July 30, 2008
Court Overturns Whole Foods/Wild Oats Decision
A federal appeals court yesterday reversed a decision by a lower court that allowed Whole Foods to acquire Wild Oats last year.
A three-judge panel of the U.S. Court of Appeals ruled by a 2-1 margin that U.S. District Judge Paul Friedman should have taken more time to consider claims made by the Federal Trade Commission (FTC) that the deal between the two natural food grocery chains violated antitrust statutes and would ultimately harm consumers.
In the case argued before Judge Friedman, the FTC contended that Whole Foods and Wild Oats represented a separate class of trade apart from mainstream grocery stores and a merger would put them in a dominant position to other natural and organic food retailers. Whole Foods argued that it faced competition from more than just natural food stores and that its deal with Wild Oats needed to be viewed in that wider context. Ultimately, Judge Friedman ruled in favor of the deal.
With the Appeals Court decision, the case goes back to the District Court and Judge Friedman.
“The court of appeals’ decision provides a roadmap for Judge Friedman to once again deny the FTC’s request for a preliminary injunction,’ Libba Letton said in an emailed statement to the Bloomberg news service. “We await the U.S. District Court’s response so this issue can be resolved. Meanwhile, it is business as usual.”
Jeffrey Schmidt, director of the FTC’s Bureau of Competition, issued a statement, as well. “We are pleased by today’s decision of the appeals court in the Whole Foods matter and are looking forward to future proceedings before the district court, leading to a full trial,” he wrote.
While it is unlikely that the merger would be overturned, it is possible that further review of the case could lead the court to conclude that some assets of the combined companies should be sold off in markets where competition is seen as weak.
“It’s difficult to unscramble the egg, but there are other various remedies,” Jane Willis, an antitrust lawyer with Ropes & Gray, told Bloomberg. “If Whole Foods does not want to continue paying high litigation fees, they might even go to the FTC and propose a divestiture plan.”
Whole Foods, which currently operates 270 stores, acquired 110 locations from Wild Oats. It has sold 35 of the stores it purchased and closed another dozen locations. Roughly one-third of the Wild Oats stores have been converted to the Whole Foods banner, according to an Associated Press report.
Discussion Questions: What do you see happening now that the Whole Foods/Wild Oats merger case is being sent back to district court? Is there evidence well into the merger process that the FTC may have been right in the case it argued or has a year proven that the agency had it wrong?
BrainTrust
Recent Discussions
Discussion Questions
Poll
Whole Foods was right to buy Wild Oats. Whole Foods wiped out their major competitor. Every retailer who buys out their main competitor, as long as the price is right, shows high IQ. Even if a divestiture is ordered by the court, Whole Foods could sell off the Wild Oats stores one by one, so the potential national competitor is prevented from arising again. Yes, a million other stores sell similar groceries but Wild Oats was the only dedicated competitor capable of a national footprint, with almost the same positioning.
When they were smaller, had McDonald’s bought out Burger King, or Barnes & Noble bought out Amazon, or Circuit City bought out Best Buy or Delta bought out Southwest, the buyer would’ve been a lot better off, assuming a reasonable price. The worst thing about American retailing: excessive competition that hurts profits and increases risk.
Eventually Whole Foods will sow its Wild Oats.
Once again the wisdom of our government is apparent in it’s decisions. Most in Washington have no idea how a business works. Where has Jeffrey Schmidt, director of the FTC’s Bureau of Competition been all these years while Kroger and Ahold swallowed up competition?
Whole Foods and Wild Oats are niche players and provided an outlet for organic farmers and parking spots for every Subaru in town. The merger will not be overturned, nothing of significance will happen except the guardians at the FTC will have spent millions of our dollars tilting at windmills.
Gosh–this is what makes bureaucracy GREAT! The government has again taken care of us! I wish we could get some of this zeal in the departments that guard our borders and track the movement of tainted tomatoes and jalapeño peppers to our grocers’ shelves.
