an analysis below of three very different retail chains -- natural foods grocery chain Sunflower Farmers Market, mega-retailer Wal-Mart, and online retailer Amazon.com -- that could benefit from buying and using the Wild Oats brand.

Sunflower Farmers Market

The fast-growing Boulder, Colorado-based natural foods chain, which was founded by and is run by Mike Gilliland (CEO), who also founded Wild Oats in 1984 in Boulder, might want to take a look at buying the "Wild Oats" brand from Whole Foods Market, Inc.

This is not just because of the nostalgic fact that Gilliland founded and named the grocery chain Wild Oats, although that aspect has a heart warming aspect to it, but rather because the brand name could offer some merchandising and marketing advantages to Sunflower Farmers Market.

The Texas connection: First, probably because an existing health food store in Texas has the name "Sunflower," Sunflower Farmers Market has chosen to name its stores in the Longhorn state "Newflower." Might it not be interesting if Sunflower Farmers Market buys the "Wild Oats" brand from Whole Foods and then changes the name of those Texas stores to "Wild Oats," using the old Wild Oats logo (which is attractive) and related intellectual and brand properties?

We think doing so could offer benefits to Sunflower in its Texas stores. The "Wild Oats" brand name still has brand equity, in our analysis, particularly among primary natural foods shoppers, and particularly in the Western U.S.

It would also be an ironic development were this to happen since Whole Foods Market is based in Texas. Sunflower just opened its first "Netflower" store in Austin, where Whole Foods' corporate headquarters is located, a couple weeks ago.

Additionally, brand "Wild Oats" might also offer Sunflower Farmers Market some additional options and benefits.

For example, the natural grocer could use "Wild Oats" as a private label brand. Wild Oats Markets, Inc. had a full line of natural and organic products under the brand, even selling the brand and line at Kroger stores throughout the U.S. for a few years, in addition to in the Wild Oats Market stores.

Whole Foods Market, Inc. has now sold off most of the "Wild Oats" brand items, replacing them in the converted former Wild Oats Market banner stores with Whole Foods Market store brands. But the recipes, graphic design for the labels and all of the other intellectual and material property still exists for the brand's product line. All Sunflower, or any other grocer, need do if they acquire the brand is to decide what products they want to put under it and hire vendors to produce the products.

Perhaps brand "Wild Oats" would make a good premium natural products brand for Sunflower Farmers Market, featuring either just organic or both natural and organic items, for example.

Further, owning the brand would allow Sunflower Farmers Market and Gilliland to use it on any stores it desired at any time. For example, Perhaps as the chain grows it creates a second retail format, branding it "Wild Oats." We could see a higher-end format from Sunflower (after the recession), for example, that used the Wild Oats retail brand on it. This would fit with the positioning of the brand on products being of a more premium natural and/or organic nature, under that scenario.

Lastly, imagine the marketing-oriented public relations attention buying the "Wild Oats" brand would have for Sunflower Farmers Market and Mike Gilliland.

We can see the headlines now: (1) "Wild Oats' brand returns to founder." (2) Mike Gilliland sows his 'Wild Oats': plans Texas stores under the Wild Oats Market banner." (3) It's 'Back to the Future' for Sunflower Farmers Market founder and CEO Mike Gilliland, as he prepares to launch a new line of private label natural and organic products in the Sunflower stores under the 'Wild Oats' label."

This could be publicity no amount of money can buy, particularly timed with the launch of the rebranded "Newflower" stores under the Wild Oats' retail banner in Texas, or the launch of a new proprietary natural product line under the "Wild Oats" brand for Sunflower. Just some food for thought.

And, since the settlement with the FTC requires a third-party receiver to sell brand "Wild Oats," Whole Foods Market, Inc. can't veto a sale of the brand and its assets to Gilliland and Sunflower Farmers Market (or to any other competitor), should the natural grocer decide to acquire it.

Wal-Mart Stores, Inc.

We go from small but fast-sprouting Sunflower Farmers Market to global giant Wal-Mart in this journey.

We think buying the "Wild Oats" brand from Whole Foods has some merit for Wal-Mart. For example, Wal-Mart brands its fast-growing line of natural and organic products under the "Sam's Choice" brand. While it's nice that this brand honors Wal-Mart founder Sam Walton, it really has very little resonance in consumers' minds when it comes to natural or organic food. In fact, since Sam Walton was a very frugal man, we doubt he would have spent the extra money that natural and organic food and grocery items cost anyway.

