Organic Groceries Are Getting Cheaper and Whole Foods Is Panicking

Moneybox
A blog about business and economics.
May 8 2014 8:15 AM

Whole Foods Is Losing Its Grip on the Organic Market

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You no longer have to go to Whole Foods for organic radishes that look this good.

Photo by ilovebutter via Flickr.

Whole Foods is facing new demons: cheap bags of organic quinoa. The longtime leader in health foods is bleeding sales as the craze for natural has increased competition and made organic groceries—gulp—more affordable. Pricey, high-end brands that were once available only on the shelves of Whole Foods and other boutique stores can now be found in many mainstream supermarkets. Even Walmart announced last month that it would begin offering organic food products from Wild Oats at a fraction of competitors' costs.

In short, Whole Foods' grip on the organic market is slipping. The company cut its 2014 same-store sales and earnings outlook for the third consecutive time when it reported second-quarter results on Tuesday. Executives said the growing popularity of organic foods represented a huge opportunity for Whole Foods and that some of the recent gap in sales could be chalked up to the harsh winter. But those hedges didn't reassure investors. Shares of Whole Foods plunged 18.8 percent to $38.93 when trading reopened on Wednesday and several analysts lowered their ratings on the stock.

Whole Foods co-CEO John Mackey said in the Q2 earnings call that the chain is lowering prices to better compete with new entrants into the organic market. He did not specify how much Whole Foods has cut prices, explaining that the company makes those decisions on a regional and local basis. "For a long time Whole Foods had the field to ourselves, pretty much. That was nice, but we don't any longer," he said. "So we're adapting to the reality of the marketplace."

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Even if Whole Foods reverses course price-wise and brings organic foods to the masses, it faces stiff competition. Walmart, likely the toughest opponent, has pledged to undercut prices of other national organic brands by 25 percent or more. A few price points: Walmart is selling Wild Oats 15-ounce canned vegetables for a slim $0.88 and two-ounce jars of spices for $2.48 and up. The Everyday Value organic line at Whole Foods offers comparable canned vegetables for between $1.29 and $1.49, and spices around $3.99. Setting names aside, it sounds like one of those options offers a lot more "everyday value" than the other.

Alison Griswold is a Slate staff writer covering business and economics.

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