Is Trader Joe’s Starting a Price War With Whole Foods?
Grocery store chain Trader Joe’s appears to be girding for a price war with rival Whole Foods Market (WFM).
A basket of 77 items at Trader Joe’s, a fast-growing privately held specialty grocer, was 26% cheaper than its equivalent at Whole Foods, according to a price comparison recently conducted at New York area stores by Deutsche Bank. That was a larger difference than in previous store checks.
Perhaps more worrisome for Whole Foods, Trader Joe’s price edge extended to its private label items, which Deutsche Bank found were 15% cheaper than similar ‘365’ Whole Foods products. Typically, Whole Foods has price matched Trader Joe’s for its private brands despite offering a higher quality that analysts say warrants a price premium.
The discrepancies led the Deutsche Bank analyst, Karen Short, to speculate that Trade Joe’s could be making “price investments,” which is industry parlance for discounts, as its store count reaches 500. Three years ago, as its fleet hit 300 stores Trader Joe’s slashed prices on 200 items, catching Whole Foods unawares.
“Our concern is that Trader Joe’s might be once again catching Whole Foods Market off guard, because prior checks have not shown such disparity,” Short wrote in a her research note, published Tuesday.
A Whole Foods spokeswoman declined to comment on the analyst note.
The last thing Whole Foods needs right now is a price war with a rival and the resulting pressure on profit margins that would deliver. The grocer recently reported that its comparable sales, which exclude the results of stores opened or closed in the last year, fell 1.8% last quarter and it expects them to fall 2% this year or, at best, remain unchanged. (Overall, it expects sales to rise 3% to 5%, thanks to new stores.)
In June, Whole Foods will open the first store in its “365” concept, a cheaper chain of stores it is launching to win younger customers who can’t quite afford to shop at its current stores yet.
Beyond the challenge from Trader Joe’s, the two top major general merchandise chains, Target (TGT) and Walmart (WMT), are upgrading their food selection, offering more natural and organic foods as they look to poach some of Whole Foods’ clientele.
Deutsche Bank found Trader Joe’s price edge was even bigger for perishable items like dairy and produce.