Wal-Mart could use brand "Wild Oats" for private label brand natural-organic products in a few ways.

First, it could brand all of its natural and organic products under the brand, including changing existing "Sam's" items to brand "Wild Oats."

Second, it could create a two-tier brand system. "Sam's" would be used for lower price-point natural and organic items, "Wild Oats" for higher-end, premium natural-organic items.

Lastly, Wal-Mart could use the "Wild Oats" brand name strictly for organic food and grocery items, then use "Sam's" or something else for "natural" only.

We think Wal-Mart needs a better brand for natural-organic using one of the above three product scenarios

Wild Oats' is a good brand name, still has equity, and is for sale. Therefore, although we know this is way down on the list of Wal-Mart Stores, Inc.'s priorities list, we think acquiring the brand from Whole Foods Market would offers a nice opportunity in the natural-organic products categories for Wal-Mart, which continues to move deeper into the categories, and will move much faster once again in the natural-organic private label and retailing spaces once the recession ends.

Wal-Mart also now operates four (soon to be five when it opens a new store in Peoria, Arizona later this year) of its small-format Marketside grocery and fresh foods stores. (Wal-Mart also has two Marketside stores under construction in San Diego County, California, with three more planned in California.) The 15,000 -to- 20,000 square foot markets feature a limited assortment of basic food and grocery items, including natural, organic and specialty items, fresh meats and produce, perishables and in-store prepared foods.

The Marketside stores are more upscale than any of Wal-Mart's other formats. A selection of natural and organic items in the stores under the "Wild Oats" brand could be a nice addition to the natural and organic item selection-segment in those stores for Wal-Mart.

Amazon.com

In 2007 the online retailer Amazon.com started selling shelf-stable food, grocery, household item, health and body care and related packaged goods. Today the online mega-store's inventory in these respective categories is vast and extensive, including offering lots of natural, organic and specialty food and grocery items for sale.

Shoppers order the food and groceries online just as they do everything else that Amazon merchandises. The orders are then delivered to shoppers' homes via Federal Express, UPS or other basic delivery service.

In a little over two years, Amazon has gone from merely experimenting with selling food and groceries to actually selling a considerable volume of product, including a decent amount of natural and organic food and grocery products.

We think Amazon should take the logical next step in its progression as an online grocer and start offering its own brand products. Since the web retailer doesn't have the volume needed to really yet have a store brand everyday or discount grocery brand, we suggest a good place to start would be with a natural and organic products store brand.

Therefore, why not brand "Wild Oats"? The brand still has consumer awareness and equity. Everything is there to rapidly start producing whatever products are desired; all that's needed are vendors. And, the brand is for sale.

Amazon could create its own natural and organic food and grocery proprietary brand under the "Wild Oats" brand. It could start small, say with about 45-75 items in a half dozen -to- a dozen categories to start. We would suggest all the products be consumables and health and body care to start. Then it could go from there with the brand.

Amazon also could extend the brand "Wild Oats" across the numerous categories it sells products from. For example, how about "Wild Oats'" proprietary brand organic cotton clothing? What about body care, vitamins, supplements? How about a line of "green" cleaning products under the brand."

In other words, brand "Wild Oats" could allow Amazon to have a proprietary brand that it could use to create it's own "brand" in the numerous categories -- from food and drink to clothing and health and body care -- that avail themselves of a natural-organic products focus.

Amazon is without a doubt big enough to do this. We think it would be a very positive development for the online mega-retailer. It also, in our analysis, would help build better product brand equity for the online retailer.

Amazon.com is a major player in natural products retailing across numerous categories. The Wild Oats brand could allow it to become a much bigger category player in many mainstream and niche natural and organic products segments, from consumables to clothing, and much more.

Conclusion: Brand 'Wild Oats' - will any retailers bite?

There are other retailers besides the three we offer that could benefit from acquiring the brand from Whole Foods Market, Inc. Most interesting to us will be if a competitor -- like Sunflower Farmers Market, Sprouts Farmers Market or Natural Grocers by Vitamin Cottage -- buys brand "Wild Oats" with the design of using it as the name for a chain of stores.

Or, if another format retailer, say Target or Wal-Mart, were to buy it with the idea of someday using "Wild Oats" for a chain of natural foods markets. We doubt this scenario -- but that doesn't make it any less interesting.

