Questions From My Blog On Wild Oats Merger

By John Mackey, June 27, 2007  |  Meet the Blogger  |  More Posts by John Mackey

First I want to express my appreciation to everyone who sent positive and supportive comments on my blog posting. I really appreciate your kind thoughts and your good will. I won't respond to your comments below because there is nothing more that I can really add to what I just said. However, I want you to know that I really appreciate your support even if I don't respond directly to your comment. Thank you very much.

The response to my blog, and the interest and passion the FTC's complaint against the Whole Foods Market/Wild Oats merger has generated is fascinating. I find the great majority of passionate comments, e-mails, and letters fall into one of five categories:

  1. People who love Whole Foods Market and can't understand why the FTC is picking on us.
  2. People who hate Whole Foods Market and believe everything we do is greedy, selfish, or hypocritical. To them this merger is just the latest example of our malevolent intent and they are happy that the FTC is giving us our comeuppance.
  3. People who are thrilled to find an open, honest, candid communication by a company's CEO instead of the usual legal/PR sterilized sound bites that they usually see.
  4. People who are appalled that I have broken an unspoken taboo of our society by speaking out. CEO's aren't supposed to do that. Lawyers are hired to fight on behalf of the corporation in a "specialized game" where non-specialists aren't permitted to play.
  5. People who are afraid of the government and believe that criticizing the government is highly risky behavior.

I think response numbers 3 and 4 are the most interesting. The recent global technology and communications revolutions are allowing for ever-increasing interconnections and transparency in processes on every imaginable level in free societies. The need for the specialist intermediaries, such as professional journalists and lawyers, to interpret, inform, and communicate on behalf of other people is rapidly declining. I love the fact that I can now communicate my own opinions and interpretations directly to people instead of depending upon a journalist to both understand and accurately communicate what I've told him or her to other people. It is very frustrating to be continually misquoted and misinterpreted. Now I can speak directly for myself and that is very liberating.

Today we live in such a politically correct and litigious society that most people in the public realm simply don't say anything that hasn't been pre-approved and sterilized. This is the main reason politicians are often so boring and obtuse-they never want to say anything that will offend anyone or that can later be used in an attack on them. However, I am not a politician. I want to honestly communicate what I really believe. If you don't like my style or what I say-well exercise your freedom not to read or participate.

Below I will quote specific comments received on my blog and then provide a response.

It's about time someone told the FTC (as well as all the other small minded bureaucrats) the realities of Capitalism.

Competitors come and go. If marketshare is improved by either merger or acquistion so much so that it creates a "monopoly" that would increase prices on the consumer, reduce choice, etc, as the government alleges, then (in a free market) a new competitor would open up to exploit those very conditions to make (what else?) a PROFIT!

Posted by: EmployerReport.com at June 19, 2007 09:43 p.m.

EmployerReport.com,

I believe you are exactly right about this. Monopolies are impossible in a market economy unless created and maintained by the coercive power of government. Otherwise so-called "monopolies", and even companies with strong competitive advantages, are eventually undermined by imitation and entrepreneurial creativity in the competitive marketplace. Any competitive advantages that Whole Foods Market creates are eventually copied and surpassed by other companies. That is simply the way capitalism works. It is dynamic and always evolving.

As an active trader, I've been involved in quite a few M&A deals the past 2 years, and this is the first time I've seen a CEO blog-out on his proposed deal.

My comments thusfar ,,, the WFMI CEO comes off looking quite arrogant in public.

If WFMI's deal lawyers can't muzzle the blog, suggest they just fold their tent and watch the WFMI CEO continue to appear the public fool.

Elsewise, it seems both sides are wrong.

Market barriers to establishing further competition are low to non-existent, which gives lie to Complainant's rationale for blocking the deal. This is not a spacecraft, nuclear plant, airplane, or other endeavor that's technologically difficult to assemble.

WFMI CEO's claim that ,,,

"we eliminate forever the possibility of Kroger, SuperValu, or Safeway using their brand equity to launch a competing national natural/organic food chain to rival us."

,,, is bluster in the first degree.

Apparently, WFMI's CEO never took to heart the first thing learned in business, namely ,,, never say 'never' (or in this case, forever).

Continuing to yell out at the SEC, like one just came from unloading a vegetable truck, seems pointless. It's no wonder SEC staff refused discuss methods for resolution prior to filing a complaint ,,,

Posted by: e9racer at June 19, 2007 11:30 PM

e9racer,

I have been called both "arrogant" and a "fool" most of my life. I prefer to think of myself as self-confident and committed to my ideals. However, you are certainly entitled to your opinions about my character (but since you don't really personally know me, I hope you'll keep a more open mind). You, however, don't seem to understand that the "hot documents" that the FTC is using to make their case were internal private documents and were never intended to be disclosed publicly. The intention of my blog posting is to put those internal private documents, which have become public, into a more accurate and honest context. The particular "hot document" that I reproduce at the beginning of my blog was written to our Board of Directors prior to the meeting to vote on the Wild Oats merger. Buying Wild Oats was a tough sell to our Board. Why? Because they don't make any money-they've lost $97 million since their founding and over $70 million in the last seven years. How do we justify paying $650+ million (including debt) for a company that isn't consistently profitable? We had to consider every possible advantage that acquiring Wild Oats would bring to Whole Foods-including the defensive ones of eliminating a competitor and preventing one of our other competitors from acquiring them. There are six other reasons we gave to our Board, but these seem to be the two that have generated most of the controversy.

