Whole Foods Settles with the FTC

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The Wall Street Journal law blog has a good primer on the antitrust settlement reached last week between Whole Foods and the Federal Trade Commission over Whole Foods' merger with the Wild Oats grocery chain:

In the settlement announced Friday, Whole Foods agreed to divest itself of 31 Wild Oats stores in 12 states, including 19 stores that already have been closed, and one Whole Foods store. Whole Foods also agreed to relinquish the rights to the Wild Oats brand, which could be sold to a potential competitor.

In exchange, the FTC will drop its legal bid to undo the merger, a bid that had wound up and down through the federal courts…. The commission had argued that the merger would lessen competition in the market for natural and organic foods.

Read the rest here.

As an interesting footnote, libertarian-leaning Judge Janice Rogers Brown wrote the September 2008 federal appellate court decision that ruled against the merger. From The Los Angeles Times:

"The courts have the power to grand relief on the FTC's complaint, despite the merger's having taken place, and the case is therefore not moot," Judge Janice Rogers Brown, a former member of the California Supreme Court, wrote in the 2-1 appellate court decision.

Specifically the three-judge panel said the lower court erred when it ruled that the FTC's definition of what constituted the market for natural and organic foods was too narrow. The FTC wanted a preliminary injunction to stop the takeover while it argued its position in court.

"The court should have taken whatever time it needed to consider the FTC's evidence fully," Brown wrote.

Rest here.

Back in October 2005, Whole Foods CEO (and self-described libertarian) John Mackey debated the social responsibility of business with Cypress Semiconductor founder and CEO T.J. Rodgers and the great Milton Friedman.

Full Disclosure: John Mackey is a donor to Reason Foundation, the nonprofit organization that publishes this website.

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  1. Only in a world where a marketing gimmick like “organic” was seen as a real distinction would Whole Foods be seen as anything else but another food store.

    And I see no shortage of those out there.

  2. Really. What B.S. we’ve buried ourselves in.

  3. a marketing gimmick like “organic”

    Hey now!

  4. Ditto to the above.

    As Sirius/XM is competing with Clear Channel, Whole Foods is competing with Safeway.

  5. But if the merger is allowed, then we’ll only be able to buy our organic-grown-local-bran from ONE BIG CORPORATE STORE! Small oganistic coops who less local grown fibery stuff can’t compete against BIG CORPORATE STORE! But if they don’t merge, then I’ll keep buying from Holefoods.

  6. Since Wild Oats was on the verge of going out of business when Whole Foods bought them out, the acquisition did not really cause less competition than there would have been. Once again, Anti-trust is shown to be an unneeded intervention by government.

    At the same time, perhaps it would have been a better strategy for Whole Foods to let Wild Oats go under. Buying out a business with significant debt load is a questionable business strategy.

  7. Whole Foods CEO (and self-described libertarian) John Mackey

    Another guy who self-describes as a libertarian is Glenn Beck. Mackey hasn’t convinced me, and the less said about Beck the better.

  8. “The FTC wanted a preliminary injunction to stop the takeover while it argued its position in court.

    “The court should have taken whatever time it needed to consider the FTC’s evidence fully,” Brown wrote.”

    Really? The court should grant the FTC however long it wants, and the people involved in this transaction should put their plans on hold indefinitely in case the FTC comes up with an argument against it?

  9. Really? The court should grant the FTC however long it wants, and the people involved in this transaction should put their plans on hold indefinitely in case the FTC comes up with an argument against it?

    Well, that’s how the FTC and the courts work:

    http://www.lewrockwell.com/blog/lewrw/archives/025730.html#more

  10. The commission had argued that the merger would lessen competition in the market for natural and organic foods.

    And, of course, the commission is populated by pure geniuses in economics who can foresee future competition in the market and how it would look if they don’t act . . .

    But the FTC must be adding value to the economy . . . Oh, dear, I am channeling Joe!

  11. As Sirius/XM is competing with Clear Channel, Whole Foods is competing with Safeway.

    On the other hand, Sirius/XM is acting exactly like the monopolist that they have now become–they have lowered the quality of online streaming, which was free, and, as of the end of this month they will improve the quality and charge for it. Not to mention what they’ve done to my favorite channels, Broadway and Weather/Traffic. On Broadway they’ve reduced the variety of music, fired the good commentator and hired a goofy annoying guy (although he actually knows quite a lot). The Weather/Traffic channel, which used to be Detroit is now Detroit and Los Vegas, which means the length of time you need to wait to get a traffic update is doubled.

    Yes, I know that there are competitors like ClearChannel (although there’s no folk music, broadway, Sinatra, opera etc. on the AM/FM airwaves, at least in the Detroit/Windsor area). And there are tons of competitors online, of course.

    Still, it’s interesting that they are behaving exactly as the antitrust agitators predicted.

