The Whole Foods Saga

With all the talk about Whole Foods CEO John Mackey's, er, unprofessional behavior, it's easy to gloss over the legal issues. Whole Foods is seeking to buy Wild Oats Markets, Inc., another nationwide organic grocery retailer. Or more specifically, the only other nationwide organic grocery retailer. The FTC is arguing that the two retailers operate in a distinct market, thus creating an anti-trust issue with the possibility of blocking competition and raising prices.

Mr. Mackey has not helped his company's case. (And no, I'm not talking about his negative remarks about Wild Oats on investing boards.) Mackey has said that, "Safeway and other conventional retailers will keep doing their thing -- trying to be all things to all people. They can't really effectively focus on Whole Foods' [clientele]." Of course, Mr. Mackey has also said that his company faces competition from other supermarkets who are now offering more organic foods. So which of these conflicting statements, no doubt CEO puffery, is true?

This case will ultimately come down to how the judge defines the organic food market. The case will be heard tomorrow, and we should have a ruling in a few weeks. This is an interesting marketing problem. In order to convince the judge that there is no limited market, Whole Foods will need to argue that they are, essentially, just another supermarket.

On the other hand, the FTC has said, "Whole Foods and Wild Oats are the only two nationwide operators of premium natural and organic supermarkets in the United States." But when one considers that most organic markets are locally-owned, Whole Foods and Wild Oats are indeed the only players in that limited market as defined by the FTC. Thus the question of how narrowly the FTC may define a market for anti-trust purposes - the age-old quandry. I'm not a big fan of Mr. Mackey, but I do hope that the judge dismisses the anti-trust suit.