As was reported by several of us here at Blogging Stocks a few weeks ago, Whole Foods Market (NASDAQ:WFMI)looks to purchase one of its largest competitors, Wild Oats (NASDAQ:OATS). This has been the speculative rumor in the niche grocery merchandising field for a few years and it finally came to pass. Whole Foods sees newly intense competition in the health food market from competitors like Trader Joe's and others. My guess -- it does not want to lose mainstream grocery customers to the likes of discount food retailers Target Corp. (NYSE:TGT) and Wal-Mart Stores, Inc. (NYSE:WMT).

In an effort to reach the increasingly health-conscious grocery consumer, both discount chains have stepped up offerings of healthy items and particularly organic grocery items. More and more consumers are discovering that many mainstream, processed foods are filled with unhealthy chemicals and they are now demanding more healthy eating options. As a result, Target in particular is stepping up its efforts to attract that consumer (more so than Wal-Mart, in my experience so far). That puts the more niche but growing retailers like Whole Foods and Wild Oats in the somewhat-cloudy crosshairs of the $52 billion Target and $380 billion Wal-Mart.

I do believe, however, that while the customer demand for more healthy foods will not only continue but rise over time, smaller (but still huge) retailers like Whole Foods and Trader Joe's will continue to attract a certain kind of shopper who almost flat-out refuses to buy groceries of any kind at mass merchants. The thing is -- Whole Foods is going to become one of those mass merchants with the Wild Oats purchase. Will that dilute the brand?

It's not enough for Wal-Mart to dominate grocery aisles, it has to dominate the organic grocery aisles as well. An article from CNNMoney today notes that Wal-Mart has already doubled the amount of organic products on its shelves this year and hopes to become the low-cost leader for all things fresh and healthy.

The article quotes Andrew Wolf, analyst with BB&T Capital Markets, as warning that natural food purveyors like Whole Foods, Wild Oats and Trader Joe's should be wary.

But Wal-Mart shareholders should be happy to see their company move into this high-growth, high-margin business.

Business Week covered this trend in late March with a focus on what organic farmers think of Wal-Mart's plan. (Hint: not that much).