It’s doubtful that anyone from the FTC reads RetailWire, as disconnected as they seem to be from reality, but here goes:
1. Safeway, especially its remodeled Lifestyle stores
2. Wegmans
3. HEB Central Market
4. Trader Joe’s
5. Sprouts Farmers Market
6. Sunflower Farmers Market
7. Henry’s Farmers Market (formerly part of Wild Oats)
8. Sun Harvest Farms (formerly part of Wild Oats)
9. Publix, especially its Greenwise concept
10. The Fresh Market
11. Natural Grocers by Vitamin Cottage
12. Balducci’s
13. AJ’s Fine Foods
14. Bristol Farms
15. Gelsens
16. New Seasons
17. PCC (Puget Consumer Cooperative)
18. Heinen’s
19. Kings
20. Straub’s
21. Treasure Island
22. Metropolitan Market
23. Zupan’s
24. Dean & Deluca
25. Kowalski’s
26. Lund’s/Byerly’s
27. Plum Market
28. Papa Joe’s
29. Nino Salvaggio’s
30. Andronico’s
31. Draeger’s
That was a relatively easy list to compile, and it doesn’t even include Walmart, Kroger or Supervalu, all of which have expanded heavily into the natural/organic space, particularly in areas that are strong for Whole Foods Market or Wild Oats.
Come on, FTC. Go after some real anti-trust violations, where consumers are really harmed. I’m sure that if you polled shoppers at the Bend, Oregon Whole Foods that used to be a Wild Oats, a city where there is less competition for the premium experience, they’re probably happier with the store under Whole Foods management than they were before. Likewise, shoppers in Denver/Boulder where there are lots of alternatives are clearly happier with the former Wild Oats stores now, because the parking lots have more cars in them now. And I don’t buy the argument that because Whole Foods’ perishables are, for the most part, superior to Safeway’s (or almost any other company you chose) that somehow consumers are harmed because Wild Oats (which had inferior perishables) have gone away.
Note to David Livingston: John Mackey is no hippie. He’s a Libertarian. Still, Republicans generally don’t like non-Republican Libertarians, so maybe your argument that this is political is still valid. However, I don’t see this case ending if the balance of power changes after January 20th (with three Democrats and two Republicans, instead of the current two and three). I think this is driven by someone below the actual Commission level, by some professional FTC staff member who got some bad arugula at Whole Foods once and is seeking revenge.
This will probably go away by February. If Obama gets elected, the USA versus the Hippies case will be dropped. In my opinion, this case was politically motivated. I would expect leadership at the FTC to change after the election.
This is unfortunate for both companies. They will both suffer but ultimately there is not another choice in their space so they should rebound well. I agree with others; this could all change after the election.
It will certainly be interesting to watch and the continued litigation only adds challenges to the effective management of the business by the Whole Foods leadership group. I personally have trouble with the concept that Whole Foods and Wild Oats are separate and distinct from other Chain Food retailers and that there is a blurring of shoppers that shop across formats.
This is positive news for the Food Chains that continue to add Organic and Natural segments across categories as the confusion around the litigation and time/expense to challenge the court’s decision makes competing and winning over shoppers easier for chains like HEB, King’s, etc, who compete in marketplaces where W.F. and W.O are strongest.
As a consumer, I’m a fan of Wild Oats but not really Whole Foods, and wasn’t overjoyed by the acquisition–so my first thought was boy, that really stinks. “You can’t unscramble the egg” is a massive understatement.
If this ruling stands, the question will be more about how to make it right from here, rather than how to undo what has already been done. I can see both sides of the issue–it simply depends on how you define the market that Whole Foods serves. Is it “grocery”? Or is it “natural grocery”?
No matter which way it goes, it makes me wonder, as an analyst, was the acquisition really worth it? They’ve sold off or closed nearly half of the Wild Oats stores they acquired to begin with, and now may be required to close or sell off more. Throw in the legal costs of getting this far, and the payback looks pretty questionable.
This deserves a comment–but not much of one.
What a ridiculous waste of FTC time and our money.
What a ridiculous abuse of power by the Feds! Anti-trust actions in general punish successful companies (read: companies that consumers choose to shop from) by forcing them to devote resources to the courts/Washington instead of the market.
But even on the Feds’ own terms: how on earth could any rational person consider this deal “anti-competitive”? Is it because retail space is somehow limited, so new entrants couldn’t possibly emerge? Oh wait, vacant space is everywhere! Because the Safeways and even Walmarts of the world have no ability to go into organics? Oh wait, they are! Because WF/WO store count is so dominant that consumers have to go there? Laughable!
