Whole Foods' Secret Weapon: Failure

Whole Foods CEO John Mackey on Tuesday unsheathed his most powerful weapon in the company's battle with the Federal Trade Commission: his own business failures.

How, he wants to know, can the FTC continue to argue that Whole Foods' merger with Wild Oats is anticompetitive when the company is being crushed in the marketplace 16 months after the merger was completed?

It's a good question, and one the FTC has yet to answer. Mackey unleashed a PR campaign on the matter this week, including a highly unusual lawsuit against the FTC and a press conference Tuesday morning. The FTC is staying mum so far.

"There's only one place where Whole Foods has a monopoly and that's in the imagination of the lawyers at the Federal Trade Commission," Mackey said at the press conference in Washington. "How can a monopolist have negative same-store sales? Are people starving to death now because there's no place to eat in America?"

Indeed, Whole Foods' business is in the trash can, and other grocers are taking big chunks of its business. Mackey is citing not only his company's marketplace failures; he's also saying that the merger itself, which cost the company $565 million, was bad for business.

He's right about that, too. "If I could get the money back, I'd take it," he told the Wall Street Journal. "We would be better off today if we hadn't done this deal— taking on all this debt right before the economy collapsed."

The agency's case is based on the highly dubious notion that there is a separate market for "premium and natural" foods and that the merger puts too much power over that market into the hands of a single player. A federal court dismissed the FTC's plea to block the merger last year but has kept fighting it nevertheless, even as Whole Foods was busily absorbing Wild Oats stores, a process that is nearly complete. An administrative hearing is slated for February.

Mackey said some clumsy things when he was selling the deal, giving the FTC some ammo. He said the deal would help Whole Foods "avoid nasty price wars" and that merging with Wild Oats would "eliminate forever" the danger of conventional grocers offering any competition in organics and natural foods.

Mackey is right that he has since been proven wrong. Not only are conventional grocers like Kroger and Wal-Mart taking business from the pricey Whole Foods thanks to the recession, but they have been busily increasing their offerings of natural and organic foods. There isn't anything like a monopoly in that market.

Mackey, though, isn't about to stop making clumsy moves that tend to undermine his own efforts. After all, that's his thing. For instance, he's putting the legal squeeze on local competitors like the nine-store New Seasons Market in Portland, Ore., demanding via subpoenas that they turn over all kinds of information, much of it confidential, to Whole Foods to help it bolster its case against the FTC.

More on that later.