Frequently Asked Questions
Why does the FTC believe this merger is anti-competitive? The FTC’s press release states their reasoning and a copy of that release is found in this section this section of my blog post. What about the competition in the supermarket industry as a whole is the FTC failing to recognize here? The FTC is failing to recognize how quickly the competition in the supermarket industry is evolving. Whole Foods doesn't merely compete with other natural foods supermarket companies such as Wild Oats, but also with natural foods discount chain Trader Joe's, upscale perishable supermarkets such as Wegman's and Central Market, new supermarket created natural foods stores such as Green Wise by Publix and Sunflower by SuperValu, over 200 food co-ops around the United States, remodeled upscale supermarket stores such as Safeway's Lifestyle stores and HEB's Platinum stores, Sprouts, thousands of local farmers' markets, and thousands and thousands of supermarkets selling natural and organic foods, and most recently Wal-Mart. Soon Tesco, one of the largest retailers in the world will be opening hundreds of stores in western United States-stores which are rumored will compete with Trader Joe's and Whole Foods. Indeed, Whole Foods faces more competition today than ever before in our entire history! The FTC needs to get out of Washington D.C. once in a while and look around at what is happening out in the real marketplace. Actually if they'll just get out of their offices in D.C. and go look at Wegman's, Trader Joe's, and Safeway Lifestyle stores they'll see how dynamic and rapidly evolving the food retailing market is today. What about this quote from you that the FTC released in its complaint? "OATS remains a relevant competitor. By buying them we 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. OATS may not be able to defeat us but they can still hurt us. Furthermore 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." This quote appeared in an e-mail that we sent to our Board of Directors prior to the Board Meeting to vote on whether to approve the acquisition of Wild Oats. Is Wild Oats a relevant competitor of Whole Foods? Of course they are. We have never claimed that we don't compete with Wild Oats. We do. Please refer back to my explanations about eliminating Wild Oats as a competitor in the first part of my blog. Part of the reason to do almost any merger is to eliminate a competitor. This is so self-evident to me that I really can't understand why the FTC wants to make a big deal out of it. If the FTC is opposed to the elimination of all competition then I don't understand why they approve any mergers? Is this the only reason why Whole Foods wants to buy Wild Oats? No it isn't. There are many reasons. See my detailed explanation of our reasons to acquire Wild Oats in the first section of this blog. The really relevant question is whether or not buying Wild Oats severely limits competition with Whole Foods in the larger marketplace. It clearly does not limit overall competition since we have more competition than ever before. Will we "avoid nasty price wars in Portland, Boulder, Nashville, and several other cities which will harm our gross margins and profitability"? Of course we want to avoid price wars with Wild Oats (and everyone else for that matter if it were possible). However, it is important to realize that in our 14 year history of competing directly with each other that there has never been a price war between Wild Oats and Whole Foods Market. The references to Portland, Boulder, and Nashville were references to stores in development by both companies that will be competing directly with each other. Price wars are always a possibility that must be considered in developing a company's strategy. Any price wars between Whole Foods Market and Wild Oats would be a much more terrible thing for Wild Oats than Whole Foods due to their much smaller size, comparatively lack of financial resources, lower cash flow to sustain losses, and their overall history of losing money ($97 million of losses over their 20 year history). Since neither company wants a price war it is highly probable that one won't occur. Does Whole Foods want to prevent Kroger, Safeway, SuperValu, or someone else from acquiring Wild Oats? Of course we do. I discussed this at some length earlier in this blog posting. Will customers be harmed by this merger? Every retail merger that Whole Foods has ever undertaken has benefited customers. How? By significantly improving the operations of the acquired companies, raising customer service levels, improving the quality of perishables and other products sold, and lowering overall prices. The proof of this claim is how well the acquired stores have flourished under our management with sales and sales per sq. ft. rapidly and steadily increasing for many years into the future. Customers vote with their pocketbooks about whether they approve of a merger of not. They have always approved of our retail mergers with natural foods companies as evidenced by the large increases in sales all these acquired stores experienced. That doesn't mean, of course, that every customer is happy when Whole Foods buys the store where they have been shopping. A minority of customers don't like the changes and innovations that Whole Foods implements in the acquired stores. However, the great majority of customers are excited when their store is bought by Whole Foods because of the steady, continuous improvement in the physical plant, store operations, quality of products, and customer service that takes place at the store. The great majority of Wild Oats customers will really like the improvements that Whole Foods implements at Wild Oats stores and they will let us know by increasing the frequency of their shopping and the amount they spend when they do shop. Will Wild Oats employees benefit from this merger? The great majority of Wild Oats team members will benefit from this merger. We have already guaranteed that no store team members of any of the Wild Oats stores will by laid off as a result of this merger or lose their jobs. As Whole Foods implements its empowerment and benefits programs at Wild Oats stores team members