Whole Foods agrees to pay $500K in overcharging scam

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Whole Foods Settles Overcharging claim in NYC

Analysts Fear Share drop if Chain stops practice

The Associated Press reported that Whole Foods, the grocery chain, known derisively as “Whole Paycheck”, says it has agreed to pay New York City $500,000 to settle allegations it overcharged customers for prepackaged foods. The settlement follows a similar $800,000 agreement the chain made earlier in the year with the cities of Los Angeles, Santa Monica and San Diego. When asked why NYC settled for less than the Southern California cities, a NYC Department of Consumer Affairs spokesperson, Carlita Gonzalez-Ginsberg, invoking her best Valley Girl said, “California, whatever!”

The $500,000 settlement is considerably lower than the millions of dollars in fines the city initially expected given the thousands of violations on prepackaged foods. 

While never officially revealed, it is estimated by retail grocery consultants in both New York and in Southern California, that Whole Foods, part of the low-margin retail grocery business, might have reaped millions of dollars in additional profits in this overcharging scam.

For its part, Whole Foods acknowledged that mistakes were made but put the blame directly on rogue employees. When contacted, those employees simply believed that the sobriquet “Whole Paycheck” gave them license to indulge in the practice.

Speaking of profits, analysts are anticipating volatility in Whole Foods' (NASDAQ:WFM) stock price when the market re-opens on Monday after the New Years break. According to James Jones, retail analyst for the brokerage Edward Raymond, “It’s not the fines that are concerning us, they’re basically meaningless for an operation like Whole Foods; it’s the fact that to this point, in the notoriously low margin retail grocery business, Whole Foods garners its highest profit margins by overcharging for prepackaged foods, making it a significant contributor to the company’s bottom line. Jones went on to say, “While it would be illegal (or perhaps only unethical) for us to advocate this, for the benefit of its shareholders we would hope that Whole Foods finds a way, within the context of the agreement, to continue the practice of overcharging while being subject to minimal fines.

When appraised of Jones’ comments, Whole Foods spokesperson Kerry Kale-Chardstein said Whole Foods would continue to do whatever is necessary to continue serving the best interests of both its shareholders and customers. Regarding customers specifically, Kale-Chardstein went on to say, “Look, let’s get real. These people are paying a fortune for our outrageously priced prepackaged foods anyway. So what’s a couple of additional dollars once in awhile? Clearly, if they’re buying this stuff to begin with, they can afford it”.