It’s a waste of the government’s resources and also a waste of the time, energy and shareholder value of Whole Foods to continue pursuing this case. The valid arguments for supporting the merger are not likely to change “upon further review,” and the FTC’s continued insistence that Whole Foods operates in a different universe than all other food retailers makes no more sense than it did in the first place.
The FTC does not want to repeat its screw-up back in the 1990s involving the acquisition of PDM Inc by Chicago Bridge and Iron (CBI). The result left CBI as the sole source for fabricated steel products such as water tower storage tanks and other specialty fabricated steel products. As a result, CBI could charge whatever they wanted.
They let that one slip through their fingers. So Whole [Foods] has to pay for the sins of the past.
This needs to be settled, once and for all, especially in the Northeast where there are other fresh players like SuperFresh, A&P Fresh Market, Waldbaum’s Fresh Market and Food Emporium.
When A&P acquired Pathmark, it had to divest of most of its competing Waldbaum’s stores on Staten Island. King Kullen benefited from that. The same kind of divestiture needs to take place. I like competition in organics and fresh, and Whole Paycheck does not promote competition in fresh, especially in the North East. Once the playing field is leveled, then I can accept what is left of the company. Until then, this matter has to be resolved, resulting in Whole Paycheck having no more competitive advantage than the rest of the market players.
Ping-Pong litigation. What a concept! Lower court, upper court, and back again. Neither changing their position. Time to go to trial, as hundreds if not thousands of supermarket merger/acquisitions have done in the past. Seems like we could learn from precedence. Tax dollars will pay for this exercise that will ultimately result in a merger/acquisition of some type. The purpose of the courts will just become a study of which competing stores to close or sell to a competitor (much of which has already been done).
The interesting part of this case, to me at least, is the bogus positioning of Whole Foods and Wild Oats as “natural and organic food retailers.” If they had been honest in the beginning, positioning themselves as upscale/boutique supermarkets like Trader Joe’s, they wouldn’t be having this problem. Now, honest-to-goodness, mom-and-pop, strip mall health food stores can stymie their merger efforts. Fool me once, shame on me. Fool me twice, shame on you.
This is too little, too late. If this acquisition was considered to be in restraint of trade or collusionary by the FTC, this should have been emphasized prior to any finality of the buyout. This could continue in the courts for years, and only the consumer will lose. Anti-competitive actions should be communicated and initiated well before any formal acquisition is done so that shareholders can fully evaluate the risks, prior to the final purchase. This was not done, and the result will be a mess where everyone loses.
The acquisition of a 110 stores amounts to a trust violation? Consumers will be harmed? Not only is this entire thing implausible, it’s impossible. 110 stores is a gnat on the radar screen in retail, no matter who you are or what format you are. It’s insignificant and ridiculous.
Over time, I have visited both and find no real attraction to either one.
I wonder how much ‘organic’ growth Whole Foods could have accomplished with the time and money wasted on litigation.
As a previous comment notes, the long list, that should also in include just about every conventional supermarket, the access to product for any consumer isn’t exactly limited. The argument is purely and organically ridiculi (That’s plural for ridiculous in ‘Scanner Speak’).
First, prior to the Whole Foods acquisition-merger, Wild Oats was a fledgling chain. Had not Ron Burkle stepped in a couple years earlier with a big investment, pushed out the then CEO, took control of the board, and ultimately brokered the Whole Foods deal, there is a high probability Wild Oats would either have gone bankrupt or been sold piecemeal.
No need to take my word for it; Ron Burkle (and many insiders) will tell you same.
This is the major reason the Wild Oats board wanted the deal. Many people act like it was a hostile takeover by Whole Foods. Far from it.
Now, it is clear the FTC either has no clue about food and grocery retailing in the U.S. today, or that a couple members of the commission (and I have heard things to this argument) have a particular thing for not wanting the deal to be settled.
Whole Foods is far from monopolistic in the natural and organics retailing space. In fact, the acquisition of Wild Oats actually opened the door to competitors like Sunflower Farmers Market and Sprouts, along with a number of others.
