Whole Foods shares dipped 5% on Monday as analyst’s downgraded the company to “underperform.”
Shares at the company rebounded slightly on Tuesday but are still trading down 15% on the year as they approach a 52-week low.
Kelly Bania of BMO Capital Markets slashed her rating and price target for Whole Foods after a survey of more than 1,000 Whole Foods customers found troubling and growing negative perceptions of the company.
More than 70% of the respondents told Bania they haven’t noticed any changes in food prices over the past three months. Those perceptions exist despite the fact that the company has claimed pricing changes have been made.
What’s more troubling was the realization that only 24% of customers said organic products at Whole Foods are “definitely” higher quality than organic foods found at grocery stores.
Just over half (54%) of surveyed customers said the quality of the food was “sometimes” better than stores such as Kroger. Under one-fourth (22%) said the food was “not at all” better than cheaper competitors.
“This poses an uphill battle for Whole Foods, as we believe mainstream consumers find it difficult to differentiate the quality of organics,” Bania wrote in her report.
Even if customers haven’t given up on the chain, many investors have. Whole Foods shares have dropped by more than 50% since 2013.
Making matters worse for Whole Foods is the fact that Trader Joe’s, Kroger, and even Costco and Walmart, have challenged the company with organic product offerings of their own, and typically at much cheaper prices.
In November 2015, Hayley Peterson at Business Insider visited a Whole Foods Store and compared its product pricing against Kroger. Among her findings were several big price discrepancies. Here are a few of the more shocking findings.
- Whole Foods’ coconut oil and farm-raised Atlantic salmon were twice as expensive as Kroger’s, and a 10-pound turkey was $7 more expensive at Whole Foods.
- No Yolks egg noodles were nearly $2 more expensive at Whole Foods.
- Kroger’s organic basil was $1.65 cheaper than Whole Foods’ private label for a half ounce.
Whole Foods at the time defended its pricing, claiming that its strict quality standards led to higher pricing. The company didn’t explain how products from the same brand, however, were priced significantly different.
In the summer of 2015 Whole Foods was also accused of wrongly pricing weighed goods throughout New York City. Same store sales fell in its fiscal fourth quarter, which ended in September. The company was then forced to pay $500,000 to New York City to settle the overcharging probe.
Analysts predict same-store sales fell 2.2% in its first quarter, which ended in mid-January. Whole Foods will report its first quarter results on February 10.
Here’s the organic grocer’s stock performance over the last year.
The company’s reputation hasn’t been helped by co-CEO John Mackey who told investors last July that he felt the company was being unfairly singled out by regulators and the media. “We do feel like we’re victims,” Mackey said.
After paying its fine to New York in December, rather than issuing an apology, Whole Foods said it was paying the fine just to “put the issue behind us.”