Mackey,

You're one of my heros now. I am so glad you responded as you did to this FTC nonsense. I bet you kinda feel like John Galt, but please don't go on strike.

p.s. I've canceled my plans to start my own company, "Just Hamburgers, Inc", a company that would sell hamburgers and ONLY hamburgers. Apparently I'd have a monopoly as McDonald's & Wendy's aren't competion because they sell other stuff too, according to the FTC. Unbelieveable! Posted by: Lord Westfall at June 20, 2007 12:03 AM

Lord Westfall,

I loved Atlas Shrugged and The Fountainhead. "Who is John Galt?"

I tend to agree with FTC re: the proposed merger. Competition is great for consumers, and if Whole Foods can't take the heat, then get out of the kitchen.

Posted by: Mark Woodward at June 20, 2007 07:42 AM

Mark Woodward,

Whole Foods Market's purchase of Wild Oats doesn't eliminate competition in the marketplace. Quite the opposite is true. We will upgrade and improve the Wild Oats stores that we acquire and this will result in increased competition against conventional supermarket companies. This is exactly what has happened in all of our other retail mergers and there is no reason to believe it won't also happen in this one.

A suggestion: In your answer to the first FAQ you refer to your lengthy answer above. It would be more helpful to summarize that argument in one or two sentences. That way people who skip directly to the FAQ could get the essence of your argument.

Good luck!

Posted by: Bill Meacham at June 20, 2007 11:06 AM

Bill Meacham,

Good suggestion, but I don't want to try to summarize the FTC's argument. We did however add the FAQ section to the home page of the FTC section on our website and index it to make the Q&A easier to follow.

Yeah, quit your whining and watch what you say and you might have had a chance. Sounds to me like the cries of baby who didn't get his way. Wild Oats 4 Eva!!!!!!

Posted by: Boulder Rulez at June 20, 2007 11:08 AM

Boulder Rulez,

We've still got a chance. It's now in the hands of our judicial system.

John,

I appreciate your comments, the story in the WSJ was certainly missing your POV. Considering what the Bush Administration has been doing making GOP appointees in the DOJ, maybe they've done the same in the FTC.

Consider Billionaire Ron Burkle's major holdings in Wild Oats. He's the playboy buddy of Bill Clinton who stands to make millions in this deal if it goes through.

Don't you know a GOP operative at the FTC would gain great pleasure in reducing his fortune?

Posted by: Mark H. in Boulder at June 20, 2007 11:43 AM

Mark H.,

This is an interesting theory that many people have speculated on. However, I don't have any evidence that it is true. Do you?

I am an investor in this company and although I agree with your decisions to buy Wild Oats I disagree with the premium price that we are willing to pay. I would appreciate a reconsideration of the terms of the agreement.

Regarding the recent dispute with the FTC rulings; you will catch more flies with honey than with vinegar.

Get it?

Treat the FTC with respect and work with them to resolve their concerns. The FTC exists for the benefit of the consumer and business alike. Please take more time to consider your position and choose your words and your tone more carefully.

Thank You for your leadership and wise decisions in helping this company prosper like it has in the past few years.

p.s - please reconsider providing guidance since it is not required by the SEC. The fortune telling aspects many times has deliterious effects on my value in the company and the considered need for investors is not healthy nor profitable for the long term.

Posted by: Mark at June 20, 2007 02:19 PM

Mark,

I agree that we are paying a full price for Wild Oats. However, I believe the price is justified by the reasons I gave in my blog.

We have treated the FTC with respect and have tried to work with them. Unfortunately our respect has not been reciprocated by the FTC. I have simply told the truth from our perspective. I do try to choose my words carefully.

Whole Foods Market is moving away from giving quarterly guidance because we no longer wish to play the short-term speculative game with Wall Street. We want to encourage investors who take a long-term view and want to buy and hold our stock over the long-term. In our experience, giving quarterly guidance encourages short-term speculation.

You're right: it is absolutely UNETHICAL for the government to be able to force you to turn over your complete record of internal company e-mails. Think of all the private and personal e-mail conversations between Whole Foods employees and their friends and significant others OUTSIDE OF WHOLE FOODS that have been read by government workers. Think about it: if you've ever exchanged a personal e-mail with a Whole Foods employee, the government now has a record of that e-mail. Absolutely unethical and totally contrary to American principles.

Posted by: Paul at June 20, 2007 03:08 PM

Paul,

Unfortunately many people in our society believe that business is greedy and selfish, while government serves the public good. The interesting philosophical question (existing through the ages) is: "Who guards against the guardians?" While the FTC is reputedly protecting society from the diabolical monopoly machinations of Whole Foods Market, who is protecting Whole Foods Market, and our society, from the FTC? Who is regulating the regulators?

John,

I have been considering a change of careers from the entertainment business to public relations and marketing. Following in the footsteps of my father John McCarty, the former VP and head of advertising and public relations for Frito-Lay, Inc, I will give you my first 'unofficial' and 'unsolicited' two cents worth of public relations advice on one particular aspect of the accusations that have been leveled at you and Whole Foods. (Not to mention that it's for free)

Having recently moved to Boulder I saw in the Daily Camera today an ugly headline which read; 'Eliminating' Wild Oats: Documents reveal Whole Foods CEO's comments on deal

Whoa Nelly!! Slow down there investigative journalist Alicia Wallace and your hotheaded headline writer at the Daily Camera.

This headline and subsequent story smacked of lurid tabloid journalism that is obviously geared toward an easily outraged granola eating, soy milk saturated Boulder readership. Stirring up Boulder's civic pride in a homegrown company like Wild Oats and all that.

