Natural Foods Merchandiser

Whole Foods' acquisition of Wild Oats a done deal

Before August 23, there were two national natural foods chains; now there is one. Six months after the saga began, Whole Foods? acquisition of Wild Oats was given the final go-ahead. The U.S. Court of Appeals for the District of Columbia denied the Federal Trade Commission's request for a stay, allowing the deal to move forward. Wild Oats, which operates 109 stores with annual revenue of $1.2 billion, was purchased for $565 million, or $18.50 per share. OATS stock had traded as low as $13.25 in the weeks before the deal was finalized. Whole Foods, with annual sales of $5.6 billion, saw its stock fall to a 12-month low of $36 when the deal was first announced in May, but rose slightly to nearly $45 when the deal finally closed.

John Mackey, CEO and co-founder of Austin, Texas-based Whole Foods, spoke of "synergies gained" and "long-term values for customers, vendors and shareholders," while others in the industry took stock of what the acquisition might mean for consumers, distributors and other naturals retailers.

"You have to be scared of that 500 pound gorilla," said Heather Isely, executive vice president of Lakewood, Colo.-based Vitamin Cottage. "In the initial term, though, it could be beneficial for our company, because some Wild Oats stores will likely be closed in our homebase area."

Industry insiders seem less worried about the customer side of the equation than the vendor side. "It will change the playing field, but we won't really know how for a year or more," said Mike Cianciarulo, CEO and president of Ashville, N.C.-based Earth Fare natural markets. "Anytime someone has that amount of business, though, you have to be worried about how powerful they could be in terms of vendor negotiations and buying power. If they become more price-competitive, they'll have the advantage, but then again, so does Wal-mart."

Cianciarulo pointed to the importance of organizations such as the Independent Natural Foods Retailer Association, based in Minneapolis, which can enable smaller independent chains to pool their buying power.

"I think this is positive for the industry," said Mark Retzloff, president and chief organic officer at Aurora Organic Dairy, based in Boulder, Colo. "The competition isn't just natural foods stores or chains, it's the entire retail sector, whether it's natural, mass, convenience or specialty store. Whole Foods may have a better margin, but I don't think their prices will go up."

It's too soon to speculate whether one of the larger regional chains, such as Vitamin Cottage, Jimbo's Naturally, Earth Fare, Newleaf or Sunflower Farmers Markets, might eventually be in a position to create an alternative natural chain, but looking at competition only within the naturals sector may be missing the bigger picture. "As the Wal-marts and Krogers add SKUs, they can buy up the supply, and that's what worries us most."

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