Custom Clothes: Whole Foods Competitors

Whole Foods Competitors

In a 2-1 decision, the DC Circuit issued this morning an opinion reversing the lower court's denial of a preliminary injunction sought by the Federal Trade Commission to block the merger of Whole Foods and Wild Oats. As no injunction was granted pending appeal, the merger has moved forward with substantial operational changes having already been made. The decision means that the FTC should now have the opportunity to pursue an eventual Section 7 case in full.The court issued three opinions this morning. Each of those opinions agrees that the central issue in the case—indeed perhaps the only issue in the case—is market definition. The Federal Trade Commission contended that a separate market existed called premium, natural, and organic supermarkets ("PNOS") and that Whole Foods and Wild Oats dominated those markets. The merging parties contended of course that the real market was grocery stores or perhaps even more and that they competed in those markets with national grocery chains and behemoths like Wal-Mart and Target.To situate the case quickly, consider two slides from my class discussion.At the time that the merger was announced, Whole Foods and Wild Oats had a total of roughly 300 stores, but all of those stores did not compete directly. Indeed, once we adjusted for size and geography, it appeared that there were 19 stores in which Whole Foods and Wild Oats engaged in head-to-head competition.That slides sets out four different market patterns. In segment I cases, only "ordinary" grocery stores compete. In segments II and III, either Whole Foods or Wild Oats competes with one or more ordinary grocers, but not with each other. Finally, in segment IV, Wild Oats and Whole Foods compete with each other and also with ordinary grocers. This list is not absolutely complete obviously, as we could have markets without ordinary grocers at all (high-end enclaves presumably).