To continue with the Daily Camera's rant, "Whole Foods' chief executive officer told his board that buying Wild Oats would allow his grocery chain to "avoid nasty price wars" in Boulder and other cities and "eliminate forever" the threat of a conventional grocer becoming a rival in the natural and organic industry, according to court documents unsealed Tuesday. As well as, Buying Wild Oats "will greatly enhance our comps over the next few years and will avoid nasty price wars in Portland (both Oregon and Maine), Boulder, Nashville and several other cities, which will harm our gross margins and profitability," Mackey said, according to the filing.

Didn't they read your entire blog about these issues, John? Didn't they understand the facts about the even greater competition from Trader Joe's, Wegman's, Safeway, Giant, Balducci's, farmers' markets, and food co-ops? To quote you John, "It is very important to understand that eliminating any one particular competitor such as Wild Oats doesn't mean eliminating all of our competitors, quite the contrary. Whole Foods has more competition today than we have ever had in our entire history! Numerous competitors to Whole Foods exist in every market we do business in, whether Wild Oats is in that market or not."

If the deal goes south then watch out for the 'big boys' buying out the Wild Oats franchise. It is my belief that to allow interlopers like Kroger, Safeway, SuperValu, or Wal-Mart into the "whole foods" and "organic" marketplace would only end up diluting the longtime efforts of Wild Oats, Whole Foods and others to bring the "real deal" to market.

We all know it would just be a matter of time before the reality of "organic" and "whole foods" would be disregarded or at the very least "watered down" to fit these big companies insatiable profit margins. Look at how Frito-Lay tried to market the diarrhea inducing fat-free food additive oil known as Olestra. Their deceptive ads painted images of wheat fields and wild flowers. I'm reminded of a parable from the Bible and the words of Jesus, "The kingdom of Heaven," he said, "is like a man who sowed good seed in his field. But while his men were asleep his enemy came and sowed weeds among the wheat, and went away. When the crop came up and ripened, the weeds appeared as well..."

All I can say, John, is to keep up the good fight, keep your prices down and don't lay off any Wild Oats employees if the acquisition goes through!

Sincerely,
CB "Chris" McCarty

Posted by: CB McCarty at June 20, 2007 03:32 PM

CB McCarty,

A few media people surely read my whole blog, but probably not most of them. It is a pretty long post and they've got deadlines to meet. I long ago learned that most of the media isn't particularly interested in "truth" or "fairness" or "accuracy". They are only interested in the "story". Sensationalism sells. I knew the media would take the FTC complaint and sensationalize it (no doubt the FTC knew this too, which is why they wrote it like they did). My blog is my attempt to put it all into a fuller context so that our stakeholders can better understand what is really going on.

John Hauser (above) makes a good point that courts tend to favor focused point/counter-point testimony. But that shouldn't preclude offering proofs that FTC has fileted an erroneous competitive context from a broad and growing segment. Why would Supermarket News spill so much ink every week about WFMI if it didn't compete in the supermarket industry? FMI must have stats to show the same. Nowadays even Food Lion competes with WFMI.

Take a deep breath and win this thing. Don't get mad, get even.

Posted by: Priscilla Morris at June 20, 2007 04:34 PM

Priscilla Morris,

We'll do the best we can in court. Thanks.

Just wondering out loud here...

Since when does the FTC make their decisions around someone's personal opinion anyway? Whether or not it's John's personal opinion or a bunch of chest thumping, what does it have to do with the actual facts of the proposed transaction? I mean, what if John had stated in the email that he was planning to take over the entire food industry, by buying the Food Network and placing Scott and his secret ingredients on there 24/7 with tons of subliminal messages urgiNg people to shop at WFM. btw...didn't Wegman's win the Food Network's catagory "SUPER" markets???? as in premium, changing the way people shop???hmmm...more competition, but I digress...that fact is, John's personal opinion in an email, regardless of its intention, should be proven by facts if the FTC wishes to use it as part of their argument...otherwise it's just ramblings...

Posted by: Ed at June 20, 2007 04:59 PM

Ed,

Well said. My opinions are just that-opinions. I am often wrong.

John, perhaps there is another way to accomplish this. Apollo buys Wild Oats (I doubt the FTC would object to that), retains all Henry's and Sun Harvest stores, and sells select Wild Oats locations to WFM.

Gene

Posted by: Gene at June 20, 2007 06:46 PM

Gene,

Interesting suggestion. It would have been a different, and possibly better way, to approach the deal. However, I think it is too late to try that strategy at this point.

John,

As a shareholder and customer of Whole Foods, I appreciate you giving us the information you did about Whole Foods and the FTC. I have learned things about your company from your blog that I couldn't have found out on my own. I wish the FTC would do something like that too... or at least if they could make some good sense of their argument. While exposing your argument before the trial is probably not a good idea, nonetheless, the truth needs to be exposed and respected above all else. It's better to know your whole truth from you rather than bits and pieces of information spinned by our wildly gyrating media. I really like the part where you talk about how you suspect the FTC realized they've made a mistake in their calculations by not taking into account your pricing information and then later on they ask for it but it's too late for them!

However, it would really help if you or your lawyers have a few more aces up your sleeves than you let show for now! :-)

Sincerely,
Eugene Y.

Posted by: Eugene Y. at June 21, 2007 02:36 AM

Eugene Y.,

Thanks for your support. It is important to understand that I personally wrote the blog, not our lawyers. I've only exposed my own arguments-not our lawyers' arguments. They seem to be pretty smart folks, so I'm hoping they've got lots of great arguments that I've never considered.

John:

It is ridiculous to assert that this deal is anti-competitive, but, unfortunately, your written comments have greatly increased the possibility that the court will side with the FTC.

I am a long-term shareholder, and I agree that your business strategy is sound without any ill intent. However, as an attorney, I winced when I read the initial letter to the board, and then was fairly much shocked when I read your aforementioned blog. As such, I understand why the FTC flagged this deal for detailed review.

