Washington – Two experts offered conflicting visions Tuesday of whether a merger between Whole Foods Market and Wild Oats Markets would harm consumers as testimony began in a federal hearing on whether the $670 million marriage should proceed.
A consultant hired by the natural- foods retailers told a U.S. District Court judge that there’s no evidence indicating that a Whole Foods takeover of Boulder-based Wild Oats will push up prices.
But an expert hired by the Federal Trade Commission said there are data showing that competition drove prices lower at Whole Foods.
The case hinges on whether the corporate marriage would create a monopoly. The FTC believes it would and has sued to block it on antitrust grounds.
“What we’re after is what we think is best for American consumers,” Jeff Schmidt, director of the bureau of competition for the FTC, said outside the courthouse after the first day of testimony.
An attorney for Whole Foods claimed the FTC had failed to prove the merger would harm consumers.
“Price is the central element in the case, and the FTC has no evidence about pricing,” Paul Denis said.
But Whole Foods is working against the backdrop of words written by its own chief executive, John Mackey.
Mackey in February sent an e-mail to Whole Foods’ board of directors saying that the merger would allow the company to “avoid nasty price wars.”
And during Day One of the trial, one of the FTC’s attorneys also cited marketing plans that both Whole Foods and Wild Oats had before the proposed merger. The plans detailed how the companies would compete with each other, and one of them stated that “value” would be a key component.
Whole Foods, which has 191 stores, including seven in Colorado, argued Tuesday that its main competition is not Wild Oats but Safeway, Trader Joe’s and even Costco.
Wild Oats has 110 locations, including 13 in Colorado.
“There’s so much cross- shopping with Wild Oats and Whole Foods customers,” who spend money at other supermarkets, said economics consultant David Scheffman, who once worked as an FTC economist.
U.S. District Judge Paul L. Friedman, who will decide whether to allow the merger, questioned whether Whole Foods really competes with those supermarkets as a one- stop-shopping location.
“There are a lot of things you can get at Safeway or Giant or Costco that you can’t get at Whole Foods,” Friedman sad. “But a certain number of things or quality of things you can only get at Whole Foods.”
During Tuesday’s testimony, FTC witness Kevin Murphy, an economist at the University of Chicago, said his market analysis of cities where both Whole Foods and Wild Oats operate showed they respond to competition.
That study was not released because it could contain proprietary information.
During testimony, he said that when Wild Oats announced it planned to open a much-larger store near its corporate headquarters in Boulder, Whole Foods dropped its prices 2 percent.
The judge ultimately struck that statement because it was not in Murphy’s written report, so the defense had not had time to study it.
Whole Foods attorney Paul H. Friedman, who is not related to the judge, questioned whether Murphy had looked at enough stores to draw significant conclusions. Murphy looked at stores 25,000 square feet or larger and located 5 miles or closer to one another.
Scheffman, the expert for Whole Foods, focused on his central claim that Whole Foods competes more against other supermarkets than it does against Wild Oats.
“When Whole Foods enters (a new market),” Scheffman said, “most all of the sales by any measure do not come from Wild Oats” in places where Wild Oats has a store.
Wild Oats shares rose 3.9 percent Tuesday to close at $16.10 a share. Whole Foods shares were up 0.7 percent to close at $37.04. The hearing will continue today.
Staff writer Anne C. Mulkern can be reached at 202-662-8907 or amulkern@denverpost.com.
