FTC Moves To Block Merger, Seeing Companies In A Narrow Market

from the denied dept

The FTC says that it will file a lawsuit to block two companies from merging, after choosing to define the market they operate in very narrowly and ignoring the wider competition they face from plenty of other companies. We’re not talking about the merger of satellite-radio companies XM and Sirius, but rather the grocery store companies Whole Foods and Wild Oats. Both companies focus on the “natural foods” market, with an emphasis on organic products, and back in February, Whole Foods announced a plan to buy its smaller rival for $565 million. The FTC contends that the two companies combined would dominate this narrowly defined market, even though each has less than 300 stores. That seems rather fallacious, given that they both must compete with “normal” grocers — and many of those grocers, including the likes of Wal-Mart, are aggressively expanding their selections of organic foods. It’s interesting to note the reaction to the news: after hours, neither company’s stock moved much, signaling investor confidence that they can win in court and the merger will go through. It’s also interesting to examine the parallels between this case and the XM-Sirius merger, since they hinge on the same question of just how widely a market should be defined. Like XM and Sirius, Whole Foods and Wild Oats face significant competition — competition that’s only going to get stronger — apart from each other. While the FTC’s stance on the grocers’ merger doesn’t bode well for XM and Sirius, the ease with which many observers seem to think Whole Foods and Wild Oats can win in the courts may provide some comfort.


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Comments on “FTC Moves To Block Merger, Seeing Companies In A Narrow Market”

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7 Comments
Semicharm says:

I guess they can't afford the "right" officials.

This just strikes me as odd, considering the other mergers have gone though that had the same market consequences (both in the narrow and broad sense). Take the EB Games/GameStop merger for example, combined the basically OWN the game retail sector (that’s if you ignore other stores like Walmart that aren’t exclusively game retailers). That point however didn’t stop the merger. It’s basically the same scenario, only with different goods. I guess they can’t afford the “right” officials…

Barbara Aaron says:

Whole Foods takeover of Wild Oats

I believe the FTC is correct in challenging this merger. We are in the alternative poultry market ourselves and see this proposed takeover as Whole Foods just ‘gobbling up’ it’s competitor.
Diversity of companies in the Natural and Organic food industry is essential for honest competition and future prices for these products. Once Whole Foods gets it’s hands on Wild Oats, they will be in the position to control pricing over the whole of the USA in their retail stores which are presently not located in the West coast areas where Wild Oats is established. As farmer producers we see Whole Foods pricing it’s products way above what a middle range USA consumer can afford, and when you look at what they actually pay the growers down on the farm, their ‘mark up’ is incredible.
Wild Oats offers a viable alternative for consumers in the same kind of market, in short, competition for Whole Foods.
Whole Foods saw the progression and expansion of Wild Oats as a threat, and therefore decided to just eat them up in order to gain the whole field to themselves.
Consumers should look carefully at the trend of ‘bigger, bigger, bigger’ and remember that once a company gains almost a monopoly of such products, prices have only one way to go…up.

Dani says:

erm...

if whole foods doesn’t buy wild oats, someone will. They’ve been floundering for awhile. I’d rather see wild oats be picked up by WFM than Walmart, frankly.

Barb, if you look at natural & organic sales, you’ll see wfm doesn’t sell the majority–conventional stores do. As that ratio increases, WFM will have to compete and lower prices.

On the face this probably feels like a monopoly to you as a supplier, but if you look at the numbers market-wide, this isn’t the case.

I don’t see this merger as a problem.

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