Why Whole Foods Is Facing a Whole Lot of Problems
Business + Economy

Why Whole Foods Is Facing a Whole Lot of Problems

REUTERS/Rick Wilking

This has been a rough year for Whole Foods, and the latest news from the grocery chain suggests times won’t be getting better anytime soon.

This morning the company announced it would be cutting around 1,500 jobs, or 1.6 percent of its workforce, over the next eight weeks after adding some 9,000 jobs over the past year. The cuts are meant to help bring down prices for customers and reduce costs overall as the company also invests in technology upgrades, according to a Whole Foods SEC filing.

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The layoff announcement comes just a week after PETA filed a lawsuit that alleges the grocer’s attempts to monitor how its meat suppliers treat their animals are a “sham” and customers are being duped into paying higher prices for meat that comes from farms that barely meet industry standards.

Whole Foods has spent the past few years trying to shed its “Whole Paycheck” image. The PETA lawsuit won’t help in that regard, and it follows another massive setback in Whole Foods’ attempts to repair its tarnished reputation. The New York City Department of Consumer Affairs’ found a few months ago that the chain was severely and systematically overcharging for prepackaged foods, using labels that listed incorrect weights. Some examples included vegetable platters that were overpriced by $2.50 on average (one by $6.50) and chicken tenders overpriced by an average of $4.13.

The overpricing controversy led to a federal lawsuit that was filed last month, claiming the company’s top executives duped shareholders and inflated the company’s value. Co-CEOs John Mackey and Walter Robb have admitted that overcharging did occur in some instances, but they denied that it was intentional or that the violations were systematic. 

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It might be a while before the company is able to regain customers’ trust. Because of the overpricing scandal, now it’ll be “increasingly difficult given the negative media attention,” Deutsche Bank analyst Karen Short told Supermarket News. “In fact, in the near term, Whole Foods may not get credit for any price reductions, given its tarnished image.”

WFM Chart

WFM data by YCharts

The company’s stock has plunged more than 40 percent over the past six months, after a number of quarterly earnings disappointments. The grocer is also facing increased competition from specialty grocers, such as Trader Joe’s, and traditional supermarkets, including Kroger’s, that are expanding their organic food selection.

“If trust is broken, it has to be rebuilt a step at a time,” Co-CEO Robb told analysts in July. The 1,500 layoffs are meant to be another step toward luring back customers with lower prices, but Whole Foods likely still has a long path ahead of it.