FTC said WHAT?

Pamela Riemenschneider in Austin, Texas, here. I snuck down to the Whole Foods corporate headquarters this weekend to enjoy what some call the Disneyland of grocery stores and I have to agree -- the fresh tomato risotto I had was divine.

But the big news is, for now, that District Judge Paul Friedman released his ruling yesterday in the Whole Foods/Wild Oats merger.

If you're up to reading all 93 pages, go for it. It can be found here.

I pored over it this morning and man, I can't really fathom some of the Federal Trade Commission's arguments against the merger.

Here's one that really stuck out to me:

FTC believes the relevant product market is premium natural and organic supermarkets of which it alleges there are four in the entire country -- Whole Foods, Wild Oats, Earth Fare (with 13 stores in only four states) and New Seasons (with eight stores, all in oregon).

Say what?

What about Trader Joes? What about HEB's Central Market? What about Dean and Deluca? Sunflower Farmers Market (started by Wild Oats founder Mike Gilliand)? What about the army of Natural Food Co-ops in just about every town?!

It kind of seems like the FTC doesn't really understand the market. Whole Foods argued that it doesn't even really pay that much attention to Wild Oats, rather, it is focusing on the ever expanding market of mainstream spinoffs, like Safeway's Lifestyle, Publix's Greenwise, SuperValu's Sunflower Market.

The ruling had this to say about Whole Foods' competition:

"Whole foods believes it faces 'eroding product differentiation' as other supermarkets continue to stock many of the same products that Whole Foods offers."

"That it is in 'a time of unprecedented competition' where it increasingly does not have the 'advantage of offereing a unique selection of products."

"Many supermarket companies have invested significant resources into developing and opening new stores, some of which mimic Whole Foods' store designs and product offerings."

It seems that the court recognized something that many of us who watch the retail industry have been seeing for the past several years -- that big chains are putting big money and resources into making their own little Whole Foods (Whole Paycheck, anyone? I'm sure there are a lot of retailers that would like a piece of that).

Apparently, Whole Foods doesn't really pay too much attention to Wild Oats when it comes to pricing, either. More often, Whole Foods checks Trader Joe's and other area supermarkets because most of the time, according to the ruling, Wild Oats prices are higher.

Whole Foods also lives up to its "Disneyland" description, in that customers don't have the luxury of shopping there every day. The cross-shop at other retailers, according to the ruling, at least once a week.

Bottom line, according to Judge Friedman, this merger isn't likely to hurt the market because Whole Foods realizes this:

A fundamental problem ith the FTC's reasoning is that it addresses whether Whole Foods has any customers who are so dedicated to that stores's product array and other qualities that they would not switch any of their purchases to another supermarket if Whole Foods began to compete less vigorously by raising prices or decreasing quality.

The question is whether enough customers would switch enough of their purchases that a post-merger price increase or quality decline would be unprofitable for Whole Foods.

The evidence presented persuades the court that certainly beyond the point of critical loss, enough customers would answer this question in the affrimitave and switch all of their purchases to other food retailers, thus rendering unprofitable any post merger effort by Whole Foods to increase prices beyond a certain point.

So, if Whole Foods raises prices too far, customers go to Safeway, or HEB, or SuperValu or somewhere else.

You get the point.

Oh, and if you're up for a laugh, there's a new channel on YouTube encouragaing people to send videos of them doing funny things at Whole Foods here. So far, there's a teenager riding a tricycle through the produce department, among other things. It was supposedly launched by Whole Foods and will give prizes to the video maker with the most hits in a month.