Here’s Why Whole Foods Is Losing Customers

And it's not because of their prices.

Whole Foods Posts 71 Percent Increase In Quarterly Profits
Getty Images | Justin Sullivan

Things are not good at Whole Foods HQ. Customers are fleeing from the store in droves, and it’s not just because of high prices. A variety of issues plague the once-shiny grocery store chain, and the company is scrambling to act.

“That Whole Foods can’t turn around its fortunes is, in our opinion, the result of several fundamental flaws in its business model,” Neil Saunders, managing director of the retail consulting firm GlobalData, wrote in a note to clients. “Over the past few years, these cracks have become more pronounced, and the company has done seemingly little to correct them.”

This is debatable—Whole Foods recently underwent a sweeping change to its board of directors, due in part to pressure from activist shareholders in the company. According to The New York Times, the company has replaced five directors, named a new chairwoman and plans to bring in a new chief financial officer. It has also announced plans to cut costs and is considering switching from local to national distributors.

Whole Foods Reports 27 Percent Increase In Q2 Earnings
Getty Images | Scott Olson

But, according to Saunders, Whole Foods is suffering from something entirely different than pricing malaise. The biggest issues, he says, are ugly stores, bland foods and market competition. When you say it like that, it’s a wonder the company is even still solvent.

The stores are the first issue Saunders outlines. Many are cramped, boring, dingy or just plain unappealing.

“A host of older stores, especially those in cities, are plain shabby and down at heel,” Saunders told Business Insider. “Even newer shops… are not particularly revolutionary or impressive. By comparison, some mainstream grocers—like Price Chopper and its new Market 32 format—are coming out with store designs that are much more creative and inspiring than Whole Foods.”

The second issue is that the prepared food can be very hit or miss. The bakery section is boring, and customers have grown to expect better, especially when they can get it for a lot cheaper at mainstream grocery stores.

“The offering from the hot food counters is bland and dry, prepared packaged foods are hit-and-miss, and the cake and patisserie offer is often less than inspiring,” Saunders said.

Finally, Saunders says, organic options are no longer exclusive to Whole Foods. Traditional grocery stores are investing in organic and “natural” options and selling them for significantly less.

According to Business Insider, an analyst from Barclays estimated that 14 million customers had left Whole Foods in favor of Kroger over the past six quarters.

Whole Foods Reports 27 Percent Increase In Q2 Earnings
Getty Images | Scott Olson

Whole Foods knows it’s in trouble; that’s why they’re shaking up the board and trying to reconfigure. But once that foot traffic is gone, it’s hard to get it back.

“The more conventional mainstream supermarkets have upped their game,” Whole Foods CEO Mackey said on a call with analysts in February. “We’re going to do the best job that we can to keep our core customers from migrating back over to those guys.”

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