Reality Moots Struggle Between FTC, Whole Foods

Whole Foods and the United States Federal Trade Commission are back in court again, but their whole anti-trust struggle seems increasingly pointless.

In the current phase of the anti-trust case, Whole Foods is trying to prevent the FTC from holding an administrative trial over its acquisition of Wild Oats, insisting that the agency has predetermined the outcome. Earlier this week, Whole Foods asked permission from Judge Paul Friedman of the U.S. District Court for the District of Columbia to depose FTC commissioner Thomas Rosch because he voted to investigate the merger at the same time he was an internal FTC judge hearing the case.

The FTC counters that the district court has no role in the anti-trust action. That’s not surprising. Last year, Friedman refused to provide the FTC with an injunction preventing the Whole Foods/Wild Oats merger on the grounds that the government was unlikely to prevail in its antitrust case. Earlier this year, though, an appeals court decided Friedman had been hasty in his determination and tossed the case back into his court.

By then, the injunction was no longer the point. Whole Foods was able to complete the merger and began to close or convert Wild Oats stores to its own brand. When the appeals court struck down Friedman’s ruling, though, the FTC decided it would reinstate its anti-trust action.

From the start, the action was confusing, in part because the FTC was picking on relative small fries. Whole Foods sales in 2007 were about $6.6 billion and Wild Oats sales were a little over $1 billion in fiscal 2006, it’s last complete year of operations. Supermarket leader Kroger had sales of $70.2 billion in fiscal 2007. Still, it sent a chill through the whole retail industry. The FTC had let bigger companies with less competition merge in the past, so it seemed to be picking on retail in particular, trying to halt consolidation without taking on deep-pocket, politically connected majors such as Wal-Mart, Macy’s or Kroger.

Further, the FTC seemed to be arbitrarily drawing lines within retailing. It declared that Whole Foods and Wild Oats represented a unique retailer class and the only significant source for the food organic consumers need. It dismissed organic food expansion in retailers ranging from Kroger to Wal-Mart to Costco as irrelevant. Retailers worried that, if the Whole Foods/Wild Oats action succeeded, FTC would carve up retail into sub categories and use those to arbitrarily block acquisitions.

Now, it’s Whole Foods that’s arguing for an injunction before Judge Friedman, asking him to prevent the administrative trial. Such an action would dump the whole mess back into Federal court, but that’s the only place it can get a fair trial, Whole Food asserts.

Trying to disentangle the Whole Foods/Wild Oats merger now doesn’t make much sense and certainly won’t restore confidence in the Federal government’s oversight of business. With stores closed or renamed, Wild Oats has little chance of winning back a customer base that has moved on. Not only that, the combined company is operating under one distribution system and a new one would have to be created for a separate Wild Oats, a costly, difficult, time-consuming process. And all this would occur during a recession that already is punishing swanky, gourmet-oriented Whole Foods and would equally pummel a swanky, gourmet-oriented and slapdash Wild Oats. Freed from Whole Foods, Wild Oats would very likely stumble into bankruptcy.