Trader Joe's Might Be Once Again Catching Whole Foods Off Guard With Price Investments

Privately held grocery chain Trader Joe's might be once again catching Whole Foods Market, Inc.

off guard with its new price investments, according to a report from Deutsche Bank. Deutsche Bank said its recent pricing study in NYC showed Trader Joe's had a significant advantage over WFM. In a client note, analyst Karen Short said: "It is our understanding, based on industry checks, that TJ's next reduction could occur at the ~ 500 unit mark - basically where TJ's sits today. With this in mind, we conducted a price check to see, if, in fact, a meaningful price gap existed. To our surprise - it did - so our concern is that TJ's might be once again catching WFM off guard because prior checks have not shown such disparity." The analyst has three observations from the recent WFM/TJ's checks. First, Short found that TJ's had a wide price advantage, with a basket of 77 SKUs priced 21% below WFM (WFM was +26% above). Second, TJ's had a clear pricing advantage across both perishables (WFM was +30% above) and non-perishables (WFM was +24% above). "In fact, we found that TJ's had lower prices on 78% of the items checked, while WFM had an advantage on just 9% of the items (13% were at parity)," analyst Short said. Third, the analyst's checks found that TJ's private label was priced at a 15% discount to WFM's private label (WFM was 18% higher) and said "this was a surprise as WFM has historically been very focused on matching TJ's prices on private brands." Deutsche Bank has a Hold rating on WFM with a price target of $28. Currently, shares of Whole Foods were down about 1 percent at $31.81.