How does Costco compare to whole foods

Is whole foods really that expensive?

The Whole Foods Market (WFM) awards earned the organic grocery chain the joking nickname “Whole Paycheck”. While shopping for groceries at Whole Foods doesn't typically consume your entire paycheck, the prices, on average, are significantly higher than the prices available at other grocery stores, historically 10% to 20% more.

Since the purchase by Amazon (AMZN), however, the prices at Whole Foods have fallen significantly in some cases. In addition, Amazon Prime customers receive special promotions and discounts. Customers who pay with an Amazon Prime branded credit card receive 5% cashback on all in-store purchases.

The central theses

  • Whole Food has slowly lost the nickname “Whole Paycheck” since it was acquired by Amazon in 2017.
  • Before the takeover by Amazon, Whole Foods' products were sold at a premium of over 20% and some products at 40% to 50%.
  • Recently, whole foods prices have increased only marginally versus more generic competitors like Kroger, with whole foods products actually being available at a discount in many cases.

Past and present of whole foods

Before discussing any possible downsides to Whole Foods, it should be noted that Whole Foods has been a business success story that is characterized by a simple response to changing consumer preferences in the marketplace. The chain started as a retail store in Austin, Texas and launched with a strategy to meet consumer demand for healthier, organic foods.

Even when the company went public in 1992, its Chief Executive Officer (CEO) Walter Robb felt optimistic that the chain could potentially have 100 locations. By 2020 Whole Foods had more than 500 locations worldwide.

However, the company has been badly hit by overpricing scandals and does not have the same dominance as before in the organic healthy food market as more and more grocery stores have expanded their organic food offerings significantly.

There was a time when Whole Foods was the only grocery store for consumers who wanted organic products. This is simply no longer the case. Whole Foods, while maintaining its position as the original organic grocery store, has lost much of its organic exclusivity, posing a significant threat to the company's profit margins and financial health.

Past prices for whole foods

The question has often been raised whether shopping at Whole Foods is significantly more expensive than shopping at other foods. In the past, the Whole Foods experience had to be paid a substantial premium. A number of studies have been conducted in the past that show that consumers of Whole Foods consistently pay at least 10 to 20% more for groceries compared to major supermarket competitors like Safeway, Inc., Wegmans Food Markets, and Trader Joe's, Kroger (KR ) or Walmart (WMT).

A 2015 market price comparison review of grocery stores in the San Francisco area, which compares prices between Whole Foods, Trader Joes, Safeway and Target, found Whole Foods prices significantly higher across the board. Bananas, a major consumer item in the Products division, averaged 99 cents a pound at Whole Foods, compared to about $ 0.70 to $ 0.80 per pound for competitors.

Another major staple, peanut butter, was almost twice as much at Whole Foods as it was at Safeway: $ 2.69 versus $ 1.79 for a 16-ounce jar. Cheddar cheese was nearly double that at Whole Foods, 58 cents an ounce, versus an average of $ 0.35 an ounce at its competitors, with none of the competing stores charging more than $ 0.39 an ounce.

Another 2015 study, a head-to-head comparison between Whole Foods organic and Safeway's regular products, found a lower average premium for buying Whole Foods, but still a noticeable difference in price. A comparison of 10 frequently purchased organic products at Whole totaled $ 11.55 groceries compared to a total of $ 9.56 for the same 10 regular items at Safeway.

Overpricing scandal

In June 2015, the Whole Foods Market in New York became the focus of a major overpricing scandal. The city began an official investigation into its pricing practices as a result of numerous inspections done at least five years ago that found that the Whole Foods Market was overloading customers.

Part of the research considered a list of 80 items purchased from various Whole Foods locations in New York City. Each of the 80 items was weighed and in each individual case the weight indicated by Whole Foods on the packaging was inaccurate. In most cases, the inaccuracy resulted in consumer overload.

The city's consumer protection commissioner described the situation as "the worst case of overcharging" the ministry's inspectors had ever seen. Whole Foods has already been fined for violations such as levying taxes on non-taxable items and failing checkout scanners to accurately enter prices, with the disadvantage that usually applies to the customer. The last thing Whole Foods needs, when it's already recognized as one of the most expensive grocery stores in the world, is accusations of deliberate overloading.

Current price environment

Whole Foods is facing increasing and cheaper competition when it comes to selling organic food. Almost every grocery chain, including large discount store Walmart, has significantly expanded its range of organic foods, and generally at lower prices than Whole Foods.

Whole Foods' prices are down an average of 2.5% year over year, according to a report by Morgan Stanley. Since Amazon's buyout in 2017, Whole Foods' premium prices have fallen compared to comparable companies. While the premium used to be 20% or more, it has fallen to almost 10%. Morgan Stanley found that Kroger is, on average, only around a quarter cheaper than Whole Foods, compared to a historic 40% to 50% discount.

Whole Foods and Kroger prices are converging, according to a Business Insider survey. In fact, Whole Foods products are 7% cheaper than Kroger's. Business Insider's survey found that Whole Foods in Virginia was only 4% more expensive than a rival Kroger. A 2015 survey by Business Insider found a premium of 40%.

The bottom line

Grocery retailers could intensify price wars as Amazon may prepare to offer more perks and discounts on Whole Foods Markets to its Prime subscribers. These efforts could boost sales to hundreds of new brick and mortar locations and steal market share from traditional industry leaders like Kroger, Walmart and Costco stores.