No matter how well reasoned your argument will be in court, all the FTC has to do is hold up a copy of your blog to justify their point. Courts are inherently conservative, and, in most cases, truly try to make the best decision, but you have made it hard now for them.

You had the right idea, but execution was poor.

Anyway, I hope you prevail.

Best of luck, Erik Kulick
Posted by: Erik L. Kulick at June 21, 2007 07:31 AM

Erik L. Lulick,

Which is a more important value: to tell the truth as openly and honestly as one can to the stakeholders of the business or to win a legal battle in court? Obviously I hope to do both. However, I believe telling the truth is the more important virtue.

We love Whole Foods and shop there for most of our groceries. I am also a lawyer and have been through a lot of regulatory proceedings in all kinds of agencies, including the FTC. What you say about transparency, etc., is a formula for catastrophe. Every process has its own customs. When playing bridge, you don't lay your cards face up on the table. The same is true in mergers & acquisitions. Keep your own counsel. Listen to your lawyers. Get a crisis-management PR person and do what she says. Play by the M&A rules as you find them, not as you wish they were.

Transparency makes sense in other areas, but it will kill your proposed transaction.

Posted by: Guy Black at June 21, 2007 09:54 AM

Guy Black,

Thank you for your feedback. However, I consider honesty and transparency to be virtues worth striving for, and will continue to pursue them at Whole Foods Market as much as possible without giving away competitively-sensitive information.

Dear Mr. Mackey:

My guess is you never contributed to George Bush's campaigns. I have no doubt at all that had you done so, the FTC would be leaving you completely alone. In short, even though you hail from Austin (I do remember when Whole Foods was on the West side of Lamar) I doubt you were ever on Karl Rove's buddy list.

Hate to say so, but the FTC (like every other alphabet-soup administrative agency of the gov't) is staffed by the President's hand-picked henchmen, and under this Prez, everything is political.

Clay S. Conrad
Gadfly@law
Posted by: Clay S. Conrad at June 21, 2007 10:36 AM

Clay S. Conrad,

It is true that I haven't contributed anything to President Bush or to the Democrats either for that matter. Hopefully that didn't matter to the FTC.

John,

Apparently WFM must have a monopoly in the 150 or so markets where Wild Oats is not present. Why don't you just raise prices in those markets(since consumers would have no choice but to buy from WFM or starve to death)?

This would result in either huge profit margins or countless hippies dying from starvation...basically a win-win situation either way.

Posted by: Lord Westfall at June 21, 2007 11:34 AM

Lord Westfall,

This is an excellent point and one I tried to make on my blog as well--not the point about huge profit margins or starving hippies but about marketplace pricing constraints. Prices at Whole Foods are not affected by the presence or absence of Wild Oats in the marketplace. Wild Oats doesn't constrain our prices. Our prices are constrained by the overall competitiveness of the marketplace. We are far more constrained by Trader Joe's, Wegman's, Safeway, HEB, and other food retailers than by Wild Oats. The advantages for Whole Foods by eliminating Wild Oats as a competitor has everything to do with increasing our sales, not competing with them for real estate locations, and not having them try to hire our team members away from us. It has absolutely nothing to do with raising prices. If the FTC had asked for our pricing information on a timely basis they would have discovered this truth for themselves.

I was supporter of this merger until the news that you are divesting two of the Wild Oats chains. Why bother with the merger then? Thanks much for ensuring that those chains are sold to remain as a natural food store.

Where I live in So Cal, I have Henry's as my local store. The nearest Whole Foods is 37 miles away, and yes, I have taken trips to shop there. Apparently, So Cal is not "dense" enough to open more Whole Foods...I really think that translates to real estate prices being too high here and lack of large enough space. So I get by with Henry's.

I was really looking forward to seeing those Wild Oats branded products replaced with Whole Foods brands...now there won't be either but some lame Smart and Freaking Final brand. Why not at least sell to Sprouts or some other natural food store? I guess it's all about money....

And your comment about Henry's selling cheaper and "lower quality" merchandise. I "make do" with what they have...who's to say you couldn't upgrade the merchandise and be successful? Yes, I am sure the farmers market stores do not generate as much revenue, BUT....they are also smaller, hence they should also have lower operating costs.

Whole Body, Whole Planet....whole lotta crap with your actions with this. I for one now hope the merger is not successful!

Posted by: Greg at June 22, 2007 10:08 AM

Greg,

The Henry's and Sun Harvest stores are substantially different from Whole Foods Market-different product and quality standards. We would have to substantially change those stores to turn them into Whole Foods Market stores. While you might look forward to our doing this, the great majority of Henry's customers would not appreciate the changes. Just read the angry postings from Sun Harvest customers below as evidence that changing these stores into Whole Foods Markets would be a bad business decision.

Contrary to what you claim in your post-it isn't all about money. It is all about creating value for all of our stakeholders. However, one of our stakeholders is our investors and we absolutely do wish to create as much value for them as possible (while simultaneously creating value for all of other stakeholders as well). One of our big concerns in acquiring Wild Oats was what to do with Henry's and Sun Harvest. We were very fortunate that Apollo solved this problem for us.

You commit several errors of logic in your argument against the FTC. Your repeated references to other mergers always eliminate competition and your previous 18 acquisitions sound a lot like the old adage if everybody else jumped off the bridge... What I mean is, just because other mergers eliminate competition that does not validate your arguement for the merger in the slightest. Whole Foods is a sham. They claim to support local producers and environmental responsibility but in reality they are just another corporate mega house that could care less. They are using the organic and natural labeling to jack up their food prices and market to suckers willing to pay that much. The arguments you make for the merger only served to convince me of one thing. You are willing to sacrifice principle for the almighty dollar and the pursuit of profits. Any ideology you claim to represent has been swallowed by the corporate pimps of soul.

