Exec: Store compelled to speak out against FTC

Whole Foods COO says risk worth it

Joyzelle Davis, Rocky Mountain News

Saturday, June 23, 2007

Whole Foods' decision to publicly counterattack federal regulators might spoil chances for a settlement, but it was a risk the nation's largest natural foods store had to take, the company's co-president said Friday.

"The (Federal Trade Commission) was selectively pulling things out of context to show a case that's not there," said Walter Robb, Whole Foods' co-president and chief operating officer. "You have to tell your own side."

If those statements went unexplained, it could "undermine customers' trust in our company," he said.

According to documents released by the FTC on Tuesday, Whole Foods CEO John Mackey told his board in an e-mail that buying Wild Oats would help the company avoid "nasty price wars" in several cities.

The proposed $670 million deal would also "eliminate forever" the possibility that a conventional grocer like Kroger could buy Wild Oats and use it as a springboard to launch a competing natural foods store.

Mackey responded within hours with a 14,000-word posting on the company's Web site that accused regulators of "failing to do their homework" and deciding to oppose the deal before they even began their investigation.

Some analysts criticized Mackey's outspoken approach, saying the arguments should have been saved for the courtroom. Morgan Stanley analyst Mark Wiltamuth said in a client note issued this week that the blog deepens the divide with regulators and may hurt future deals.

"Is it good for Whole Foods' stock price? We think not," Wiltamuth wrote.

The FTC will ask a Washington, D.C., judge at a July 31 hearing for a court order blocking the deal. Legal experts say the judge's ruling will effectively decide the case because the court grants or denies the injunction based on the plaintiff's likelihood of prevailing at trial.

The FTC argues that if Whole Foods were to buy its next biggest rival, premium natural and organic foods shoppers would end up paying higher prices.

The dispute centers on defining Whole Foods' competition. Regulators say Whole Foods and Wild Oats are leading players in natural and organic food. Whole Foods argues that the companies are a small part of a much larger industry because big grocery chains such as Kroger, and even Wal-Mart, also sell organic food.

"They're saying it's about competition. I've been in the business 30 years and it's never been more competitive," Robb said. "I don't know what world they are living in."

The merger agreement with Wild Oats has a deadline of Aug. 31, and the judge has indicated that he'll rule before then.

"I feel better about our case in the court than before the agency," Robb said.

Robb was in Wild Oats' hometown of Boulder to deliver the closing speech at the Organic Summit, a meeting of about 250 industry executives and producers. The summit focused on the future of organic and natural foods as sales more than doubled in the past five years to reach $56 billion in 2006.

As the industry has grown, critics have voiced concerns that it has relaxed standards to meet increasing demand.

Robb, who started out running a natural foods store in Northern California in the 1970s, acknowledged that much of that finger pointing has been at Whole Foods. The Austin, Texas-based company has 195 stores and last year posted sales of $5.6 billion.

He urged the audience to stop engaging in a "circular firing squad" mentality and "reclaim our idealism" about the positive aspects of organic food.

"We've got to have a big tent. It's going to take all sizes to make this happen," he said.

davisj@RockyMountainNews.com or 303-954-2514