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How Much Organic Food in One Basket?
Whole Foods and the FTC Argue the Competition Question

By Carrie Johnson
Washington Post Staff Writer
Thursday, August 2, 2007

Attention, Whole Foods shoppers: Your buying habits are (indirectly) on trial.

Whether you confine your organic grocery shopping to a single retailer or visit multiple stores for your fresh produce and free-range eggs has become the pivotal question in a hot Washington dispute.

Antitrust enforcers at the Federal Trade Commission squared off yesterday against lawyers for Austin-based Whole Foods in a second and final day of arguments before U.S. District Judge Paul Friedman. In the judge's hands rests the fate of Whole Foods' pending $565 million purchase of Boulder, Colo., rival Wild Oats.

FTC lawyers sued in June to block the deal, arguing that it will lead to less competition in what they call "the premium and organic" supermarket sector. The FTC maintains that the purchase by Whole Foods will increase prices and reduce quality and service in as many as 25 markets across the United States, including Washington, because it expects the combined company to shutter several Wild Oats stores and back away from plans to open many new ones.

"Consumers are unquestionably better off if there is vigorous competition," FTC lawyer Michael J. Bloom told the judge. "This transaction deprives consumers of choice. That is unambiguously anticompetitive."

Company officials say the government's analysis is "fatally flawed" and ignores efforts by such rivals as Safeway, Wegmans, Harris Teeter and Trader Joe's to stock their shelves with high-quality vegetables, baked goods and prepared meals to meet growing consumer demand. Moreover, Whole Foods lawyers argue, the merger would not raise prices across the board because Wild Oats stores already charge more than their rivals.

The deal "is not going to alter Whole Foods prices in any way," company lawyer Paul T. Denis said yesterday. "Whole Foods prices are lower than Wild Oats prices."

The judge is expected to issue a ruling in the next few weeks. Based on turnout over two days of oral argument this week, the decision will be hotly anticipated. So many lawyers, market analysts and reporters stuffed the courtroom that officials opened an overflow room with an audio feed.

The case marks a rare flash point in the antitrust wars, which peaked with a Clinton administration challenge to the dominance of software maker Microsoft. Since then, few cases have involved companies that capture public imagination and fight back.

Anonymous online musings by Whole Foods chief executive John Mackey about the health of his company and the failings of its competitors are the subject of internal and regulatory investigations, but they merited little mention in the District courtroom.

Instead, government lawyers highlighted other public statements by the outspoken executive that a deal with Wild Oats would "avoid nasty price wars" in Nashville, Boulder and Portland, Ore. Bloom, the FTC lawyer, cited Mackey's "constant wish to crush Wild Oats" as evidence of his intent to eliminate the competition.

Denis, the lawyer for Whole Foods, countered that Mackey's statements were "a sideshow issue" that amounted to bluster from a provocative man prone to blunt speech. Mackey is "intensively competitive, nothing more," the company said in court papers. Company lawyers played video clips of Mackey yesterday in which he passionately described his dislike for corporate rivals.

"He doesn't like them," Denis said to laughter from spectators in the courtroom galley. "It's not a problem. It's not illegal."

Founded in 1980, Whole Foods operates nearly 200 stores, 15 in Virginia, Maryland and the District. Wild Oats, meanwhile, owns slightly more than 100 stores across the nation, but none in this area.

Consumers spent a total of $6.5 billion at Whole Foods and Wild Oats last fiscal year, according to an FTC court filing.

Agency lawyers contend that the deal violates the Clayton Antitrust Act, a law that bars mergers and sales that will substantially reduce competition. To prevail, however, the FTC will need to convince the judge that this merger will corner the market on products and geography in a way that will harm consumers.

For his part, Mackey told analysts Tuesday that no matter the outcome of the court proceeding, "we believe Whole Foods has a very bright future."

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