As Peter reported yesterday afternoon, Whole Foods Markets Inc.
(NASDAQ:WFMI) is prepared to acquire its rival, Wild Oats Markets (NASDAQ:OATS), for $18.50 per share. It will mark the 19th and largest acquisition for Austin-based WFMI in its history.

In an accompanying statement, WFMI chairman and chief executive noted that "The growth opportunity in this category has led to increased competition from many players, most of whom are not dedicated natural and organic foods supermarkets, but are considerably larger than we are..." Methinks he could be alluding to that lone half-aisle containing soy milk and Kettle Chips at my neighborhood Wal-Mart Stores (NYSE:WMT) Supercenter? Or the increasing presence of organic offerings at Kroger (NYSE:KR) and Safeway (NYSE:SWY) locations?

Privately owned Trader Joe's has also become quite a force to be reckoned with in the world of natural grocers, with more than 250 locations. Hip and surprisingly affordable, it is my natural grocer of choice. But the Trader Joe's I've visited lack the expansive deli offerings, fresh sushi, or impressive wine selections available at WFMI.


The natural upside to this increased competition is that the niche market WFMI thrives in, organic foods, is a burgeoning industry. Data from the Organic Trade Association shows that the organic-food industry grew between 15 and 21 percent, each year, from 1998 to 2005. That's a lot of edamame.

While competitive pressures will remain on the radar for WFMI, its acquisition of OATS will certainly help matters. The chain is 110-stores deep and boasts $1.2 billion in annual sales. This compares to Whole Foods' network of 193 stores, with $5.6 billion in sales in 2006.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.