Posted by: random girl at June 22, 2007 02:33 PM

Random girl,

Unfortunately you don't back up your disagreements here with any facts, reasons, evidence, or logic-just your very strong personal opinions. I'm sorry that you believe Whole Foods doesn't support local producers (we certainly do support them) or have environmental responsibility (of course we do) or care (we care very much). I'm also unaware of what principles we have sacrificed as we fulfill our core values. You claim that I make several errors in logic but you fail to substantiate that claim. Sorry you don't like Whole Foods Market. Fortunately you have a choice here and can choose not to shop with us, work with us, sell to us, or invest in us. I'm curious, why do you bother to participate on this blog?

Sorry John I'm with the F.T.C. on this one. I have been a loyal Whole Foods shopper for many years in Austin. But since the new Austin store was built everything has changed. Prices have risen dramatically and excessively. Many middle class people can not afford to shop there anymore. Many of us now rely on Sun Harvest( wild oats) to get healthy food at a reasonable price. We were quite unhappy to find out W.F.M. was buying Wild Oats and thus depriving us of a reasonably priced alternative. The F.T.C. is a hero in this case. I truly hope they will stop this merger. We desperately need the competition here in Austin. Many people simply cannot afford Whole Foods excessive prices any longer. Sun Harvest provides us a vital and less expensive alternative. Cut regular people a little slack here, John. Thanks for allowing me to express my opinion.

Posted by: Bill at June 24, 2007 02:58 AM

Unfortunately Bill you must not have read my blog or seen the press releases. Whole Foods has already signed a deal to sell the Sun Harvest stores to Apollo, a private equity firm. Sorry you don't like Whole Foods. Sun Harvest will still exist independently from Whole Foods so you need not be upset at us about this any longer.

Am I crazy? I worked for Whole Foods at the crossroads store in Austin early in it's and my development. During the years I worked for the company I became health concious and enjoyed a moderately healthy lifestyle. After leaving my employement with the company I quickly became aware that it was my twenty percent discount that permitted me these healthier choices. While I am no fan of the government and it's practices in such matters I am a firm believer in the healthy competition that helps keep prices down. John Mackey decided long ago that it is the rich that most deserve to be healthy (i.e. the ones with the spending money) and has since modeled Whole foods in a matter that clearly shows that. While H.E.B has managed to dominate it's field by driving prices down to make goods accessable to everyone. Whole Foods has made great strides to eliminate competition and drive prices up. I, the average joe on average income have no business buying groceries in a place that I can trust to make good purchacing decisions and offer excellent product knowledge. I am only entitled with my meager salary to sift through the products at a regular grocery store doing the best that I can to compile healthy meals for me and my family. I am a huge fan of the vast majority of Whole Foods philosophies. But if I have to rely on the government to step in and help make these products availabe to me then so be it. With great power comes great responsibilty and a truly nobles man's quest has the common man at it's root.

Posted by: Matt Quintana at June 24, 2007 02:08 PM

Matt Quintana,

I'm happy that you found another place to work besides Whole Foods Market and I hope it is fulfilling for you. Whole Foods Market's first core value is "to sell the highest quality natural and organic foods available". That is exactly what we do. We don't have a core value to sell the cheapest foods available. However, you are quite mistaken that we have designed our stores to sell to only "the rich". We sell the highest quality natural and organic foods available to anyone who wishes to buy them. High education levels-not income-is the best demographic indicator about our customers. Many of our customers do not make a lot of money, but simply choose to spend a higher percentage of their incomes on better quality food. A little knowledge about history might be useful here to put things in perspective. In 1900 Americans spent over 50% of their income on food. Today we spend only 8%. In Europe they spend today about 15% and in Japan about 20%. Americans can collectively well afford to buy much higher quality food and increasingly millions of people are choosing to do exactly that. Whole Foods doesn't strive to be the cheapest. We strive to sell the highest quality. It is impossible to sell the highest quality foods and also to have the lowest prices. If you don't agree with our company's mission, then don't shop with us. However, I don't understand why you feel a need to attack us. What is that all about anyway?

I haven't had a chance to read the long post, but here's my 2 cents on this whole thing. It might sound like a conspiracy theory, but who cares...

The FTC action is a product of traditional supermarkets lobby. These guys are having their lunch eaten by Whole Foods in one end and Wal-Mart on the other end. Since traditional supermarkets can't compete, they resort to "dirty" tricks such as helping trade unions to damage Wal-Mart's reputation and now this. At least the Safeways and Krogers of the world are being smarter this time. They will not let Whole Foods grow too much too fast like they let Wal-Mart do.

Posted by: Chris Gallo at June 24, 2007 02:36 PM

Chris Gallo,

Interesting theory. Any evidence to support it?

Here are three similar posts:

I don't really shop "organic" but my wife and I were both disappointed to see WFM trying to end up owning Sun Harvest (via the Wild Oats purchase) here in Austin. We buy fresh vegetables sometime at Sun Harvest at good prices, much better than HEB for some items.

I think WFM is an overpriced entity ala StarBucks; I cannot see them as cost-effective in any shape or form. However, WFM and StarBucks both manage to stay in business to my neverending amazement and they're not hurting me in doing so.

So buy Wild Oats and quash Sun Harvest in the process; I'll just shop at HEB, CostCo, and WalMart (as a last resort).

I'd rather the FTC spend their time hassling the people that sell extended warranties then refuse to honor them, telemarketers that ignore the "Do Not Call" list, and internet fraud. Going after them, however, would require the FTC to do Real Work; it's much easier to hassle a relatively small player in the food resale business with a CEO that doesn't mind his words well enough.

