Whole Foods Fined $800,000 for Overcharging Consumers - Analyst Blog

Per press reports, natural food departmental retailer Whole Foods Market, Inc. WFM was accused of overcharging its customers in California.

The company, after a year-long probe, was asked to pay nearly $800,000 as fine and investigation fees. The case was filed against Mrs. Gooch's Natural Food Markets Inc. and Whole Foods Market California Inc. – the two subsidiaries of the company that operate its outlets in California.

Investigators at the state and local level said that the company's products weighed less than the specified labels. In addition, the retailer did not discount the weight of its salad bar containers at checkout. Moreover, the grocer was found selling prepared food such as kebabs on a per piece basis, instead of its weight as required by the law.

Consequent to the accusation, Whole Foods needs to pay $210,000 each to the legal representatives of Santa Monica, Los Angeles and San Diego, who exposed the anomalies. Alongside, Whole Foods is supposed to compensate the state and county agencies for conducting the price investigation and also contribute $100,000 to a measurements and weights enforcement fund.

Apart from this, the company has penned an agreement to appoint pricing accuracy managers at the store and state levels. Additionally, all the 74 stores run by the retailer in California will be subject to random quarterly audits as part of the five-year deal.

Prosecutors argued that by creating this price difference, Whole Foods dishonored the consumer protection laws associated with unfair competition and fake marketing. However, Whole Foods stated that it consistently cooperated with the investigating authorities and its pricing policies were correct in 98% of the cases. The company also agreed to rectify its internal actions and minimize mistakes in the future.

Increasing competition and aggressive pricing weighed upon the company's performance as more and more companies are entering and expanding their presence in the Organic & Natural food business, such as The Kroger Co. KR and Sprouts Farmers Market, Inc. SFM. Wal-Mart Stores Inc. WMT also recently announced that it would stock its stores with organic food.

Whole Foods currently carries a Zacks Rank #3 (Hold).