Whole Foods Settles Suit, Retailing Sighs with Relief

Whole Foods‘ settlement of the Federal Trade Commission anti-trust suit over its acquisition of the Wild Oats chain will be a relief to the entire retail industry, which has been concerned about just what the FTC was up to during then entire case.

To settle with the FTC, Whole Foods agreed to sell the leases and local assets of for 19 non-operating former Wild Oats stores — 10 closed by Wild Oats prior to the merger and nine closed by Whole Foods – to sell leases and assets of 12 Wild Oats and one Whole Foods store that remain in operation and to put Wild Oats trademarks and other intellectual property up for sale. At the time of the merger announcement in February 2007, Wild Oats operated about 110 stores. Whole Foods began shuttering and then jettisoning some Wild Oats stores itself, including the 19 listed in the settlement, leaving it with 55 up and running. Divesting the 12 operating Wild Oats identified in the settlement would leave it running 43. However, those 12 stores would revert back to Whole Foods if they remained unsold after a year. Even in settlement, the suit is complicated.

Yet, what troubled retailers about the suit was the theory behind it. The FTC contended that Whole Foods and Wild Oats constituted a retail class of organic food specialists what was essentially distinct from all other grocery purveyors, so that the acquisition of one by the other would essentially eliminate competition and inevitably drive up prices to consumers.

It made one wonder if the FTC had ever heard of Trader Joes. Or Wal-Mart, for that matter. In an era when market differences between retailers are diminishing, the FTC seemed to be trying to create its own. Of course, Wal-Mart and Trader Joe’s carry organic products, as does Costco, Target and every supermarket chain in the country. None of that was relevant, the FTC said. Whole Foods and Wild Oats were, by its definition, a special case, and the commission was going out of its way to get its definition enshrined in law via success in the suit.

If it succeeded, the FTC might be free to declare supercenters a distinct retail class, or warehouse clubs or dollar stores. Each of those designations consists of a handful of major players with a steep drop off to smaller operators. So what would happen if Wal-Mart wanted to purchase BJ’s and absorb the regional warehouse club operator into its Sam’s division? Or what if Target decided it had had enough of food and got out of the supercenter business? Would the limited competition left, mostly in the form of regional chains, be enough to ward off anti-trust action or would Wal-Mart have to start divesting supercenters?

The only food retailers who seemed beyond any threat from the new standard were regional and local supermarket chains. Whatever its reasons, and everything from nostalgia to politics to a simple distaste for consolidation even in a sector that includes operations ranging from 99 Cents Only to Whole Paycheck…or, rather, Whole Foods Markets was considered, the FTC seemed poised to arbitrarily dictate the future of food retailing. But not anymore.