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Saturday, August 25, 2007

Court blesses Whole Foods-Wild Oats; 30 stores could close

The takeover of Wild Oats by Whole Foods has been cleared by a federal appeals court. Equally interesting news is that one of our latest entries about the deal somehow made the Wall Street Journal article on the topic (scroll all the way down).

A new (to us, at least) tidbit can be found in the Wall Street story -- Whole Foods has already sold off 35 of the Wild Oats stores:

The merger will create a more formidable foe for conventional grocers. Still, the companies are relatively small. They would have about 300 stores combined, compared with more than 2,000 at large rivals Wal-Mart Stores Inc. and Kroger Co. Whole Foods also reached a deal to sell 35 of the Wild Oats stores once it closes the acquisition.
But according to this piece, the 35 stores that have been sold go by the names Sun Harvest and Henry's Farmers Markets:
Aside from reaching an agreement to sell 35 of Wild Oats’ Sun Harvest and Henry’s Farmers Markets stores to private equity firm Apollo Management LP, Whole Foods has not disclosed how many or which stores it will close.
Which Wild Oats stores will close in our area thus remains unknown. Information accidentally leaked last week states that about 30 Wild Oats stores are up for closure. I imagine nothing official will be announced on that score until after the finalization of the merger, which could come next week.

The government filing that contained the 30-store news had some fascinating other material in it, as reported here:

- The opening of a Whole Foods store can cut revenue 30 percent or more in nearby Wild Oats stores.

- Whole Foods set "ground rules" barring suppliers from selling directly to Wal-Mart. "It wants Wal-Mart to have to go through distributors because that raises Wal-Mart's costs," the document said.

- Company documents labeled "Project Goldmine" predicted that buying Wild Oats and shutting down certain stores would increase revenue 85 percent to 90 percent at nearby Whole Foods stores.

- Education is key to the site selection for a new Whole Foods store. "As a company, we look at college graduate density. That's one of the single most important things," the government quoted a company official as saying.

- The takeover will send as many as 80 percent to 90 percent of Wild Oats shoppers to Whole Foods stores, according to Whole Foods documents cited by the government. "As a result, they will unambiguously be worse off," because of increased prices, the FTC argued.

Finally, calls keep coming in for Whole Foods head man John Mackey to step down after it's been revealed that he spent several years posting about his company on Yahoo message boards under the pseudonym "rahodeb." The latest is from the Houston Chronicle:

That's something for Whole Foods' board to keep in mind when it begins searching for a new chief executive officer. If that's not on the board's post-merger agenda, it should be....

For its part, Whole Foods' attorney argued that because the judge didn't even mention the rahodeb masquerade, it proves the issue is a "sideshow."

Maybe for the merger, but not for investors....

The incident has sparked an inquiry from the Securities and Exchange Commission, and company directors have begun their own probe....

Shareholders have reason to be concerned. Whole Foods' stock has been, to use rahodeb's term, floundering. It's trading at about half what it was in January 2006. Last year, it was the best-performing stock on the Standard & Poor's 500. So far this year, it's down 3 percent.

Mackey may have engaged in his ruse because he believed in his company, and he may have believed what he was saying, but he said it behind the shroud of a screen name, and in doing so, undermined his own integrity.

He resorted to the tactics favored by penny-stock promoters and small-time Internet scammers, and he now finds himself under scrutiny from the SEC.

Whole Foods shareholders deserve better, especially now that the Wild Oats deal appears to be going through.

Meanwhile, Mackey's at least temporarily pulled the plug on his own blog, here.

Comments (12)

Almost none of Portland's Wild Oats stores--except the Beaverton store--are big enough for Whole Foods. Maybe Fremont if they totally redesign it. So these might be closed or sold.

Sun Harvest and Henry's used to be chains in San Antonio and Atlanta, respectively. They were crossover stores, not strictly natural foods, that specialized in produce. Somehow Whole Foods must have acquired them, as they have almost all other natural foods chains in the country. It could be that Whole Foods is creating a secondary brand to operate smaller stores, while reserving Whole Foods' name for only the supermarket-sized operations.

I'm rooting for New Seasons: local ownership, emphasis on local and regional products, nice stores. The Wild Oaters seem relatively clueless (for example, leaving a store they built in Lake Oswego for a very expensive Bridgeport location in Tualatin, a defensive move that they hoped would pre-empt WF, but it didn't), and the Natures stores that they bought -- to the extent they haven't been closed down -- are not a shadow of what they were as Natures. I think this combination, the negative publicity for WF, and the resulting closure of redundant Wild Oats stores, all have the potential to help New Seasons expand and succeed.

I don’t see a lot of mystery here. Whole Foods will open their large Hollywood store in a year and close the two Wild Oats on the Eastside. That’s their business model. Whether they close them immediately is the only unknown. Hopefully someone will then take over the smaller stores and do something interesting as they are both in viable locations. Of course if they do so successfully Whole Foods will buy them and close them too – and so the circle continues.

so it goes...
Hey people on the west side, go over to Food Front on NW Thurman.

The Eugene chain "Market of Choice" has opened a store in West Linn. It is very nice, has good produce, and seems oriented toward "natural" products. I have no clue if they have other stores in the metro area.

There's a "Market of Choice" in Burlingame.

I really like the Market of Choice in Burlingame, and I wish there were more of them. They seem more in the model of Zupans than Whole Foods/Wild Oats.

I like that our city can support New Seasons, Zupans, Market of Choice, countless co-ops and farmers markets and other local businesses. And yet there's still enough demand to throw Wild Oats and Whole Foods a bone once in awhile... Not that I'd be sad if they played a marginal role in this market.

In fact, why would anyone want to throw any money at Whole Foods when you have plenty of local options that cover the natural foods spectrum? Cheaper, fresher, friendlier and your dollars go further when kept in-state, what's so hard to understand?

I like that our city can support New Seasons, Zupans, Market of Choice,
countless co-ops and farmers markets and other local businesses. And yet
there's still enough demand to throw Wild Oats and Whole Foods a bone once
in awhile...

That's not how it works for most people. It's all about location. I'd never set foot in a Wild Oats, except that it's the only grocery store left within walking distance. When it's gone, every time I need milk I will have to get in my car.

How's Zupan doing? He's kept his head down lately, ever since he walked on the 16th and Weidler condo bunker.

Jack's undoubtedly right about location. For me, Food Front is appealing in principle, but it's ten blocks farther away than Fred's or Zupan's, so it doesn't get my business. The Uptown Zupans has been tarted up considerably from its post-Kienow's incarnation. It's a nice store, and the produce is really good, but its prices are pretty steep. This doesn't seem to bother the Mercedes/Lexus set that shop there.

Haven't been in a Wild Oats in ages due to lackluster customer service and lame product selection. New Seasons has the best customer service and some really good stuff (i.e., their meats).

The only reason the wife and I go to Whole Paycheck is for their hot bar and salad bar. Good stuff. Can't wait for one to open on the east side so we don't have to trek down to the Pearl.

IMHO it's been all downhill since Natures sold out.

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