On August 23, 2017, the Federal Trade Commission cleared Amazon.com Inc.’s acquisition of Whole Foods Market Inc. without a second request investigation. As mega mergers go, this antitrust review was fast and furious.
When the deal was announced, consumer groups and politicians questioned whether the combination was anticompetitive. Even President Trump, during the campaign, had been quoted as saying “Amazon had a huge antitrust problem”.
Many others were outspoken that the deal should at the very least undergo a thorough investigation because as they saw it, Amazon was adding groceries to its mix in an effort to cement its position as the go to platform where most online commerce takes place. The argument goes that Amazon is a monopolist in online retailing (46% of online retail sales) and it was acquiring Whole Foods, an organic and premium food grocery brick & mortar retailer providing Amazon with additional infrastructure that would allow Amazon to sell and deliver groceries in more cities. Indeed, AmazonFresh is available only in a handful of cities, and doesn’t have the same range of offerings as Whole Foods. Whole Foods delivers through Instacart, but not in a number of of cities. Amazon Prime offers free delivery and Instacart’s delivery fees can add up. Therefore, the deal raised both vertical (online platform along with brick & mortar stores) and horizontal (both firms competed in the retail distribution of food) issues, but combined the merged firm was still a very small retail grocer and the addition of Whole Foods tiny share of the grocery business was trivial.
While the high profile transaction raised horizontal and vertical issues, the FTC determined in very short order that it did not raise significant antitrust concerns. Accordingly, the FTC issued a statement indicating that the Commission decided not to investigate further, but that it “always has the ability to investigate anticompetitive conduct should such action be warranted.”
Basically, the FTC punted for another day without delaying the transaction. In the FTC’s statement there was little discussion regarding its rationale for not launching a longer and more thorough investigation.
But, the FTC’s decision was likely the correct one at least under the current antitrust framework to review mergers. For the most part, the transaction was between a huge online retailer with a small grocery brick & mortar retailer. With the Whole Foods purchase, Amazon will only have a two percent share of grocery market in the United States, while Walmart holds approximately 20% share and Kroger has 7%. Whole Foods was tiny in the grocery store market (brick & mortar or online). While some politicians and consumer groups were understandably concerned about a huge online retailer acquiring a brick & mortar grocery retailer, the transaction may result in consumer savings as the brick & mortar stores would provide Amazon with additional infrastructure that could allow Amazon to deliver groceries faster and at a lower cost in more cities. Indeed, Whole Foods was already known for having notoriously high prices, which is why it has been coined as “Whole Paycheck”. Thus, the prospect of lower prices and speedy delivery is exciting to Amazon Prime Members. Accordingly, from the FTC’s perspective, a second request was not necessary because the transaction presented no clear threat to consumers.
Lessons Learned: While the FTC has most recently demonstrated how aggressive it can be through its second request investigations and challenges of Walgreens/Rite Aid and Draft Kings/Fan Duel deals, the closing of the investigation of Amazon’s acquisition of Whole Foods demonstrated that the current FTC is focused on closing matters promptly that do not merit enforcement action. Indeed, back in April, the FTC indicated that it was implementing process reforms aimed at eliminating wasteful aspects of investigations. The decision to close the investigation without a second request also suggests that this FTC will not fold to pressure from third party complainants and politicians. Likely, the decision to close the investigation was based on a lack of a clear threat that the transaction would harm consumers. In this instance, the FTC restrained itself from engaging in a long fishing expedition despite the high profile nature of the transaction.