Whole Foods/Wild Oats merger

[polkaface]

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I assume Whole Foods and Wild Oats are the 2 biggest players in the "natural foods" market? Who are their competitors? Is TJ's considered one? Why is Walmart or another huge national grocer, not in the natural foods space, an issue here?

-Al

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Oh ok, I see:

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The agency is concerned that the combined company will control too much of the U.S. natural-foods market, Whole Foods said. The FTC should instead consider the merger's effect on the overall supermarket industry as Safeway Inc., Wal-Mart Stores Inc. and other grocers expand their natural and organic departments, Whole Foods said.

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From this latest Bloomberg update.

Is that a fair stance from Whole Foods?

-Al

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I think so. If there is an opportunity for excess returns from selling organic foods, the other grocers are going to jump more into the fray and offer more product.

[polkaface]

A group in my Grad School class had to do a presentation on Wild Oats, which changed to a presentation on Whole Foods since the proposed merger was announced 2 days after the assignment was announced.

During the presenation there was some figure about only 50% of natural food product is sold in an "organic" store, with another 30% being sold in mass market stores. And the mass market stores are growing their (organic food) sales at a faster clip than are the organic only stores.

[Kneel B4 Zod]

I don't know the specifics of this of this merger, as I've been out of the industry for a while. but I will just add that Whole Foods differs from traditional grocers in the amount of leeway they give to store managers/regional managers to run their stores the way they want. it's very decentralized, so much that any merger would have a smaller impact on prices than it would on a traditional supermarket merger.

as an aside, I think Whole Foods does it the right way. the idea that buying and merchandising decisions for Boston stores should be done in Boise is...you know.

a buddy of mine covers Whole Foods and has a lot (in all senses) invested in them. we talk about them a lot...will be interested to hear his thoughts.

[Boris]

Econ - "i don't want to derail this thread, but your and boris's argument is based on a perfectly competitive output market. "

You're not derailing the thread at all.

My argument is that there are A) close substitutes for organic food (namely non-organic food); and B) there is plenty of competition in the retail market for organic food from independent health food stores and established super markets. Furthermore, if the new merged entity starts making money hand over fist from monopoly prices, Walmart, Safeway 99 Ranch, etc... are more than capable of offering a competitive product. Therefore the market is competitive. Some stores may have prices above marginal cost but this only because of a sweet location. These stores will continue to earn monopoly rents regardless of whether or not the merger goes through. I have a hard buying the argument that the demand curve for organic food is not highly elastic, except in a few localized instances.

[Aloysius]

Question - since I am one of those "wouldn't be caught dead in Walmart" (well alot of this is based on the fact I couldn't tell you where the nearest Walmart to me is) I have no sense of this: do Walmart or Safeway currently have natural food products competitive with Whole Foods, Wild Oats, or I guess TJ's?

Also from the most recent Bloomberg update:

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``If Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality, and fewer choices for consumers,'' Jeffrey Schmidt, director of the FTC's Bureau of Competition, said in a statement. ``That is a deal consumers should not be required to swallow.''

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At first blush this strikes me as bordering on retarded considering the current price points. Then again I don't really know this market at all and what consumers will bear for their organic product...

-Al

[MaxPower]

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Meaning a merger of Whole Foods and Wild Oats could actually reduce prices for consumers, which is a good thing.

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Hahahahaha. No.

The only thing that would lower prices at Whole Foods would be if Walmart started carrying organic. Of course, then all the Whole Foods customers would have to start shopping at Walmart at 2 AM is disguise, because we all know that no loyal Whole Foods customer would be caught dead shopping at Walmart.

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Walmart is carrying organic food.

[Kneel B4 Zod]

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have no sense of this: do Walmart or Safeway currently have natural food products competitive with Whole Foods, Wild Oats, or I guess TJ's?

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TJ's really competes on a different level than Whole Foods. They are much more about convenience and novelty than about natural/organic/fresh.

Wal-Mart and traditional grocers are carrying organics, yes. what they are missing - and I don't think is just marketing speak - is the entire experience you get at Whole Foods. It's an entirely betetr experience than what you get as Safeway, even if the products you get might be similar. I hate going to traditional grocers, but feel like I'm doing my body good when I shop at Whole Foods. the stores are set-up in a way that is very pleasing to the eye, and you could and I do) stare at the cheese, seafood, meat, and prepared food sections for a long time just b/c they do such a do a great job of sourcing the best products and presenting them well. As Stop & Shop, I can't wait to leave.

I think it's a classic case of the whole being greater than the sum of parts. Whole Foods pays their employees well, and it shows. They give their store managers great merchandising and buying power, and it shows. They are dedicated to stocking to only certain types of products, and it shows. They are determined to make going to the grocery store a positive experience, and it is. Competitors can pick off organic foods and try to compete, but it's kind of like the various US airline attempts who tried to create low cost brands to compete with Southwest (Song, Ted); you can't just copy one aspect of a competitive business and expect to replicate all of their success.

[Aloysius]

KBZ - cool, thanks. Sounds like that will be the basis of FTC's argument?

Anyway, considering what I'm assuming are higher margins for organic products, and that it's a growing market, think it's reasonable to assume that Safeway / Walmart / whomever will start building out their organic selection and in time, end up being in Whole Foods' market and competing with them...

-Al

[polkaface]

Yes, traditional grocers are growing their sales of organic foods at a faster clip (%-wise) than are the Whole Foods of the world.

[bobman0330]

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have no sense of this: do Walmart or Safeway currently have natural food products competitive with Whole Foods, Wild Oats, or I guess TJ's?

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TJ's really competes on a different level than Whole Foods. They are much more about convenience and novelty than about natural/organic/fresh.

Wal-Mart and traditional grocers are carrying organics, yes. what they are missing - and I don't think is just marketing speak - is the entire experience you get at Whole Foods. It's an entirely betetr experience than what you get as Safeway, even if the products you get might be similar. I hate going to traditional grocers, but feel like I'm doing my body good when I shop at Whole Foods. the stores are set-up in a way that is very pleasing to the eye, and you could and I do) stare at the cheese, seafood, meat, and prepared food sections for a long time just b/c they do such a do a great job of sourcing the best products and presenting them well. As Stop & Shop, I can't wait to leave.

I think it's a classic case of the whole being greater than the sum of parts. Whole Foods pays their employees well, and it shows. They give their store managers great merchandising and buying power, and it shows. They are dedicated to stocking to only certain types of products, and it shows. They are determined to make going to the grocery store a positive experience, and it is. Competitors can pick off organic foods and try to compete, but it's kind of like the various US airline attempts who tried to create low cost brands to compete with Southwest (Song, Ted); you can't just copy one aspect of a competitive business and expect to replicate all of their success.

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I disagree in that I [censored] hate Whole Foods, but I do agree that traditional groceries are not succeeding at horning in on the Whole Foods market. In DC I shop at Harris Teeter, which was, at one point, a nice, middle-market store with good produce, wide variety, etc. In the last year or so, they've definitely been moving downmarket, towards being more like Safeway or Shoppers' Food Warehouse. My purely speculative theory is that their basically losing their pickier customers to WF.

So, in conclusion, I think there's definitely a real market of people who will shop at Whole Foods and not at regular grocery stores, and that's true even if specific items of organic food are purchased by regular grocery customers.