Just after MNB went on hiatus about 10 days ago, a federal appeals court ruled against Federal Trade Commission (FTC) efforts to derail the proposed $565 million acquisition by Whole Foods of Wild Oats. And, it seemed, within minutes of that ruling Whole Foods announced that it owned a majority of Wild Oats’s shares and was, indeed, taking over the company.
The FTC objection to the acquisition was that Whole Foods and Wild Oats dominated the natural and organic foods business, and that the combination of their two operations would result in higher prices and less competition. The opposing argument – and the one that, in the end, prevailed – was that these two companies only dominate a natural/organic niche within the much bigger food business, and that, in fact, consumers have plenty of other options because so many other companies are selling organic and natural foods.
Late last week, Whole Foods announced that one of its first post-acquisition steps would be to create a brand new, convenience and value-driven format called Whole Foods Market Express, which appears to be an effort to prove regulators wrong about their assumption that greater marketing power would lead to higher prices. The first Whole Foods Market Express store will be a converted Wild Oats in Boulder, Colorado – actually, the very first full-service Wild Oats store, which opened in 1987. Whole Foods also said it would go ahead with plans to open a store under its own banner in Boulder.
And, as it made that announcement, Whole Foods also said that it would permanently cut prices at 23 Wild Oats locations in Colorado, New Mexico, Kansas, Utah, Idaho and Kansas City, Missouri.
Beyond that, Whole Foods is expected to take as long as two years with the transition process, and it has not been specific about its other plans. Wild Oats already has been closing underperforming stores, and those efforts are expected to continue. Before the acquisition was allowed to go forward, there were reports that Whole Foods would close as many as 30 Wild Oats stores, though those reports were never confirmed by Whole Foods, which only said that it was likely to relocate or close overlapping units.
The FTC objection to the acquisition was that Whole Foods and Wild Oats dominated the natural and organic foods business, and that the combination of their two operations would result in higher prices and less competition. The opposing argument – and the one that, in the end, prevailed – was that these two companies only dominate a natural/organic niche within the much bigger food business, and that, in fact, consumers have plenty of other options because so many other companies are selling organic and natural foods.
Late last week, Whole Foods announced that one of its first post-acquisition steps would be to create a brand new, convenience and value-driven format called Whole Foods Market Express, which appears to be an effort to prove regulators wrong about their assumption that greater marketing power would lead to higher prices. The first Whole Foods Market Express store will be a converted Wild Oats in Boulder, Colorado – actually, the very first full-service Wild Oats store, which opened in 1987. Whole Foods also said it would go ahead with plans to open a store under its own banner in Boulder.
And, as it made that announcement, Whole Foods also said that it would permanently cut prices at 23 Wild Oats locations in Colorado, New Mexico, Kansas, Utah, Idaho and Kansas City, Missouri.
Beyond that, Whole Foods is expected to take as long as two years with the transition process, and it has not been specific about its other plans. Wild Oats already has been closing underperforming stores, and those efforts are expected to continue. Before the acquisition was allowed to go forward, there were reports that Whole Foods would close as many as 30 Wild Oats stores, though those reports were never confirmed by Whole Foods, which only said that it was likely to relocate or close overlapping units.
- KC's View:
-
It is interesting to note that the new Whole Foods format sounds curiously similar to the Fresh & Easy Neighborhood Market concept that UK-based Tesco is scheduled to start rolling out in Southern California, Arizona and Nevada later this year ... and which it probably has started scouting locations for in a lot of other areas of the country. Like, say, Austin, Texas (where Whole Foods is based). Or Colorado (which has always been Wild Oats territory).
In some ways this move probably was inevitable. And yet, few of us saw it coming, at least not in quite this way. I certainly didn’t.
I’ve been arguing for weeks that the acquisition of Wild Oats didn’t necessarily mean that Whole Foods was going to start boosting prices, and that it simply didn’t make sense for the company already known as ‘Whole Paycheck” to boost prices even more…especially when companies such as Wal-Mart, Kroger and Safeway were looking to compete more effectively in this category, and retailers such as Trader Joe’s were offering alternative shopping experiences.
But I just thought Whole Foods would try to be seen as more mainstream without violating its basic offering, and would lower prices where it could (and wasn’t sure, quite frankly, what its debt situation would require in terms of increased margins). I never envisioned the Whole Foods Market Express concept.
Now, none of us know how this new format will play out. Not even Whole Foods CEO John Mackey knows, though I suspect he’s feeling pretty confident these days. (Wonder if he’ll get back on the message boards using an alias to hype the new Whole Foods-Wild Oats combination, and especially this new format?)
The real lesson here, I think, is that Whole Foods management is making it up as they go along, and are probably willing to try to do anything to cement their dominance of the natural/organic category – but they’re also willing to try unconventional solutions that will catch at least some of us by surprise.
Good for them.