It's our analysis that the FTC hopes something like the first scenario above happens -- that some competitor of Whole Foods Market buys the brand and uses it to compete against Whole Foods.' That's the key reason the FTC required there be a third party receiver appointed to handle the sale of the brand and the store sales: It wanted to make sure that Whole Foods Market, Inc. couldn't veto the sale of brand "Wild Oats" or the sale of any of the stores on the block to a competitor.

It will be interesting to see if any retailers bite and make an offer to buy the brand. Readers: Which retailers do you think could benefit from buying brand "Wild Oats" from Whole Foods Market, Inc? Offer your idea(s) and opinion(s) by using the "comments" link below. Just click and type.

[Related posts: March 8, 2009: Retail Memo: The FTC-Whole Foods Market Settlement Agreement Looks Much Like Our January 'Blueprint-Template For A Settlement Deal' Proposal ... March 6, 2008: Retail Memo: The 'Whole Bibliography' - FTC v. Whole Foods Market Antitrust Case & Issue ... March 6, 2008: Daily Memo: It's A Done Deal: Whole Foods Market and the FTC Reach A Settlement Agreement On Wild Oats' Acquisition Antitrust Challenge ... March 5, 2008: Daily Memo: Whole Foods Market - FTC - Settlement Deal Watch - Countdown to March 6]

[You can follow Natural~Specialty Foods Memo (NSFM) on Twitter.com at: www.twitter.com/nsfoodsmemo.]

Sunday, March 8, 2009

Retail Memo: The FTC-Whole Foods Market Settlement Agreement Looks Much Like Our January 'Blueprint-Template For A Settlement Deal' Proposal

The FTC - Whole Foods Market, Inc. Settlement Agreement

The four members (their normally are five but the FTC is currently one short) of the U.S. Federal Trade Commission (FTC) voted unanimously on the settlement deal with Whole Foods Market, Inc., announced on Friday, March 6, ending the nearly 20-month legal battle waged by the FTC to overturn the 2007 friendly acquisition by Whole Foods Market of Wild Oats Markets, Inc. [Read the details of the settlement agreement in our March 6 piece here: Daily Memo: It's A Done Deal: Whole Foods Market and the FTC Reach A Settlement Agreement On Wild Oats' Acquisition Antitrust Challenge.]

Additionally, the 4 -to- 0 unanimous vote in favor of a settlement by the FTC's Commissioners came just eight days after President Obama named the only Democrat on the FTC, Jon Leibowitz, as its new Chairman, and just a few days after Chairman Leibowitz officially assumed the duties of FTC Commission Chairman.

[Read: Daily Memo: Whole Foods Market - FTC Settlement Deal Watch - Countdown to March 6, And: Daily Memo: Whole Foods Market - FTC Settlement Deal Watch - 9 Days to March 6. And: Retail Memo - Breaking: FTC Commissioner Jon Leibowitz Odds On Favorite to Be Named Chairman; Positive Development For Whole Foods' Settlement Talks.]

Below is a link to the press release issued by the FTC on Friday, March 6, announcing the settlement deal ending its antitrust legal challenge to Whole Foods Market's 2007 acquisition of Wild Oats:

[Link: FTC Consent Order Settles Charges that Whole Foods’ Acquisition of Rival Wild Oats was Anticompetitive.]

Below is the key quote from FTC Commissioner Jon Leibowitz in the March 6 press release regarding why the federal regulatory agency responsible for antitrust enforcement and consumer protection decided to reach and agree to a settlement with Whole Foods Market, Inc., despite for 20 months saying it's goal was to overturn the acquisition in order to preserve competition in what it called the "premium natural and organic retailing segment (PNOS) in a number of U.S. markets:

"As a result of this settlement, American consumers will see more choices and lower prices for organic foods,” said FTC Chairman Jon Leibowitz. “It allows the FTC to shift resources to other important matters and Whole Foods to move on with its business."

Although we've previously suggested the two parties should reach a settlement agreement in numerous pieces beginning some time ago, Natural~Specialty Foods Memo (NSFM) formally called for the FTC and Whole Foods Market, Inc. to reach a settlement on the legal case in this January 29, 2009 piece, where we focused the argument on the need for a settlement to be reached: Retail Memo - Breaking: Whole Foods Makes Settlement Offer to FTC; FTC Halts Action For 5 Days; Natural~Specialty Foods Memo Calls For A Settlement.