And of course, the format bluring in food retailing–Safeway Lifestyle, HEB, Publix, Wegmans, scores of others–has made the supernatural food retailing category essentially irrelevant.
The instructions the appeals court panel gave to the lower court does not allow it to overturn the deal, which is doubtful anyway. The lower court also can’t “take away” the Wild Oats stores already integrated by Whole Foods. This means, worse case scenario, Whole Foods would have to sell some stores–which might be a blessing in that many of the former Wild oats stores are dogs anyway. (John Mackey has said publicly if he knew then what he knows now, he would not have done the deal.)
A telling sign of this whole issue is that Whole Foods Market stock actually went up after the appeal court panel’s decision was announced.
Prediction: The lower court will uphold its original decision.
Postscript: Does anybody else wonder why the FTC, under the conservative GW Bush administration, has wasted so much money and valuable brain power on what really is a very tiny deal in the larger scheme of things? Not even a $1 billion deal–the WF-WO acquisition.
More Discussions
As Boomers ‘Age Out of Peak Purchasing,’ How Can National Brands Retain Interest With Gen Z?
According to a recent First Insight study titled “Is Gen Z Still Choosing Your Brand,” while…Is Supply Chain Volatility Here To Stay?
Can we expect an ongoing volatility to remain in terms of retail supply chain?Has Same-Day Delivery Become an Expectation Across Retail?
Are expectations around retail delivery speed in flux?
Whole Foods was right to buy Wild Oats. Whole Foods wiped out their major competitor. Every retailer who buys out their main competitor, as long as the price is right, shows high IQ. Even if a divestiture is ordered by the court, Whole Foods could sell off the Wild Oats stores one by one, so the potential national competitor is prevented from arising again. Yes, a million other stores sell similar groceries but Wild Oats was the only dedicated competitor capable of a national footprint, with almost the same positioning.
When they were smaller, had McDonald’s bought out Burger King, or Barnes & Noble bought out Amazon, or Circuit City bought out Best Buy or Delta bought out Southwest, the buyer would’ve been a lot better off, assuming a reasonable price. The worst thing about American retailing: excessive competition that hurts profits and increases risk.
Eventually Whole Foods will sow its Wild Oats.
Once again the wisdom of our government is apparent in it’s decisions. Most in Washington have no idea how a business works. Where has Jeffrey Schmidt, director of the FTC’s Bureau of Competition been all these years while Kroger and Ahold swallowed up competition?
Whole Foods and Wild Oats are niche players and provided an outlet for organic farmers and parking spots for every Subaru in town. The merger will not be overturned, nothing of significance will happen except the guardians at the FTC will have spent millions of our dollars tilting at windmills.
Gosh–this is what makes bureaucracy GREAT! The government has again taken care of us! I wish we could get some of this zeal in the departments that guard our borders and track the movement of tainted tomatoes and jalapeño peppers to our grocers’ shelves.
It’s doubtful that anyone from the FTC reads RetailWire, as disconnected as they seem to be from reality, but here goes:
1. Safeway, especially its remodeled Lifestyle stores
2. Wegmans
3. HEB Central Market
4. Trader Joe’s
5. Sprouts Farmers Market
6. Sunflower Farmers Market
7. Henry’s Farmers Market (formerly part of Wild Oats)
8. Sun Harvest Farms (formerly part of Wild Oats)
9. Publix, especially its Greenwise concept
10. The Fresh Market
11. Natural Grocers by Vitamin Cottage
12. Balducci’s
13. AJ’s Fine Foods
14. Bristol Farms
15. Gelsens
16. New Seasons
17. PCC (Puget Consumer Cooperative)
18. Heinen’s
19. Kings
20. Straub’s
21. Treasure Island
22. Metropolitan Market
23. Zupan’s
24. Dean & Deluca
25. Kowalski’s
26. Lund’s/Byerly’s
27. Plum Market
28. Papa Joe’s
29. Nino Salvaggio’s
30. Andronico’s
31. Draeger’s
That was a relatively easy list to compile, and it doesn’t even include Walmart, Kroger or Supervalu, all of which have expanded heavily into the natural/organic space, particularly in areas that are strong for Whole Foods Market or Wild Oats.
