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FTC should consider competition from regular supermarkets in review of Whole Foods merger

Robert Doyle [Partner, Doyle, Barlow and Mazard, PLLC]: "The FTC's insistence on pursuing the consummated Whole Foods/Wild Oats transaction is based on a fundamental misunderstanding of present competition between traditional supermarkets and organic food stores. The FTC is seeking to undo Whole Foods' acquisition of rival Wild Oats after losing a 2007 preliminary injunction proceeding which was overturned on appeal. Whole Foods and Wild Oats quickly merged prior to the appellate court's reversal.

Traditional supermarkets and specialty organic food retailers have competed with each other and continue to do so aggressively, particularly now given the deep and growing recession we face and the desire for consumers to balance price and quality, and to seek out the least cost food alternatives. Post acquisition evidence suggests that organic food stores, particularly Whole Foods, have suffered sales and revenue losses to the more traditional supermarkets that now offer a number of new organic food lines. Regardless of what the internal Whole Foods' documents or the company's CEO might have said at the time of its acquisition of Wild Oats, which seem to have formed the basis of the FTC case, the Commission needs to look now at the realities of the marketplace today and judge the state of competition. Though the merged parties may have acknowledged in their past planning and marketing documents the uniqueness of the organic food retail market and shopping experience, present face-to-face competition between Whole Foods and traditional grocery stores speaks volumes of the degree to which these two shopping alternatives now interact in the marketplace. To now argue, as the FTC continues to do, that all organic food stores are a separate market with distinct pricing power, facing no competitive influence from traditional supermarkets, is unrealistic and contrary to everyday observations in the marketplace.

In addition to pursuing a flawed theory, this continued FTC action wastes Commission resources and directs FTC attention away from more productive conduct and merger enforcement actions. Crafting a remedy may be futile since many Wild Oats stores have been fully integrated into the Whole Foods' system, are in disrepair, or have been shuttered and abandoned. After years of litigation, if the Commission were to win, it may be unrealistic to expect a court to resurrect or reconfigure a set of abandoned stores that could be a viable supermarket competitor in the future. Simply said, it is too costly and too late to unscramble the eggs!"

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