It’s not easy, being CEO of a public company. Seriously. You work for a huge
organization, yet you don’t have a boss. On the other hand, you report to a
board of directors, and, ultimately, your shareholders. Chances are, you’ve
worked your way up a few organizational org-charts in your time, and you know
how to behave towards individual bosses. But dealing with a board is a very,
very different manner.
John Mackey, it would seem, the CEO of Whole Foods, decided to be straightforward
in his dealings with his board. He gave them the unvarnished truth when it came
to his proposed acquisition of Wild Oats, and he also, for good measure, denigrated
the abilities of other supermarkets to compete with Whole Foods.
I’m sure his board was delighted, and they signed off on the acquisition. But
all those communications were found by the FTC when it started investigating
the merger. And the FTC didn’t
like them one bit (PDF). Now the interesting thing about the FTC complaint
is that it has almost no arguments in it; almost no numbers. Instead, it seeks
to use Mackey’s words against him. As David
Kesmodel notes in the WSJ,
The lawsuit quotes Mr. Mackey as saying that the company "isn’t primarily
about organic foods" but "only one part of its highly successful
business model," citing as others "superior quality, superior service,
superior perishable product, superior prepared foods, superior marketing,
superior branding and superior store experience."
In what way, exactly, is this supposed to be damning? It seems to me that Mackey,
here, is essentially saying that any supermarket could become a direct
competitor of Whole Foods if it started concentrating less on prices and more
on things like store experience.
In fact, the complaint then goes on to quote Mackey being dismissive of a potential
threat from Safeway: Safeway might have organic food, he says, but it doesn’t
have Whole Foods’s ability to market a lifestyle. For that reason, he says,
Safeway is unlikely to poach Whole Foods’s customers.
Never have I seen a CEO’s salesmanship taken at such face value. What would
have happened if Mackey had gone up to his board and told them that Whole Foods
needed to merge with Wild Oats in order to be able to defend itself from the
entrance of Wal-Mart and Trader Joe’s and Safeway into the organic food market?
The FTC would have found nothing objectionable, and the merger would probably
have happened by now.
There is nothing compelling in the FTC complaint. The idea that Whole Foods
and Wild Oats have a monopoly on pleasant shopping experiences and therefore
should be banned from merging is laughable on its face.
Mackey, to his credit, is being very transparent about the whole process. He
had no objections to the FTC complaint being unsealed, and in fact put up a
blog entry in response to it. In it, we learn that the FTC asked for more
than 20 million documents from Whole Foods: no wonder they managed
to find a handful which seemed, to them, damning!
And as Mackey notes,
If eliminating a competitor is inherently "bad" or "wrong"
then the FTC should probably never allow any mergers to ever occur, because
most mergers necessarily mean the elimination of a competitor from the marketplace.
His whole blog entry is well worth reading: it’s a heartfelt cry against the
FTC which stands in stark contrast to the dry and unpersuasive FTC complaint.
He shows that Whole Foods prices are unrelated to whether or not there’s a Wild
Oats in the area, and says that numerous supermarkets, including Trader Joes
and Safeway, are bigger competitors to Whole Foods than Wild Oats is. By the
time you’ve finished reading it, it’s very hard to feel much sympathy with the
FTC.
I’m still
confused as to why the FTC picked on Whole Foods, of all companies –
and Mackey is clearly confused as well. The FTC is rapidly losing credibility
here, but it’s probably far too late for the FTC to back off. More’s the pity,
for all concerned.