Posted by: Jeff at June 24, 2007 04:07 PM

I shop at Sun Harvest (Wild Oats inc) to save money because if I go to Whole Paycheck I will have a hard time making my mortgage payment. I mean really.. who sells Guacamole for $8.99/lb when half the ingredients are conventially grown red onions??

Posted by: Luke at June 24, 2007 05:17 PM

well, what you are saying about wild oats not being the primary competitor may be true or not...I don't know. What I do know is that in austin, the wild oats stores price their produce both organic and conventional at a much lower price than whole foods market. Despite whole foods market proclamation that a merger will bring lower prices, I suspect that a merger will raise the prices at the local wild oats. Why? Because in my view, wild oats prices themselves to be the low priced natural foods grocer in produce anyway. Whole foods doesn't think that way. Whole foods market thinks only about maximizing their profit, and the whole foods name will help them maximize the profit at the wild oats stores. I suspect the result of the merger will be to force many wild oats customers to some other low priced grocer. I hope the merger fails.

Posted by: Richard at June 24, 2007 08:50 PM

Jeff, Luke, and Richard,

Good news for you. Whole Foods will be selling Sun Harvest and Henry's to Apollo, a private equity firm. We won't own Sun Harvest so you can continue to shop there. Take care.

There is one exceptionally effective way of striking back at the useless FTC.

Back Ron Pau.l

A public endorsement from John Mackey would help tremendously.

If an arbitrary federal government can do this to an entity like Whole Foods, imagine what they do, daily, to the rest of us.

Ron Paul, if elected, would eliminate the FTC.

Help us help you!

Posted by: Dan Fitzgerald at June 24, 2007 09:06 PM

Dan Fitzgerald,

Even if Ron Paul is elected President he won't be able to eliminate the FTC. That would require both the House and the Senate voting to do that and the President approving it. That's not going to happen. When was the last time our government eliminated a major federal agency?

I was looking forward to the merger and am saddened to see the results of recent events between you and the FTC

.

This needs to be worked out in a civilized manner. Be the bigger man. I learned of your story from nobosh: http://www.nobosh.com/Article/John-Mackey%3A-Whole-Foods-CEO-Versus-the-...

Best of luck.

Posted by: 11secondRule at June 25, 2007 10:28 AM

11secondRule,

Unfortunately we weren't able to work it out with the FTC in a civilized manner, but we did give it our best effort.

Mr Bause,

Profit becomes a bad thing when you sacrifice ideology for it. Profit becomes a bad then when you use it as a club to beat everyone- consumers, competitors, and the government into submission. Several consumers have stated valid concerns that WFM charges higher prices than Wild Oats. Is eating healthy and going green a marketing ploy to attract weathly consumers or is it something WFM truly believes in? If it were something WFM wanted to promote, wouldnt they make it available to everyone? Their prices and store locations speak volumes about their true philosophy- profit is the only thing WFM values.

check out this article for more insight: http://www.slate.com/id/2138176/

Posted by: abigail at June 25, 2007 12:38 PM

Abigail,

I'm sorry you believe that profit is the only thing that Whole Foods values. It isn't true, but you are free to believe what you wish to believe.

Mr. Mackey:

In reference to your pricing data, you state the following:

"Whole Foods Market's prices aren't higher in any markets where Wild Oats doesn't have any stores than in markets where they do. Whole Foods Market's prices don't rise when Wild Oats closes a store and exits a market."

Is this not perhaps a deliberate "limit pricing" strategy by Whole Foods? In other words, the reason why prices aren't any higher in those markets where only Whole Foods operates (compared to markets where both WF and WO operate) is because Whole Foods is trying to DETER ENTRY by Wild Oats. Whole Foods deliberately keep prices low so that Wild Oats can't profitably enter the market.

And in those markets where Wild Oats is forced to exit, Whole Foods doesn't subsequently raise prices b/c it wants to keep Wild Oats out.

That's competition at work! Of course, once Wild Oats no longer exists, Whole Foods will be free to raise prices in all these markets! You can't examine what will happen to prices after Wild Oats is acquired by looking at what happened to prices with Wild Oats competing!

Posted by: Brian Jurvick at June 25, 2007 07:33 PM

Brian,

It has been many years now since Wild Oats has chosen to open a store close to a Whole Foods Market. That strategy never worked very well for them. Whole Foods prices aren't any higher in markets where Wild Oats doesn't compete because we have tons of other competitors in those markets. These other competitors constrain our prices. If our prices are too high, then customers simply go to one of our competitors, such as Trader Joe's or Safeway or one of usually dozens of other competitive alternatives. I list a number of these competitors in my blog and don't see any reason to do it again here.

HURRAY FOR THE FTC!

If the history of business in America and the world teaches us anything, it is the need for sound regulation. Sadly but truly, the human heart is a thieving one all too much of the time. To suggest otherwise is to believe that our streets don't need policing and government itself doesn't require watchdogs. Episodes like that with Enron and countless others over the decades and centuries prove the plunder that business is capable of. To think that we'd be better off without the FTC is to be willfully blind to history. If the commission needs improvement, it can happen over time in our system of government, the same one that skillfully enables capitalism to thrive in the first place.

Tho I rarely shop there, I have no particular beef with the company. I do think, however, that the CEO has made a bit of a fool of himself, and that's always fun to watch.

Maybe when he comes to his senses, he'll settle down and actually make a solid and reasoned case for the merger.