  12. Isaac Bartram-

    Bread and Circus, its just bread and circus!

  13. FTG-

    Judges are at the apex of the pyramid of culpability, yes? Believe me, almost all of them see themselves more as pharoahs than as impenetrable bulwarks against which the prinicple of two wolves and a sheep deciding what will constitute dinner is to be eviscerated.

  14. Still, it’s interesting that they are behaving exactly as the antitrust agitators predicted.

    Well if they suck, or at least if enough people agree that they suck, they’re just going to go out of business. More precisely, with a greater probability and at a faster rate than what is currently predicted (which is quite high and quite fast respectively.)

    Now to be sure, Clear Channel sucks as well, and because of markets shifts plus the general advertising downturn plus plus its leverage it’s already in some pretty severe financial distress itself.

    But the satelite radio market segment was (in hindsight) never quite big enough for two players b/c of the associated capital costs.

  15. Never mind the fact that almost every market in the country has a well stocked natural foods section, there are countless independent health food stores, you can get all of the same goods online and there’s always the local farmer’s market. Oh yes, they had a virtual monopoly.

    Then again, there’s the fact the Whole Foods caters to a customer base that likes to think of itself as savvy and sophisticated. I’ll just have to enjoy the implication by the feds that Whole Food’s customers are bumbling simians who can’t learn any of the above and need their nanny to protect them.

  16. libertarian-leaning Judge Janice Rogers Brown

    I suppose she’s libertarian-leaning if you squint your eyes just right and don’t look to closely.

  17. Most chicks are libertarian-leaning after your fifth Mai Tai…

  18. “Whole Foods is competing with Safeway.”

    Really? People who think their shit doesn’t stink also shop at Safeway?

  19. Not that I claim to have had a better solution to this WF mess, I don’t think this decision was much of a punishment, except to the consumers the stores served. Even though they may be expensive, in a lot of cases, their existence pushed out smaller health food stores to the point where consumers now have fewer options than they did before. I’d encourage people to shop elsewhere and not support this giant – especially if you don’t have another local source, try shopping online – http://www.shoporganic.com for one, has a great selection and in a lot of cases is cheaper – if you buy smartly the shipping costs aren’t outrageous and for having it delivered right to your front door, its a deal.

  20. Rachel-

    Thanks for the tip.

  21. You might want to take a look at our extensive coverage of FTC. v. Whole Foods Market at:

    http://www.naturalspecialtyfoodsmemo.blogspot.com

    In the piece linked below we called (published long before the settlement deal)it that the settlement agreement would involve the selling of stores, which it did:

    http://naturalspecialtyfoodsmemo.blogspot.com/2009/03/retail-memo-ftc-whole-foods-market.html

    Linked below is our coverage and analysis from March 6, 2009 of the agreement announced that day:

    http://naturalspecialtyfoodsmemo.blogspot.com/2009/03/daily-memo-its-done-deal-whole-foods.html

    Below is a bibliography of our recent coverage, analysis, ect. on FTC v. Whole Foods:

    http://naturalspecialtyfoodsmemo.blogspot.com/2009/03/retail-memo-whole-nsfm-bibliography-ftc.html

    [Note, there are stories in the biblio above about John Mackey with a Libertarian bent.]

    In the post from yesterday linked below we suggested three very different retailers who might benefit from buying the Wild Oats brand from Whole Foods:

    http://naturalspecialtyfoodsmemo.blogspot.com/2009/03/retail-memo-whole-nsfm-bibliography-ftc.html

    We first started arguing that the FTC’s case was pure folly right after it challenged the deal in August, 2007.

    The antitrust challenge never made sense. And the settlement proves that. Having Whole Foods sell 13 operating stores — and many aren’t even in the markets in which the FTC said it was a monopoly — plus selling the Wild Oats’ brand and 19 stores already closed, won’t hurt Whole Foods one bit.

    But Whole Foods spent $28 million on the FTC antitrust challenge ($11 million in Q1-2009 alone). To put that in perspective, the 13 stores to be sold did $31 million in total sales (out of $2.5 billion overall for WFM) in Q1-2009.

    One can only speculate as to how many millions in taxpayer dollars the FTC spend in the 20-month legal challenge, since the agency doesn’t release such data. That’s a misuse of public funds, in our analysis and opinion.

    Natural~Specialty Foods Memo is all for antitrust regulation, and we are against any concentration of power in the food and grocery retailing industry.

    But the Whole Foods-Wild Oats merger wasn’t monopolistic. It’s amazing the FTC tried to overturn it for so long.

    One can only speculate that it had more to do with their percieved intent in terms of Whole Foods’ long time desire to become a category monopolist vs. any ability to do so.

    The marketplace says differently. Natural-organic foods retailing is a multi-company, multi-format business. And the more demand there is for natural and organic foods, the more it will continue to be so.

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