Tuesday, March 10, 2009

Finally

Premium, Natural, and Organic Supermarket shoppers, rejoice! Whole Foods has settled with the FTC. According to the FTC press release, "The consent order will restore competition in 17 geographic markets that were impacted by the acquisition. In addition to requiring the transfer or divestiture of all rights to 32 stores, Whole Foods also is required to divest related Wild Oats intellectual property, including unrestricted rights to the “Wild Oats” brand, which retains significant name recognition and loyalty among consumers." FTC Chairman Jon Leibowitz says, "As a result of this settlement, American consumers will see more choices and lower prices for organic foods." Sounds good to me, but is it true?

The settlement requires Whole Foods to divest itself of thirty-two stores, in seventeen geographic markets (In 2007, when the merger agreement was entered into, Whole Foods acquired seventy-four Wild Oats stores). Nineteen of these stores are already closed. Selling closed stores will not likely prove to be easy, and unlike the competition created by a Wild Oats-esque competitor, Whole Foods need not sell the designated stores to a single buyer. This means, the stores could potentially be sold to smaller-scale operations, which may not have the ability to effectively compete with the efficiencies of an operation the size of Whole Foods. A similar problem is seen with the IP rights. Whole Foods must sell its interest in the Wild Oats name, but if the buyer is not at least as big as Wild Oats, the value of the name could diminish greatly.

The settlement also means the Supreme Court won't have the chance to review the D.C. Circuit's opinion, issued last summer, which some have criticized as "a step backward" as it "runs counter to the strong trend in recent Supreme Court jurisprudence for economic rigor and clear standards to guide businesses and the agencies." Will this consent order truly "restore competition"? Only time will tell. All I can say for sure is that settlements are always a compromise.

5 comments:

Alison M. Kilmartin said...

YAY! There is a Whole Foods in Pittsburgh and I intend to shop there on occasion.

David Hutchinson said...

This is an interesting settlement, insorfar as it seems to hold out the possibility, as you suggest, that WholeFoods will sell to a bunch of individual buyers, who will then be strangled in the craddle by the selfsame WholeFoods.

But there may be something about the market for organic food that makes this fate unlikely.

I note that the old Wildoats in Princeton is called something else now, and apparently does well against the nearby WholeFoods. It is helped in this regard by a cohort of loyal customers who tend to view WholeFoods as the Starbucks of the organic market.

Robert Bork, in one of his lighter moments, and reflecting on his rough treatment before the Senate Judiciary Committee, said that he should have expected it: he recalled that during the Spanish Inquisition it was the heretics, and not the infidels, who were burned at the stake. Bork was a judge with the wrong views. And WholeFoods has similarly transgressed against its own rustic kind by going prime time.

I think that that means there will always be room for the small organic food shop. The small part is for many consumers of organic products a necessary condition of authenticity, and a sufficient condition for their business. For some of these, the self-denial of WholeFoods' plenty and patronage of an understocked and overpriced David is an edifying ascetic statement; not at all unlike the choice to eat organic food in the first place.

And congratulations, Kelly Joy Bozanic. I read where you are the ABC's Distinguished Student for the Third Circuit. You are a good egg. Though I confess it seems ironic that someone with so sunny a disposition (I imagine they gave you the name Joy after having had a chance to observe you for some time after birth) is so taken with the dark spectre of Bankruptcy Law.

But then you say you like negative correlations.

Kelly J. Bozanic said...

Thanks, Dave.

I think your point about Whole Foods being the Starbucks of the organic market is very true. Only hindsight will reveal the ultimate impact the combination will have on the PNOS market (a curious market definition when you think about it). In the quest for truth, economists must settle on the veracity of their assumptions. What ultimately transpires is another story.

As for the so-called "dark spectre of Bankruptcy Law," I don't know what you mean! As I see it, bankruptcy is all about marrying social policy with economic necessity. Capitalism needs to have faith in the strength of contracts, yet humanity needs forgiveness. Judge Stewart, a Bankruptcy Judge in the Western District of Missouri, said it best:

"The fundamental and paramount importance of bankruptcy laws can quickly be grasped if one simply contemplates a system in which each citizen was permitted only one economic life and in which any single economic failure would make one a debtor for life, or nearly so, regardless of the potential future benefits to himself and his society which his industry and innovative genius might otherwise have created. Such a legal system would frustrate and still the creative spirit which lies at the heart of our democratic society."

In re Bruno, 68 B.R. 101, 103 (Bankr. W.D. Mo. 1986).

David Hutchinson said...

Yes, I suppose humanity does need forgiveness.

I do not say that Bankruptcy is not necessary (as are plungers). I even allow it may, in its own way, be beautiful (which seems to be where you are headed in your booster balloon). It's just that every party to a bankruptcy proceeding is, or should be, unhappy. And then here you come all smiling and what not.

But maybe there is great satisfaction in giving Americans (contra Fitzgerald) a second act. In any case, it seems exposure to unalloyed capitalism is hazardous not just to people, but to capitalism itself. I've always thought the surest way to turn Marx into a prophet of sorts is to take away all regulation and let the folks have their capitalism straight (witness the current realignment in the wake of certain excesses). Rather like the sun, capitalism is a thing best experienced through filters (within reason; the sun is no fun from beneath black blankets: no vitamin D and the darkness is enervating).

So maybe you are right and your enthusiasm is helping to make the world safe for capitalism, which properly restrained promises the viability of a second act for those who need one.

Kelly J. Bozanic said...

As you would say, nil desperandum; second acts are worth a smile or two. . . . I do feel compelled to point out that my enthusiasm for the subject is academic. I shouldn't expect myself to be cheerful when counseling a dejected client. Cf. Romans 12:15-16a "Rejoice with those who rejoice, weep with those who weep. Be of the same mind toward one another . . ."