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But It’s an ORGANIC Merger!

June 6th, 2007 · 11 Comments

The FTC is making a move to halt the planned assimilation of Wild Oats markets by the Whole Foods collective, on the grounds that it would raise prices for consumers. This seems unlikely for precisely the reason cited in the article linked above: Whole Foods isn’t just competing with other organic food stores, it’s competing with all other supermarkets. One of the big benefits of Whole Foods, in fact, has been the way it’s pushed traditional groceries and supermarkets to stock a wider array of organic, vegetarian, and humanely-produced food products, so that it’s now relatively easy to find (say) cage-free eggs at the neighborhood Giant or Safeway. Given the size of the average Whole Foods store, they’re only viable if they’re appealing to large numbers of people who aren’t die-hard organic consumers, which means their leeway to inflate prices is going to be constrained by competition from mainstream groceries even if all the local organic markets go under. The FTC apparently disagrees, asserting:

In addition, premium natural and organic supermarkets seek a different customer than do traditional grocery stores,. Whole Foods’ and Wild Oats’ customers are buying something more than just the food product — they are seeking a shopping “experience,” where environment can matter as much as price.

So they’re being punished for having nicer stores?

Even if we grant the agency’s premises, though, the FTC’s view is a little perplexing. Just eyeballing the companies’ respective websites, it looks like there are about 70 Wild Oats stores and somewhere in the ballpark of 180 Whole Foods stores in the United States, and very few of them appear to be in direct competition. That is, the vast majority of the Wild Oats stores seem to be located in states or cities where there isn’t a Whole Foods. Unless people are routinely driving long distances for their week’s groceries, then, there are relatively few cases where the merger would reduce the number of local options even within this niche market.

Tags: Markets


       

 

11 responses so far ↓

  • 1 Chris // Jun 6, 2007 at 4:39 pm

    Whole Foods would face pretty strong price competition, if only Trader Joes didn’t have so stupidly few checkouts and annoyingly long lines.

  • 2 LP // Jun 6, 2007 at 6:56 pm

    Here in Boulder County, Wild Oats’ home base, just about every W.O. store is across the street or around the corner from a Whole Foods. Also here in Colorado, people have strong feelings about organic/natural food stores in general, and about which one they prefer, and seem to be more than willing to drive long distances to shop at whichever one they think is better. But probably this is a Boulder phenomenon, and not representative of the rest of the country, as usual. (Side note: Does the virtue of shopping at a natural foods store far away balance out the non-virtue of burning gas to get there, assuming many of these people aren’t driving fully electric cars?)

  • 3 mcm // Jun 6, 2007 at 9:40 pm

    And likewise, here in Austin, home of WFM, we still have two Sun Harvest stores, which is the Texas chain owned by Wild Oats. But the difference in scale between them rather supports the anti-FTC case here. The Sun Harvest/WO stores are basically neighborhood grocers; the WFM stores (including the mega-flagship store downtown) are full-scale supermarkets, competing head-to-head with our big traditional supermarket chain (HEB, which has a high-end gourmet format called Central Market). People choose WFM over Sun Harvest because they want/need the bigger selection; they make the reverse choice because they want/need the low-hassle convenience of the corner market. The fact that both sell natural foods is incidental.

  • 4 thoreau // Jun 6, 2007 at 10:54 pm

    I’ve found that Trader Joe’s is even competitive with Safeway on many items.

  • 5 thoreau // Jun 6, 2007 at 11:02 pm

    I mean price-wise, of course. In terms of quality, Trader Joe’s definitely has an edge over Safeway.

  • 6 Bobbo // Jun 7, 2007 at 1:20 am

    “Also here in Colorado, people have strong feelings about organic/natural food stores in general, and about which one they prefer”

    Maybe on the Front Range, but I’ve never particularly noticed that on the Western Slope. ‘Course, I can only think of one natural foods store in Grand Junction off of the top of my head.

  • 7 bobbo // Jun 7, 2007 at 1:21 am

    “Also here in Colorado, people have strong feelings about organic/natural food stores in general, and about which one they prefer”

    Maybe on the Front Range, but I’ve never particularly noticed that on the Western Slope. ‘Course, I can only think of one natural foods store in Grand Junction off of the top of my head.

  • 8 Dave W. // Jun 7, 2007 at 6:53 am

    ==============================================================

    First off, thanks for blogging an antitrust issue. Always food when these issues get attention. They have been neglected for too long now.

    Economically speaking, the story of antitrust law is the story of Milton Friedman’s flip on antitrust law. Specifically, Friedman was for it, got a political appointment and then was suddenly against it. Although the antitrust laws have never been taken off the books, and there is still nominal agency scrutiny of mergers, antitrust is simply a dead letter. All sectors of the economy have proceeded, over time, to become far too consolidated, and this is the central economic problem of our time. having read some of your previous writing on “consumer choice,” I have a feeling that you pretty much get this, Mr. Sanchez.

    What I think is interesting about Whole Foods getting a hard time is that it kind of confirms Freidman’s flip flop on antitrust. Near as I can tell, Freidman gave a couple of reasons for being for antitrust law before he was against it. One reason was relection on decades of study — aka, trust me I am an expert. That reason is not compelling, of course, except to corporatarians.

    His other reason is that consolidated companies will do whatever it takes to get their hands on the levers of antitrust law, in its execution, and will use antitrust law to crush smaller competitors, turning this body of law 180 degrees away from its intended consequences, like Goliath doing courtroom and agency ju jitsu. This argument of Friedman’s cannot be dismissed out of hand.

    Returning to the Whole Foods proposed merger at hand, this could very well be a classic case of Whole Foods larger competitors using antitrust law to hurt Whole Foods and thereby help themselves. If one agrees with this assessment, then there are a couple possible reactions:

    (i) take this as yet another data point confirming Friedman’s late career condemnation of antitrust law; or

    (ii) use this as an opportunity to spread the word about what is wrong with antitrust law so that new laws can be conceived and implemented to address the observed antitrust law problem with enthusiasm and in good faith.

    My feelings are somewhat mixed, but I favor approach (ii) because I don’t think it has ever been tried.

  • 9 Dave W. // Jun 7, 2007 at 6:58 am

    ==============================================================

    “Always food”

    should have been

    –Always good–

    I was momentarily pre-occupied with delicious cage free scrambed eggs. btw, there was a bit of discussion of cruelty free egges over at the Hit’n’Run yesterday:

    http://www.reason.com/blog/show/120593.html

  • 10 steveintheknow // Jun 7, 2007 at 10:33 am

    mcm is spot on.

    But of course this doesn’t stop me from really, really, wishing we had a Trader Joe’s too. What is the deal, why such a wait?

    At any rate, I would expect Sun Harvest/Wild Oats to have access too better wholesale prices and adjust their retail prices accordingly before Whole Foods raised theirs.

  • 11 John // Jun 7, 2007 at 12:31 pm

    With the number of large mergers that have occurred among grocery stores, it is hard to see much reason for preventing this one, unless there is interest in keeping organic chains small.

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