will see their pay and benefits increase and their enjoyment of their work going significantly upward. Again, not every Wild Oats team member will be happy with the deal. Some will prefer the "old ways" better, but the great majority will be better off. What about the team members at their corporate offices? We will offer as many opportunities to these corporate employees as we possibly can, but we intend to eliminate the redundant jobs. Whole Foods corporate offices are in Austin, while Wild Oats are in Boulder. Many of these jobs are redundant and unnecessary. Some positions are necessary, but will be transferred to Austin. It is important to realize that Whole Foods has created more than 44,000 jobs in our history and with our rapid growth will create many more than this in the future. How are Whole Foods Market's product suppliers reacting to the possible merger? Many of these product suppliers have grown, expanding the group of grocers to which they sell, as Whole Foods Market has grown. Because Whole Foods Market is not nearly as large as many of our competitors, we are not in a position to limit the marketplace of our vendors. More importantly, we have a long history of integrity in all business dealings. Our vendor partners are our allies in serving our shoppers. We treat our product suppliers with respect, fairness, and integrity at all times — and we expect the same in return. Will vendors be disadvantaged in negotiating with Whole Foods as a result of this merger? It is important to realize that Wild Oats will not significantly increase Whole Foods size or growth. After we sell off the farmers' market stores and close some of the redundant stores, we expect only about $700 million in sales from Wild Oats stores to remain. This represents approximately 11% of Whole Foods' current sales and only about 10% of the combined company. It also represents only about 9 months of internal growth by Whole Foods Market at our current rate. Whole Foods is already a relatively large company that enjoys good economies of scale when negotiating with its vendors. This merger will not change this fact nor will it significantly increase Whole Foods Market's overall size or our own negotiating leverage beyond what it already is. What is Whole Foods Market's strategy for fighting the FTC's attempt to block the merger? Whole Foods Market intends to fight the FTC's contention that this merger would result in an anticompetitive effect—in court. This blog posting lays out in some detail our perspective on this merger in an open, candid, and transparent way. It is our intention to be as open and transparent as possible during this entire process going so our customers, team members, investors, vendors, and the media understand the process. How long are you willing to fight this fight? The deadline under the filed merger agreement is August 31, 2007; on that date, both parties have the right to terminate if it is not completed. We have asked the court for an expedited schedule to seek a resolution by that date. In the Company's history, has Whole Foods Market had more success with acquisitions than with organic growth? Throughout the history of Whole Foods Market, we have successfully grown through both acquisitions and organic growth. Currently about 25% of our stores came from acquisitions and 75% we have opened ourselves. It is important to note that, even when the natural and organic foods industry was a very small niche industry many years ago, the FTC never challenged a previous Whole Foods Market merger, including the merger with Fresh Fields in 1996. Given the size of Whole Foods Market at that time this was an even larger merger in scope. Why has the media compared this deal with the failed Staples-Office Depot merger from a decade ago? Is this similar? Not at all! While the media, and possibly the FTC, have made this comparison, we do not believe this is accurate. Please refer to page 12 of the document we posted on our blog called "The Proposed Acquisition of Wild Oats by Whole Foods Market Will Not Substantially Lessen Competition in Any Relevant Market, May 30th 2007. The URL is listed below: http://www.wholefoodsmarket.com/ftchearingupdates/presentation5-30_07.pdf What is Whole Foods Market's continued growth plan if this merger doesn't go through? We are hopeful that the merger will proceed; however, we have a record number of stores in development in the pipeline at this time (over 90), and we expect to execute our goal to open more stores in 2007 than we ever have in our history as a company. How important is this merger to Whole Foods Market? This would be our largest acquisition to date in terms of the number of stores acquired. However, as a percentage of the combined company's sales (approximately 10%) that Wild Oats stores will represent after divestitures and closures, it is far smaller than our Fresh Fields merger in 1996 which represented about 33% of the combined company. By combining the strengths of Whole Foods Market and Wild Oats, we see an opportunity to deliver a wider selection and a richer, more authentic experience to our shoppers at both companies. What is Whole Foods Market seeking out of this merger? I provide a very detailed answer to this question in this section of my blog post. If Wild Oats is not your primary competitor, which companies are? It depends upon the market because competition varies around the United States. In many markets our primary competitor is Trader Joe's. In the Mid-Atlantic Region our toughest competition is from Wegman's. In Texas it is HEB's Central Market, while in California it is Trader Joe's, Safeway, and Bristol Farms (owned by SuperValu), in Boston it is Trader Joe's, and in New York it is Fairway and Trader Joe's. There is actually no market in the entire United States where Whole Foods considers Wild Oats its primary competitor, except possibly in Boulder, Colorado, and even there we price more competitively against Safeway's Lifestyle store than we do Wild Oats. Recently we have begun to feel competitive pressure from Wal-Mart, especially in Plano, Texas where they opened a Super Center store with a large selection of natural and organic products close to our own store. |