Posted by: John Willis at June 26, 2007 02:16 AM

John Willis,

Does the "thieving human heart" magically change when it goes to work for the government? Are the people who work at the FTC a different type of human being than the people who work in business? Does employment in government change human nature? You seem to believe that business is corrupt but that government is good. The competitive marketplace is capable of far, far faster change than the government is. If you don't like Whole Foods Market, you can shop at dozens, even hundreds of alternatives. That competition forces Whole Foods Market to improve its quality, service, and store experience and constantly work to make its prices more competitive or to see its business migrate away. In contrast to this competitive market place in business, where consumers see continuous innovations and improvements through competition, what competitive choices do we have regarding the FTC? Who are their competitors? If the FTC abuses its power what can you really do about it? Not much. Competition in the marketplace forces business to get better. What forces government regulators like the FTC to get better?

Category: ftc, merger, wildoats

 

12 Comments

Comments

Deborah says ...
TO: John Mackey, CEO Whole Foods Market FROM: Deborah, a Whole Foods customer and occasional shareholder SUBJECT: Meditate on Manners Do you seriously think that your whiney emails and blog posts calling the FTC
06/27/2007 6:41:50 PM CDT
jw says ...
Whatever. I want to know your take on Jonah Goldberg's decision to re-name his (ostensibly) forthcoming book "Liberal Fascism: The Totalitarian Temptation from Hegel to Whole Foods." To my ears, that title seems to be somewhere in the ballpark of trade libel.
06/28/2007 8:12:30 AM CDT
Tom J. says ...
John, The FTC's case does not hold water. I have spent the last 20+ years on the front lines of the retail food industry from processing to wholesale to retailing. WFM a monopoly? What a joke. As soon as the "big boys" realized they were losing significant market share to the natural food industry (granted it took them long enough, asleep at the switch I suppose) they dove right in. You yourself have often pointed out both the positive and negative impacts this has had on both the natural/organic food industry. WFM could aquire 5 Wild Oats size "competitors" and still not have the market penetration that Safeway, Walmart etc. have. I have been a WFM team member for 7 years. During this time I have seen, from the inside, the changes as the company is morphing into the dreaded "corporate giant". Yes some aspects of our core values have become harder to maintain. Yes having to answer to Wall Street has added another variable to corporate decisions. But you know what? The core values of WFM are still the first thing we share with our new team members. Is it about the money? Of course its about the money but its not just about the money. We are doing so much more both on the local and global scale. WFM has used its success to benefit so many different types of "shareholders" other than the NASDAQ ones that I can't even begin. Alright, off the soapbox, I have every confidence that the merger will go through. Any other result just doesn't make sense. Beisdes, I sure would like to see my stock options start moving back up...
06/28/2007 11:33:40 AM CDT
Lord Westfall says ...
Mackey, I want to applaude your candor & transparnet communincation on this and other issues. I've only recently become a WFM shareholder, but I've never been as impressed with the management of any company as I am with WFM. Not just with how you speak clearly & openly (which is rare amongst CEOs), but with EVA & WFM compensation structure. I also applaude WFM for discontinuing short-term guidance that Wall St. "investors" demand. Actions like this contribute to shareholder value (by removing the incentive for management to sacrafice long term profits for qtrly short term gains), though it may paradoxically depress the stock price temporarlly.
06/28/2007 1:31:20 PM CDT
Whitey says ...
In my mind, Mr. Mackey has always been an independent thinker and a competetive doer. This is something that many do not like. I believe that there is more behind the scenes. UNION INFLUENCE Whole Foods strongest market is in California, which is extremely pro union. Ron Buerkle got California pension money and union support to put his huge company together, before selling to Kroger. The Liberal California "block" does not want non-union companies to be successful. They do everything to block Walmart and now I believe Whole Foods. Their timing is perfect, right before a supermarket strike which would be great for Whole Foods. The addition of Wild Oats stores would have given Whole Foods even more presence in this market and advertising economies of scale. Unions and government are partners. They supply each other both money and support and both are good at taking money from workers.
06/28/2007 1:34:48 PM CDT
Paul says ...
John, The FTC is acting foolishly and arrogantly, and I support your fight against them. However, I don't agree with this comment of yours: "Monopolies are impossible in a market economy unless created and maintained by the coercive power of government. Otherwise so-called "monopolies", and even companies with strong competitive advantages, are eventually undermined by imitation and entrepreneurial creativity in the competitive marketplace." John, monopolies do exist and damage the competitive environment. Let's take this semi-hypothetical example: A software company called M-Soft creates a superior operating system and wins control of 99% of the market. (And good for them, because they deserved it.) M-Soft is also one of thousands of companies that write application software--things like word processing programs, spreadsheet programs, kids' educational software, computer games, and so on. Application software is built on top of an operating system; this means that application software can do only as much as the operating system allows it to. With this background, what if M-Soft manipulates the operating system so that there are hidden, better features that only M-Soft application software can use? These features allow M-Soft application software to look better and run much faster. Suppose also, that M-Soft has another weapon. If an application software competitor becomes too successful, M-Soft can change the operating system so that features the competitor relies on suddenly don't work as well. Now think of this situation from the point of view of an application software start-up, A-Soft. You are A-Soft's founder, and you have the most brilliant software idea in years. Unfortunately, you know that once you create your product and start achieving some success, M-Soft can step in, copy you, and leverage its operating system to harm your product and help its product. You won't be able to compete against M-Soft when this happens, and you'll go out of business. Is competition harmed? Yes. Are consumers harmed? Yes, very much so. In reality, A-Soft will even get to build its product. When A-Soft tries to raise money from investors to fund initial product development, investors will balk at putting money into a company destined to fail. The result? A-Soft's innovative product never gets created. Thousands of other companies meet the same fate, and the pace of innovation slows to a crawl for the next 20 years, until changes in technology allow other operating system companies to finally start chipping away at M-Soft's 99% market share. John, what do you think about this example? In this case, the monopoly had nothing to do with the "coercive power of government." Rather, it was the NETWORK EFFECTS inherent in the operating system market that caused the monopoly to develop and be maintained. I will agree with you that monopolies are rare. The FTC should have kept its hands out of the Staples/OfficeDepot and Sirius/XM mergers, too.