Come on, FTC. Go after some real anti-trust violations, where consumers are really harmed. I’m sure that if you polled shoppers at the Bend, Oregon Whole Foods that used to be a Wild Oats, a city where there is less competition for the premium experience, they’re probably happier with the store under Whole Foods management than they were before. Likewise, shoppers in Denver/Boulder where there are lots of alternatives are clearly happier with the former Wild Oats stores now, because the parking lots have more cars in them now. And I don’t buy the argument that because Whole Foods’ perishables are, for the most part, superior to Safeway’s (or almost any other company you chose) that somehow consumers are harmed because Wild Oats (which had inferior perishables) have gone away.
Note to David Livingston: John Mackey is no hippie. He’s a Libertarian. Still, Republicans generally don’t like non-Republican Libertarians, so maybe your argument that this is political is still valid. However, I don’t see this case ending if the balance of power changes after January 20th (with three Democrats and two Republicans, instead of the current two and three). I think this is driven by someone below the actual Commission level, by some professional FTC staff member who got some bad arugula at Whole Foods once and is seeking revenge.
This will probably go away by February. If Obama gets elected, the USA versus the Hippies case will be dropped. In my opinion, this case was politically motivated. I would expect leadership at the FTC to change after the election.
This is unfortunate for both companies. They will both suffer but ultimately there is not another choice in their space so they should rebound well. I agree with others; this could all change after the election.
It will certainly be interesting to watch and the continued litigation only adds challenges to the effective management of the business by the Whole Foods leadership group. I personally have trouble with the concept that Whole Foods and Wild Oats are separate and distinct from other Chain Food retailers and that there is a blurring of shoppers that shop across formats.
This is positive news for the Food Chains that continue to add Organic and Natural segments across categories as the confusion around the litigation and time/expense to challenge the court’s decision makes competing and winning over shoppers easier for chains like HEB, King’s, etc, who compete in marketplaces where W.F. and W.O are strongest.
As a consumer, I’m a fan of Wild Oats but not really Whole Foods, and wasn’t overjoyed by the acquisition–so my first thought was boy, that really stinks. “You can’t unscramble the egg” is a massive understatement.
If this ruling stands, the question will be more about how to make it right from here, rather than how to undo what has already been done. I can see both sides of the issue–it simply depends on how you define the market that Whole Foods serves. Is it “grocery”? Or is it “natural grocery”?
No matter which way it goes, it makes me wonder, as an analyst, was the acquisition really worth it? They’ve sold off or closed nearly half of the Wild Oats stores they acquired to begin with, and now may be required to close or sell off more. Throw in the legal costs of getting this far, and the payback looks pretty questionable.
This deserves a comment–but not much of one.
What a ridiculous waste of FTC time and our money.
What a ridiculous abuse of power by the Feds! Anti-trust actions in general punish successful companies (read: companies that consumers choose to shop from) by forcing them to devote resources to the courts/Washington instead of the market.
But even on the Feds’ own terms: how on earth could any rational person consider this deal “anti-competitive”? Is it because retail space is somehow limited, so new entrants couldn’t possibly emerge? Oh wait, vacant space is everywhere! Because the Safeways and even Walmarts of the world have no ability to go into organics? Oh wait, they are! Because WF/WO store count is so dominant that consumers have to go there? Laughable!
It’s a waste of the government’s resources and also a waste of the time, energy and shareholder value of Whole Foods to continue pursuing this case. The valid arguments for supporting the merger are not likely to change “upon further review,” and the FTC’s continued insistence that Whole Foods operates in a different universe than all other food retailers makes no more sense than it did in the first place.
The FTC does not want to repeat its screw-up back in the 1990s involving the acquisition of PDM Inc by Chicago Bridge and Iron (CBI). The result left CBI as the sole source for fabricated steel products such as water tower storage tanks and other specialty fabricated steel products. As a result, CBI could charge whatever they wanted.
They let that one slip through their fingers. So Whole [Foods] has to pay for the sins of the past.
This needs to be settled, once and for all, especially in the Northeast where there are other fresh players like SuperFresh, A&P Fresh Market, Waldbaum’s Fresh Market and Food Emporium.
