The prices of Whole Foods Market (WFM) have earned the organic grocery store chain the joking nickname, "Whole Paycheck." While shopping for groceries at Whole Foods does not usually devour an entire paycheck, its prices are noticeably higher on average than the prices available at other grocery shopping venues, historically by 10% to 20% more.
However, since being purchased by Amazon (AMZN), prices at Whole Foods have been coming down, sometimes quite significantly. Moreover, Amazon Prime customers receive special promotions and discounts, and those that pay with an Amazon Prime-branded credit card can receive 5% cash-back on all store purchases.
- Whole Food has been slowly losing the nickname “Whole Paycheck” since being acquired by Amazon in 2017.
- Prior to its acquisition by Amazon, Whole Foods’ products sold for a premium of upwards of 20%, and as high as 40%-50% on some products.
- More recently, Whole Foods’ prices have come in at only a slight premium to more generic rivals like Kroger, with Whole Foods' produce actually coming in at a discount in many cases.
Whole Foods’ Past and Present
Before discussing potential negatives about Whole Foods, it is important to note that Whole Foods has been an entrepreneurial success story, characterized by simple responsiveness to changing consumer preferences in the marketplace. The chain began as a single store in Austin, Texas, going to market with the strategy of meeting the marketplace desire of consumers for healthier, organic food.
Even as the company went public in 1992, its Chief Executive Officer (CEO), Walter Robb, thought it optimistic to project the chain might eventually have 100 locations. As of 2020, Whole Foods had more than 500 locations worldwide.
However, the company has been hit hard by overpricing scandals and does not hold the same level of dominance it previously did in the market for healthy, organic foods, as more and more grocery store operations have substantially increased their offerings of organic foods.
There was a time when Whole Foods was the only grocery store for consumers who wanted organic produce. This is simply no longer the case. While Whole Foods retains its position as the original organic grocery store, it has lost much of its edge of exclusivity in the area of organics, and this represents a significant threat to the company's profit margins and overall financial soundness.
Whole Foods’ Past Prices
The question has often been raised as to whether shopping at Whole Foods is significantly more expensive than shopping for groceries elsewhere. In the past, there was a substantial premium to be paid for the Whole Foods experience. A number of studies have been done in the past that consistently show consumers pay an average of at least 10% to 20% more for groceries at Whole Foods compared to its major supermarket competitors such as Safeway, Inc., Wegmans Food Markets, Trader Joe's, Kroger (KR) or Walmart (WMT).
A 2015 MarketWatch price comparison check of grocery stores in the San Francisco area, comparing prices between Whole Foods, Trader Joe's, Safeway, and Target, found Whole Foods prices substantially higher across the board. Bananas, a major consumer staple item in the produce department, cost an average of 99 cents per pound at Whole Foods compared to about $0.70 to $0.80 a pound at competitors.
Peanut butter, another major staple, cost almost twice as much at Whole Foods as at Safeway, $2.69 versus $1.79 for a 16-ounce jar. Cheddar cheese went for nearly twice the price at Whole Foods, 58 cents per ounce versus an average of $0.35 per ounce at its competitors, with none of the competing stores charging more than $0.39 per ounce.
Another 2015 study, a straight comparison between Whole Foods' organic products and Safeway regular products, found a lower average premium for Whole Foods' shopping but a noticeable price difference nonetheless. A comparison of 10 commonly purchased organic produce items totaled $11.55 at Whole Foods as compared to a $9.56 total for the same 10 items of regular produce at Safeway.
In June 2015, Whole Foods Market became the focus of a major overpricing scandal in New York City. The city began an official probe into its pricing practices as a result of numerous inspections dating back at least five years that consistently found Whole Foods Market was overcharging customers.
One part of the investigation considered a list of 80 items purchased from several different Whole Foods locations around New York City. Each of the 80 items was weighed, and in every single instance, the weight labeled on the package by Whole Foods was inaccurate, and in most cases, the inaccuracy resulted in consumers being overcharged.
The Commissioner of the city's Department of Consumer Affairs characterized the situation as "the worst case of overcharges" the department's inspectors had ever seen. Whole Foods has already been fined for violations such as charging tax on nontaxable items and having checkout scanners that fail to accurately input prices, with the disadvantage commonly going to the customer. About the last thing Whole Foods needs, when it is already recognized as one of the most expensive grocery stores around, is accusations of deliberate overcharging.
Current Pricing Environment
Whole Foods is facing increasing, and lower-priced, competition at its own game, selling organic food. Nearly every grocery store chain, including even major discounter Walmart, has substantially increased its offerings of organic foods and generally at lower prices than those of Whole Foods.
Whole Foods’ prices are down 2.5% on average from last year, according to a report by Morgan Stanley. Since the 2017 buyout by Amazon, Whole Foods’ premium prices relative to peers has declined. While the premium used to be 20% or more, it’s fallen to closer to 10%. Morgan Stanley noted that Kroger is now only around one-quarter cheaper, on average, than Whole Foods, versus a historical 40% to 50% discount.
According to a Business Insider survey, prices at Whole Foods and Kroger are converging. In fact, the price of Whole Foods’ produce is 7% cheaper than Kroger’s. For Business Insider’s survey, it found that prices at a Whole Foods in Virginia were only 4% more expensive than a rival Kroger. Meanwhile, a 2015 survey from Business Insider showed a 40% premium.
The Bottom Line
Grocery retailers could see price wars intensify as Amazon may be gearing up to offer its Prime subscribers more perks and discounts at Whole Foods Markets. These efforts could ramp up sales at its hundreds of new brick-and-mortar locations and steal market share away from traditional industry leaders such as Kroger, Walmart, and Costco stores.