06/28/2007 10:28:08 PM CDT
harmony sprout says ...
you wanna know what i think..... people are afraid of change...always have been...always will be!!!! this isn't the first time i've seen a mass freak out about whole foods growth. this is really sad to me because most of the people complaining have NO IDEA ALL OF THE INCREDIBLE THINGS WHOLE FOODS DOES FOR OUR PLANET!!!!!!!!!! i've worked for whole foods for a long time....so i've seen the company grow A LOT! the first week i worked for WFM was right around the time they bought a gourmet grocery chain in michigan...Wooooo boy...were people mad about that....but you know what...THEY GOT OVER IT! no matter where you place a whole foods people are always going to have something to say...i think part of that is our store is a bit overwhelming to customers that haven't been exposed to a grocery store that cares. i've never been happier or more proud to work for a company...whole foods not only inspires me to make life changes...i crave the knowledge it has so i can then turn around and educate as many people as possible. i've learned more about taking care of our planet from working at a GROCERY STORE than i have buy watching the news....at least we can say our company is doing something to change the tragic condition our planet is in!!!!! everyone should be happy about whole foods growth because with new stores, come new team members and new customers....and the way i look at it is...that's more people to inspire and educate so they can turn around with the same passion and educate more and more people. one thing i keep seeing in these comments (that's really frustrating) is people talking crap before they look into what we are about. all they have to do is look under ISSUES or COMPANY on our website and read about the wonderful, amazing, beautiful, loving things we are doing! i know we live in a time where it's easier to listen to other peoples opinions on the radio or t.v. and that it's too time consuming to sit and read for 15 min and be educated the right way....but it's definitely necessary in this situation. john...i'm proud to be working for you and i hope you continue to spread the love in your heart. hopefully some day soon all of these negative comments will turn into praise. thank you for all of your hard work to make our home (and peoples lives) more beautiful. sincerely, harmony sprout
06/29/2007 7:30:17 AM CDT
John Costino says ...
I hope the FTC is OK with this. AT&T Says Buying Dobson for $2.8 Billion Reuters
06/29/2007 9:10:51 PM CDT
Greg says ...
Wow! I am surprised that you actually posted my comment and even more surprised that you personally responded--pretty cool! I am still disappointed that you will be selling Henry's, as I don't think it will be good under Apollo, but have no choice but to take a "wait and see" approach. If you opened more Whole Foods in Southern California, it would not be such as big deal to me, since I would just shop there, but there simply are not enough locations in Orange County. Will that change?
06/30/2007 10:45:32 PM CDT
jody giesler says ...
Upon finding out that the ftc is blocking your merger:I live in rural Pa and make 2 trips a month to buy organic and health food in cleveland,oh.Within a small radius there is a whole foods store,a wild oats,a trader joes,a whole foods co-op,and a mustard seed cafe.I find a wide variety of foods available and appreciate the differences between these stores.However,it is usually the wild oats sale flyer that gets my first attention as they have more items on a regular sale basis(unlike the very few at whole foods.)I do appreciate some of the low fixed daily prices at whole foods,but simply put whole foods is the store for rich people while wild oats is more affordable with its sales.I know that regardless of your current intentions,you will raise prices(and profits,your salary etc.)at wild oats and in a short time close it.Realistically, I am glad the ftc has intervened on the consumers behalf.I have forgone long ago investing in Wall Street when I realized that there are few Ceo's who can be trusted.Profit above the people(both employees and the consumer)and the goal is to line your pockets with cash and retire comfortably.I hope the government holds its ground.
07/01/2007 1:43:01 PM CDT
Chip Joyce says ...
Mr. Mackey, It is morally egregious that the government can even ask a single question about your desire to acquire another company. It is simply not the government's business. Unfortunately, we live in an era of disregard for individual rights to such an extent that the very concept is alien to most everyone. Bill Gates failed miserably when the government went after Microsoft: it was a Chamberlainian moment in American business. To contrast, I hope that you will mount a principled defense for your rights. I have no confidence in our government or culture, however, and do not want you to be a martyr. You have my sincerest support. I greatly admire your achievements, and the beautiful experience of shopping at Whole Foods that you have created. Sincerely yours, Chip Joyce New York City
07/01/2007 10:50:40 PM CDT
Claude Bause says ...
[Chip Joyce]It is morally egregious that the government can even ask a single question about your desire to acquire another company[CJ] Exactly! Why should that memo even matter? Mergers shouldn't be blocked based on private communcations to board members, but should instead be based on, oh I don't know *if they actually violate the law*. It simply makes no sense to hold a company (or person) accountable for their thoughts instead of their actions. [Deborah]Do you seriously think that Whole Foods customers reading your blog as well as news reports of your comments are pleased to know that you want to limit their shopping choices which always results in higher prices for the consumer?[Deb] This merger would greatly increase my shopping choices, just like it would several other people who live by a Woats, but not a WFM. Also your claim that mergers "always" results in higher prices is simply ignorant of economics. I suggest you read up on "Economies of Scale", which describes how mergers often lower prices as a result of lowered opperating cost...thus making WFM more competitive with respect to other grociers. http://en.wikipedia.org/wiki/Economies_of_scale [Deb]You
07/02/2007 2:05:03 PM CDT