Thursday, February 22, 2007

Whole Oats?

by Osman Parvez
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I pay attention to the business community in Boulder and have been a little surprised at the somewhat negative spin that local media has taken on news that Whole Foods (WFMI) is seeking to acquire Wild Oats (OATS). There's concern for Wild Oat's employees because of likely store closings and slimming of redundant business units. Some are wondering about the impact to the local economy. The spin is wrong. Here's why overall it's a very good thing for Boulder.

There's a virtuous cycle to entrepreneurship. When young successful companies like Wild Oats are acquired, many local business people will benefit from the change of control. The execution of an exit strategy usually leaves dozens of founders, key employees, and early investors free to pursue other endeavors and well capitalized to make it happen.

Energized by success, the former executives and investors in Wild Oats will go on to seed more start up companies, often not just one but several. They will also get involved with mentoring entrepreneurs through projects like TechStars, volunteer time and money to local non-profits, run for political office and do many things that benefit our community long term.

Successful entrepreneurs have a wonderful habit of giving back. Bill Gates, Warren Buffet, Michael Bloomberg, and Ted Turner immediately come to mind but stay local. Take Jared Polis, for example. Undoubtedly Blue Mountain Arts helped seed his success with ProFlowers. Among his many activities that benefit local communities in Colorado, witness the Jared Polis Foundation and its mission to encourage individuals and organizations to be proactive by supporting and pursuing education and technology in Colorado communities. Jared isn't alone. A quick glance at the roster of mentors in TechStars is a broader sample of entrepreneurs who are giving back to the community.

As for the concern over the future of the employees of Wild Oats, yes there will probably be store closings. At a quick glance, Whole Foods seems to have a more efficient model than Wild Oats and they've beeen able to grow quicker. Leaders at WFMI will probably conclude that Boulder can not support both a flagship Wild Oats and a soon to be expanded Whole Foods. Luckily our local job market is absolutely seething with opportunities. One local venture capitalist is actually holding a recruiting event for five of his portfolio companies. WMFI will hopefully do the right thing, giving employees are shown the door given an adequate severance and plenty of retraining opportunities.

The acquisition of Wild Oats will not damage Boulder's economy in the long term. Instead of lament, we should look to those who drove the success of recently acquired companies like Spectra Logic, RainDance Communications, McData, and soon Wild Oats to do great things in the future. The real question we should be asking is "what's next?"

p.s. Investors like the deal with WFMI jumping from the ~46 range to 52.



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10 comments:

  1. Maybe then they will lower their damn prices!

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  2. Great post! As a follow up on what you were saying, the founder of Wild Oats started up Sunflower Markets, a smaller and cheaper version of Wild Oats and Whole Foods.

    http://www.fastcompany.com/customer/2006/articles/local-sunflower-farmers-markets.html

    Sunflower has achieved "cult-like" status here in Denver. The opening of their Highlands location is much anticipated.

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  3. Maybe then they will lower their damn prices!

    Doubtful; Less competition usually results in higher, not lower prices.

    The real question is where is Trader Joes? Every market I've every seen them drops good food prices within a year.

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  4. Prices have already dropped, and are dropping further in the organic segment - hence the consolidation of WO and WF. This makes sense from a margin perspective, as all grocery stores make their money on volume as markup is slim. Read a bit on this deal (NYT) and you will find that this is a reaction to other supermarket powerhouses entering the organic/natural foods segment. Wal-Mart, Safeway, and many other heavyweights now offer products that you could only find at WF a few years back. This is good for EVERYONE in the long run, not just Boulder (does the world revolve around this place guys? jeez...)

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  5. 'Maybe then they will lower their damn prices!'

    Nope!

    WholeFoods == WholePayCheck

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  6. Anon (last) you don't get it. It's a simple economic principle: competition. The "whole paycheck" thing is old by now, or a tleast it will be soon. Don't get me wrong - I don't shop there now, I don't earn the Boulderite trustafarian income - but there is a day on the horizon when the competition in the natural/organic food market will allow ALL of us to afford it. It is a very very good thing that Safeway, Wal-Mart, et. al are forcing Whole Foods to make a move such as this. We will benefit in the long run. Look at it another way - if WF and WO don't merge, in 5 yrs WalMart & Safeway et. al have outpriced them for the same products, and they fold individually. Seen in the long view this will increase competition. Use your Whole Brain....

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  7. Thanks for all the comments.

    I too have wondered when we'll start to see Trader Joe's in Colorado.

    As for prices, I think the addition of natural and organic products in ordinary grocery stores and big box retailers is providing competition.

    I've also heard good things about Sunflower Markets and hope to check one out soon.

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  8. I love it when people act like both experts and psychics. Let's face it, we have no idea in light of the merger whether prices will stay astronomical, or whether they will decrease to relatively affordable levels (finally) at Whole Foods stores.

    I first heard this story reported on NPR. Contrary to what some have said here, the business "expert" they had speaking about the merger said that it is highly unlikely that Whole Foods stores will drop their prices, despite the competition from mainstream grocers. He stated that if they do drop prices, they will not produce enough revenue to stay in business; Apparently, there's no way that they can compete on the same level with those mainstream stores. So, who really knows? All I know is that reduced competition (i.e., fewer genuine natural foods stores) = reduced choice for consumers, which often translates to higher prices for consumers. We shall see...

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  9. Egyptian Real estate Agent3/13/2007 05:57:00 AM

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