In that call for a settlement, we said achieving a settlement is important in part so that the FTC can move on to more important matters, including finding real antitrust cases to challenge, and so that Whole Foods Market can get back to what it does: merchandising and selling natural and organic food and grocery products.

In other words, FTC Chairman Leibowitz basically says in the March 6 press release what we said in our January call for a settlement, as well as in a number of stories prior to that.

In our January 29 piece, [Retail Memo - Breaking: Whole Foods Makes Settlement Offer to FTC; FTC Halts Action For 5 Days; Natural~Specialty Foods Memo Calls For A Settlement], we also offered a settlement blueprint or template for the FTC and Whole Foods. The basis of the settlement blueprint comes from the reporting, writing about and analysis we've been offering on the deal and antitrust challenge since the summer of 2007.

Below is a part of what we offered in the January piece:

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." [Read the entire story here.]

What we suggested is essentially the framework the FTC used in arriving at the settlement deal.

The FTC required (and the natural grocer agreed) Whole Foods Market, Inc. to put up for sale 32 stores -- 13 stores (12 former Wild Oats units and one existing Whole Foods unit) currently in operation and 19 stores that already have been closed, some by Wild Oats before the Whole Foods Market acquisition, the others closed by Whole Foods post-acquisition. [Read the details, including a list of the stores to be sold, here.]

Additionally, the FTC required Whole Foods to put the Wild Oats brand and associated intellectual property up for sale. This is really nothing to Whole Foods since if it thought the Wild Oats brand had value to the company it would be using it in some way. Instead, Whole Foods has intentionally shelved the Wild Oats brand. Now perhaps it can even make a few bucks from selling it.

[Of course, in the dynamic and interesting world of food retailing anything can happen. Perhaps Mike Gilliland, the founder of Wild Oats and now founder and CEO of fast-growing Boulder, Colorado-based Sunflower Farmers Market, will buy the brand from Whole Foods and bring back the Wild Oats name in the form of a chain of natural foods stores bearing the banner. For example, Sunflower is opening stores in Whole Foods' hometown market of Texas. However, because of what likely is a trademark issue with a natural foods store in Texas that uses the "Sunflower" name, the natural grocer has renamed its thus far handful of Texas' stores "Newflower." Wouldn't it just be ironic if Gilliland bought the Wild Oats brand from Whole Foods Market, Inc. and instead changed the name of the Texas stores to "Wild Oats"? It's intellectual property and retail brand marketing food for thought. And you read it here first.]

So, in a nutshell, the FTC seems to have used a very similar process to the one offered in our blueprint-template to arrive at a settlement deal; the key element of such a settlement agreement being, as we suggested, having Whole Foods agree to sell some selected stores in return for the antitrust regulator dropping its legal action, so that both parties could move on to doing what they should respectively be doing, antitrust enforcement and consumer protection for the FTC, and selling natural-organic groceries for Whole Foods Market.

We think the settlement is a good one for Whole Foods.

Reader Resource: Below are links to all of the FTC-filed information on the settlement deal with Whole Foods Market, Inc.:

>Agreement Containing Consent Orders
>Decision and Order [Public Record Version]
>Order To Maintain Assets
>Analysis of Agreement Containing Consent Orders To Aid Public Comment
>Commission Letter Approving the Divestiture Trustee Agreement
>Divestiture Trustee Agreement [Public Record Version] [Appendices B, D, and E Redacted]
>Amended Part 3 Administrative Complaint [Issued on September 8, 2008]
>News Release
>Order Withdrawing Matter From Adjudication

Natural~Specialty Foods Memo

Monday, April 6, 2009

Retail Memo: David Wales, Who Headed Up the FTC's Nearly Two Year Legal Challenge Against Whole Foods' Acquisition of Wild Oats is Leaving the Agency

Tuesday, March 31, 2009

Retail Memo: The 'Legal Times' Offers A Legal Legacy of the FTC-Whole Foods' Settlement Agreement; We Offer an Antitrust Case Blast From the Past

Thursday, March 12, 2009

Retail Memo: Whole Foods Market is Selling Brand 'Wild Oats'- We Offer Three Retailers We Suggest Could Benefit From Buying the Brand

Sunday, March 8, 2009

Retail Memo: The FTC-Whole Foods Market Settlement Agreement Looks Much Like Our January 'Blueprint-Template For A Settlement Deal' Proposal

Subscribe To

Twitter

Blog Archive

About Me