When A&P acquired Pathmark, it had to divest of most of its competing Waldbaum’s stores on Staten Island. King Kullen benefited from that. The same kind of divestiture needs to take place. I like competition in organics and fresh, and Whole Paycheck does not promote competition in fresh, especially in the North East. Once the playing field is leveled, then I can accept what is left of the company. Until then, this matter has to be resolved, resulting in Whole Paycheck having no more competitive advantage than the rest of the market players.
Ping-Pong litigation. What a concept! Lower court, upper court, and back again. Neither changing their position. Time to go to trial, as hundreds if not thousands of supermarket merger/acquisitions have done in the past. Seems like we could learn from precedence. Tax dollars will pay for this exercise that will ultimately result in a merger/acquisition of some type. The purpose of the courts will just become a study of which competing stores to close or sell to a competitor (much of which has already been done).
The interesting part of this case, to me at least, is the bogus positioning of Whole Foods and Wild Oats as “natural and organic food retailers.” If they had been honest in the beginning, positioning themselves as upscale/boutique supermarkets like Trader Joe’s, they wouldn’t be having this problem. Now, honest-to-goodness, mom-and-pop, strip mall health food stores can stymie their merger efforts. Fool me once, shame on me. Fool me twice, shame on you.
This is too little, too late. If this acquisition was considered to be in restraint of trade or collusionary by the FTC, this should have been emphasized prior to any finality of the buyout. This could continue in the courts for years, and only the consumer will lose. Anti-competitive actions should be communicated and initiated well before any formal acquisition is done so that shareholders can fully evaluate the risks, prior to the final purchase. This was not done, and the result will be a mess where everyone loses.
The acquisition of a 110 stores amounts to a trust violation? Consumers will be harmed? Not only is this entire thing implausible, it’s impossible. 110 stores is a gnat on the radar screen in retail, no matter who you are or what format you are. It’s insignificant and ridiculous.
Over time, I have visited both and find no real attraction to either one.
I wonder how much ‘organic’ growth Whole Foods could have accomplished with the time and money wasted on litigation.
As a previous comment notes, the long list, that should also in include just about every conventional supermarket, the access to product for any consumer isn’t exactly limited. The argument is purely and organically ridiculi (That’s plural for ridiculous in ‘Scanner Speak’).
First, prior to the Whole Foods acquisition-merger, Wild Oats was a fledgling chain. Had not Ron Burkle stepped in a couple years earlier with a big investment, pushed out the then CEO, took control of the board, and ultimately brokered the Whole Foods deal, there is a high probability Wild Oats would either have gone bankrupt or been sold piecemeal.
No need to take my word for it; Ron Burkle (and many insiders) will tell you same.
This is the major reason the Wild Oats board wanted the deal. Many people act like it was a hostile takeover by Whole Foods. Far from it.
Now, it is clear the FTC either has no clue about food and grocery retailing in the U.S. today, or that a couple members of the commission (and I have heard things to this argument) have a particular thing for not wanting the deal to be settled.
Whole Foods is far from monopolistic in the natural and organics retailing space. In fact, the acquisition of Wild Oats actually opened the door to competitors like Sunflower Farmers Market and Sprouts, along with a number of others.
And of course, the format bluring in food retailing–Safeway Lifestyle, HEB, Publix, Wegmans, scores of others–has made the supernatural food retailing category essentially irrelevant.
The instructions the appeals court panel gave to the lower court does not allow it to overturn the deal, which is doubtful anyway. The lower court also can’t “take away” the Wild Oats stores already integrated by Whole Foods. This means, worse case scenario, Whole Foods would have to sell some stores–which might be a blessing in that many of the former Wild oats stores are dogs anyway. (John Mackey has said publicly if he knew then what he knows now, he would not have done the deal.)
A telling sign of this whole issue is that Whole Foods Market stock actually went up after the appeal court panel’s decision was announced.
Prediction: The lower court will uphold its original decision.
Postscript: Does anybody else wonder why the FTC, under the conservative GW Bush administration, has wasted so much money and valuable brain power on what really is a very tiny deal in the larger scheme of things? Not even a $1 billion deal–the WF-WO acquisition.