SN Year in Review 2007: Merger Reveals CEO's Alter Ego

MARK HAMSTRA

ARE WHOLE FOODS and Wild Oats in a class by themselves?

That's what the Federal Trade Commission argued this year — unsuccessfully, it would eventually turn out — as the two chains sought to merge.

“If Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality and fewer choices for consumers,” the FTC said in June after considering the antitrust implications of the deal.

The two chains are “premium natural and organic” stores that can be defined as a separate class of retailing from traditional supermarkets, the FTC argued. Therefore, it said, acquiring Wild Oats would allow Whole Foods to raise its prices — a key consideration in determining whether to allow a merger.

That argument seemed counterintuitive, several experts told SN, as traditional chains have been adding more organic and natural offerings and expanding their perishables departments.

The clash between Whole Foods and the FTC veered into the bizarre, however, when John Mackey, the founder, chairman and chief executive officer of Whole Foods, posted a message on his company's blog lambasting the FTC for its “arrogant” manner during the investigation. Not long afterward, the FTC revealed that Mackey had for years posted to Whole Foods' stock message board on Yahoo, using the name “rahodeb” to hide his identity. In many of the messages, he had slammed Wild Oats and praised Whole Foods, although he appeared to have stopped posting before the merger was announced.

Eventually Mackey prevailed in getting the deal done, however, buying Wild Oats for about $700 million and selling 35 Henry's Farmers Market and Sun Harvest stores to Smart & Final.

Whole Foods said it would convert all the Wild Oats stores to the Whole Foods banner — with the exception of one store in Wild Oats' headquarters city of Boulder, Colo., that will be converted back to its original Alfalfa's nameplate.

The smaller Wild Oats stores could give Whole Foods a competitive advantage, analysts said, as Whole Foods applies its vaunted merchandising savvy to the more compact sites.

“We had always thought that one of Wild Oats' competitive advantages was the smaller footprint that they had, which allowed them to be a little more nimble when it came to real estate strategy,” said Michael Krestell, an analyst with M Partners, Toronto.