The prices of Whole Foods Market, Inc. (NASDAQ: 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, typically by a margin of 10 to 20% or more.

Whole Foods Market: Past and Present

Before discussing potential negatives about Whole Foods, it is important to note 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 CEO, Walter Robb, thought it optimistic to project the chain might eventually have 100 locations. As of 2014, Whole Foods had more than 400 locations in the United States, Canada and the United Kingdom, and the CEO changed his projection to more than 1,000 stores.

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 Pricing Vs. Other Grocery Stores

The question has often been raised as to whether shopping at Whole Foods is significantly more expensive than shopping for groceries elsewhere. It turns out there is a substantial premium to be paid for the Whole Foods experience. A number of studies have been done 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, Inc., Trader Joe's Company, Kroger Company or Wal-Mart Stores, Inc.

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 Corporation, 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 70 to 80 cents 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 35 cents per ounce at its competitors, with none of the competing stores charging more than 39 cents per ounce.

Whole Foods fared significantly better on the price of a half-gallon of skim milk, coming in right around the mid-range at $2.29 versus $1.99 at Trader Joe's and $2.49 at Safeway. It was only significantly undercut by Target's price of $1.69. Whole Foods actually came out the winner on one price comparison, for a box of healthy choice cereal, but only because the item happened to be on sale at Whole Foods during the week the comparisons were made. The store's regular price was once again higher than all of its competitors, although only by about 5%. Macaroni and cheese was approximately 20% higher on average at Whole Foods.

Another 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. One area where Whole Food's organic offerings tend to be much more expensive than nonorganic offerings at competing grocery stores is the meat and poultry department. One pound each of free range chicken thighs and whole chicken totaled $7.48 at Whole Foods but only $2.88 for regular chicken at Safeway. However, a selection of dairy products, from milk to ice cream, showed Whole Foods only about 10% higher on average than Safeway, and a dozen eggs were actually 7% less at Whole Foods.

Whole Foods is also 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. Organic bananas at Target and Walmart typically run about 59 to 69 cents a pound compared to Whole Foods' national averages of 89 to 99 cents a pound.

Whole Foods has plans to open a chain of discount organic grocery stores starting in 2016, but many analysts fear the less expensive version of Whole Foods may primarily subtract more market share from Whole Foods itself as opposed to taking away market share from its competitors.

Overpricing Scandal

Whole Foods also has more serious price problems than just being regularly undercut by its competitors. 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.