• by Sarah Mahoney  @mahoney_sarah, August 2, 2007

Where are the screenwriters when you need them? Stage left, you've got the Federal Trade Commission insisting that Whole Foods Markets' bid to acquire Wild Oats is part of its plan for the "systematic destruction" of its competition. Stage right, you've got investors calling for the head of CEO John Mackey--primarily for anonymous postings he made on Internet stock groups over an eight-year period. (Kind of makes you feel better about occasionally shutting the door to your office to play Spider Solitaire, doesn't it?)

And then, center stage, there are the loyal Whole Foods shoppers. They've come to love the Austin, Texas-based retailer for--among other reasons--its commitment to the little guy, whether it's tiny organic lettuce farmers, small sheep-cheese producers or specialty beef growers.

For its part, the FTC is happy to conjure up images of Mr. Potter in "It's a Wonderful Life" and paint a vivid picture of Whole Foods as one greedier corporation, trying to grind its competition into the dirt. Whole Foods will close a number of Wild Oats stores, it says, dismantle its infrastructure, "and the possibility of restoring competition in the operation of premium natural and organic supermarkets in numerous geographic areas will be lost, causing substantial harm to consumers."

Ouch. But retail experts are debating whether the legal maneuverings among the FTC, Whole Foods and Wild Oats pose any immediate threat to Whole Foods' nice-guy image. "Customers don't care about the business press," says Love Goel, chairman and CEO of Growth Ventures Group, and a former COO of Federated Department Stores. "This is all very Inside Baseball. Consumers care about their busy lives, prices and selection."

Others disagree. "This whole issue has gotten very wide coverage, and this is not an illiterate consumer," says George Whalin, president of Retail Management Consultants. "Whole Foods has a huge history of being responsible citizens, so customers aren't going to turn around all of a sudden and say, 'This company is run by a bad bunch of folks'."

Still, Whalin believes the antics of CEO Mackay--whose apology to shareholders reads like a third-grader who just shoplifted an organic candy bar--could eventually hurt the company's image. "I think if he doesn't learn to shut up, he's just going to be gone," Whalin says.

How long the company will come across as friend of the little guy is hard to say. "At some point in time, we all know big becomes bad," says John Moore, of Brand Autopsy Marketing practice and a former head of national marketing for Whole Foods. "But is Whole Foods there yet? I tend to say no. In the grand scheme of things, it is considerably smaller than Kroger or Wal-Mart."

And Moore thinks, if the merger does go through, customers will soon see the positive--particularly in prices. "It will put the company in a better position to command leverage and be more price-competitive with bigger retailers."

And that, says Goel, is Whole Foods real pickle, no matter what the FTC says. "Its bigger problem is that there's a lot more competition, including Target, Wal-Mart and Trader Joe's," he says. "The edge Whole Foods has is quickly disappearing."