Apparently, I’m not the only one who worries about what the Whole Foods-Wild Oats merger will mean for organic-foods suppliers.

In a report published by Organic Monitor, a European-based consultancy working on contract for Decision News Media, analyst Amarjit Sahota has sounded an alarm about Whole Foods’ growing power. Organic Monitor calls itself a “business research & consulting company that specializes on organic & related industries.”

You can read Sahota’s full analysis here on the Decision News site, but here is some of what he had to say:

Following the approval of its acquisition of rival Wild Oats, Whole Foods Market has become the single most important natural food retailer in North America. The growing power of this “supernatural” retailer is expected to consolidate supply chains of natural and organic foods, and some suppliers risk being squeezed out of the picture.

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The article goes on to detail Whole Foods’ plans for Wild Oats, which operated 118 stores. Thirty-five of those were small stores under the the Sun Harvest and Harry’s banners, mostly in small markets. Whole Foods will sell those off.

As for the 80 flagship Wild Oats stores, Whole Foods will shutter 10 and transform the remaining 70 into Whole Foods outlets. Before the merger, the natural-foods giant operated 188 stores; now it will have 258.

By 2010, Organic Monitor reports, Whole Foods plans to operate more than 300 stores nationwide — which would represent a 65 percent expansion in three years. With no comparable rival with a nationwide footprint, Whole Foods would wield tremendous buying leverage.

Here is Sahota:

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Whole Foods Market, like all retailers, will seek to rationalize its supplier base. As this happens, the number of its current suppliers will decrease.

Private label producers will be adversely affected as some manufacturers of Wild Oats and related brand products will see their markets disappear. Whole Foods Market will slowly replace these lines with its own 365 brand and private label products. Manufacturers of branded products will also be affected as Whole Foods Market streamlines its product portfolio.

It is likely to use the same suppliers of its Whole Foods Market stores for its newly acquired Wild Oats stores. Loyal and larger suppliers are likely to be favored over small suppliers. [Emphasis added.]

In defending the merger from a challenge by the Federal Trade Commission, Whole Foods claimed it faces plenty of competition from conventional grocers such as Kroger and Safeway, as well as superstores such as Wal-Mart — all of which are scrambling to grab a piece of the growing organic pie.

Such competition may well benefit consumers. In terms of the outfits that supply Whole Foods, though, the story is different. Here is Sahota again:

Large retailers like Kroger and Safeway have come into the market and introduced organic ranges, many under their private labels. Most, like Wal-Mart, have encouraged their large conventional food suppliers to develop organic lines. Mass market retailers have thus used their existing supply chains for their organic product ranges.

Thus Kroger and Safeway have little use for small or medium-sized companies selling, say, organic juices or ice cream. They’re getting their organic goods from their conventional suppliers like Kraft, who are busily rolling out organic lines.

Traditionally, Whole Foods and other dedicated natural-foods retailers have been the avenue through which smaller organic supplier find their market. Those days may be over, Sahota reports.

With few openings in the mass market, most dedicated natural and organic food companies have continued to focus on natural food retailers … With Whole Foods Market now dominating this sector, many natural and organic food companies could be further marginalized. Whole Foods Market, like all retailers, will seek to rationalize its supplier base. As this happens, the number of its current suppliers will decrease.

In short, Organic Monitor concludes, "Big was always beautiful for the mass market retailers; it appears that large-scale production could also be favored by Whole Foods Market."

And as operations scale up to meet the needs of the megabuyers, we’ve already seen what happens on the ground. We get mega, monocropped "organic" vegetable farms supplying the processing giants; and abominations like Aurora Dairy, with its 4,000- to 8,000-head "organic" feedlot dairy operations.

"In spite of its large farm sizes [and recent troubles with the USDA], Aurora Dairy remains a dedicated organic company," Organic Monitor notes.

Recently, the Federal Trade Commission made another attempt to block the Wild Oats deal. In their last claim, they focused on the effect the deal might have on consumers. This time, I hope they focus more on suppliers.

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