In a settlement with California prosecutors, Whole Foods has agreed to pay approximately $800,000 in fees and penalties on allegations of overcharging California customers.
The premium supermarket chain came under criticism after a year-long investigation by state and county Weights and Measures inspectors found that Whole Foods failed to deduct the weight of containers and packaging from metered foods, sold items that were less than the printed label weight, and sold items that should have been sold by the pound — such as meat products — by the unit.
Under a court injunction, Whole Foods has been ordered to appoint two “state coordinators” to oversee pricing accuracy throughout California, designate an employee at each store who is responsible for price accuracy at the facility, conduct four random audits per year per store to ensure pricing and weight accuracy, and actively ensure that the advertised price and weight are accurate for all items.
Whole Foods Market California and Mrs. Gooch’s Natural Foods Market — which operate California’s 74 Whole Foods stores — are also required to pay $630,000 in civil penalties, $100,000 to a statewide weights and measures enforcement fund, and $68,394 in investigative costs. $210,000 of the civil penalties will be paid to each of the city attorneys of Santa Monica, Los Angeles and San Diego.
“Consumers have a right to accurate pricing — and the right to pay for only what they bought,” said Santa Monica Deputy City Attorney Adam Radinsky. “By adding the weight of containers and packaging, especially on higher-priced, per-pound items like seafood and meats and even prepared food, the extra charges can add up fast, and yet be hidden from consumers.”
Indications of pricing inaccuracies in other states have not been reported.
Whole Foods’ pricing policy has been a source of recent headaches for the company. Prices in thenatural and organic retail market segment have fallen due to the entrance of new participants. New competitors include Phoenix-based Sprouts and Wal-Mart, which recently completed a deal with Wild Oats, an organic products manufacturer, to carry 100 near-organic or organic products in their stores. Whole Foods has maintained its pricing, however, leading to a loss of consumer sales and a 45 percent drop in its share value since its market peak in October.
With its consumer base of upscale urban neighborhood residents essentially tapped, Whole Foods has been forced to adjust its business model in order to expand, entering poorer neighborhoods and suburbs like Detroit and West Des Moines. To compete with the lower price point offered by competitors, Whole Foods has come to rely on extras and gimmicks, such as a greenhouse on the roof of a Brooklyn, New York, location.
Many analysts believe that Whole Foods is pricing too high to maintain its competitive edge.
“There’s certainly a very rich competitive system out there right now. We recognize that. No one’s going to give us any business,” said Whole Foods Co-Chief Executive Walter Robb on a conference call with analysts last month.
Despite this, Robb insisted that “we’re never going to be in a race to the bottom; chase [customers] only on value, only on price. That’s not who we are.”
In defense of its pricing in California, Whole Foods indicated that the pricing inaccuracies represent only 2 percent of all sale.
“While we realize that human error is always possible,” the company said in a statement, “we will continue to refine and implement additional processes to minimize such errors going forward.”