Is Whole Foods Taking Over?

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In a high-profile exchange with Michael Pollan last summer, Whole Foods Market CEO and founder John Mackey took an avuncular approach to farmers' markets that might take business from his company.

"Whole Foods Market is committed to supporting local farmers' markets across the United States (and also in Canada and the U.K.)," he wrote.

Elsewhere, the executive has displayed a zeal to crush competition that might make his counterparts at Microsoft blush. Last spring, Mackey sent a blunt email to the Whole Foods board, explaining his intention to buy Wild Oats -- Whole Foods' only direct nationwide competitor -- for a price well above what many analysts thought Wild Oats was worth.

By taking over Wild Oats, he argued, Whole Foods would not merely be snapping up 110 fully functioning natural-foods stores across the nation. Grabbing Wild Oats would also buy Whole Foods the power to "avoid nasty price wars" in several markets, as well as "eliminate forever" the threat of a major nationwide competitor in the natural-foods space.

The Federal Trade Commission somehow got its paws on Mackey's provocative email, and is using it as the basis for a rare foray into enforcing antitrust law in the food industry. In early June, the commission sued to block Whole Foods' $565 million bid for Wild Oats, claiming the combined entity would act as a monopoly in many regional markets.

In a brief [PDF] released last week, the FTC subtly revealed that Mackey had made other, even more provocative statements about Wild Oats before the deal went down this spring. It turns out that Mackey, the CEO of a company valued at some $5.6 billion, had for six years been secretly posting on a popular internet message board, clashing with anyone who dared criticize Whole Foods or praise Wild Oats. Using the handle "Rahodeb" -- his wife's name scrambled -- Mackey regularly crossed swords with people calling themselves things like "Hog152" and "Dadajuiceboy."

As far back as 2002, "Rahodeb" was openly pining for Wild Oats' elimination, declaring that, "With the demise of Wild Oats, Whole Foods Market has no national competitors in their niche. This will accelerate their growth." By spring 2006, Mackey's alter ego could taste blood. "The end game is now under way" for Wild Oats, Rahodeb insisted: "Whole Foods is systematically destroying their viability as a business -- market by market, city by city."

Admittedly, it's hard to look away from the spectacle of a major CEO's descent into anonymous chat-room shilling. But what really interests me here is the FTC's bold decision to challenge a merger within the food industry -- after decades of standing idly by as fewer and fewer companies grabbed hold of more and more of the market.

Mackey vs. Mackey

The FTC's case against the merger can be summed up as follows: A combined Whole Foods/Wild Oats would be the only nationwide supermarket specializing in premium-priced organic groceries, with an emphasis on perishable goods (fresh produce, meat, and dairy products).

The commission acknowledges that conventional supermarkets are rushing into organics, but counters that these chains cater to a group of shoppers distinct from the Whole Foods/Wild Oats set. Core "natural foods" shoppers, the FTC argues, don't venture into Wal-Mart seeking organic milk or broccoli. They flock to Whole Foods for the experience, and they're willing to pay extra for it. Thus if Whole Foods "devoured" (the FTC's word) its only national competitor, the combined entity would be free to gouge natural-foods shoppers without fear of competition.

Mackey has openly ridiculed this claim on his blog on the Whole Foods website. In an extraordinary 14,000-word treatise (very few CEOs would comment so voluminously on a pending antitrust case), Mackey claims that assimilating Wild Oats would actually do very little to reduce the competition his company faces.