Tuesday, December 2, 2008

Whole Foods: Making Organic Lemonade by Squeezing the Competition?

The Fruits of Competition?

New Seasons Market is a Natural Foods grocer with stores located in Oregon and Washington. Their mission is to provide local food to local customers.

We're proud to say that we buy local so you can buy local, keeping more of the
money we spend as a community, right here at home where it
belongs. We buy from farmers, ranchers, creamery co-ops, fishers and
crabbers who are real Oregonians and Washingtonians, local artisan cheese
makers, Willamette Valley vintners, Central Oregon brewers, Portland coffee
roasters, neighborhood artists who handcraft soaps, candles, pottery and
greeting cards. Then we add familiar products to our shelves like Bumblebee Tuna and Best Foods mayo. The result is New Seasons Market. Easy and fun to shop. Locally owned and operated.

This small company which prides itself on being local and staying local has become caught up in the somewhat inexplicably on-going Federal Trade Commission lawsuit seeking to block the completed acquisition of Whole Foods and Wild Oats. The FTC alleges that this deal created an anti-trust situation by virtue of allowing Whole Foods a monopoly in some markets.

Regulatory Lemons

The combined Whole Foods-Wild Oats entity comprises nearly 300 stores. legal experts speculate that there are 18 cities where the FTC contends divesting some stores may be required to avoid creating a monopoly. Whole Foods is having to spend a lot of money to defend an acquisition that is effectively over.

It is bizarre to think that a completed merger would still be subject to such action. It is especially bizarre given the state of the economy and the impact it has had on Whole Foods and its stock, which has fallen sharply in the previous 12 months.

Most bizarre of all is the fact that Whole Foods may be taking advantage of the FTC lawsuit to gain information about competition, including a small local player like New Seasons Market. In his blog, CEO Brian Rohter says "We Are Just Trying To Mind Our Own (Local) Business".

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

I guess that is how you make organic lemonade from regulatory lemons.

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