Indigestion over organic food at the FTC

by Alexandra Biesada, May 17th, 2007, 7:00 am

Whole Foods Market’s proposed takeover of Wild Oats may be hard for antitrust regulators to swallow. While the Federal Trade Commission hasn’t yet decided whether to challenge Whole Foods’ $565 million bid for its Colorado-based rival, the organic grocer recently revealed in a statement that “the FTC staff have voiced concerns regarding perceived anticompetitive effects” of the merger.

As a result, since the deal was announced in February Whole Foods has had to extend the expiration date of a tender offer for Wild Oats shares twice to accommodate the FTC’s request for more information. Currently, the tender offer is set to expire May 22.

While the nation’s largest organic food supermarket’s purchase of its prime competitor may sound like a bad idea, I’m not too worried about potential anticompetitive effects and here’s why. In my hometown, which also happens to be Whole Foods Market’s birthplace and headquarters, the company faces some pretty stiff competition, and not primarily from Wild Oats. While Wild Oats does have a pair of small stores in Austin under the Sun Harvest Farms banner, Whole Foods’ chief rival here is H-E-B’s upscale Central Market chain. While not exclusively a natural and organic supermarket, Central Market’s selection of organic produce, dairy products, meat, fish, bread, frozen French fries, diapers, coffee, wine and more, rivals Whole Foods Market’s any day. The two compete head-to-head for Austin’s affluent, health-conscious foodies.

And Austin, while it likes to think of itself as unique, isn’t alone. Nationwide, Whole Foods is coming under increased pressure from traditional grocery chains, such as Kroger and Safeway, which have moved aggressively into the organic space. Even Wal-Mart’s less-than-wildly-successful push to offer more organic fare has taken a toll on Whole Foods’ earnings. Add Trader Joe’s and regional supermarket operators, including Earth Fare and Sweetbay Supermarkets in the Southeast, to the list and it’s evident that there’s a lot of competition out there, if the folks at the FTC can look beyond the narrow confines of pure players, which admittedly are few.

I’m not convinced that the two companies are each other’s closest competitor and a careful review of today’s rapidly-changing grocery retail market should convince regulators as well.