The company’s overcharging scandal underscores our tendency to associate higher prices with higher quality.
Think the prices at Whole Foods are criminal? You should feel vindicated by the ongoing investigation into the company’s New York City stores: The city Department of Consumer Affairs (DCA) has found that the grocer routinely overstates the weights of pre-packaged products, resulting in rampant overcharges, “from $0.80 for a package of pecan panko to $14.84 for a package of coconut shrimp.” DCA commissioner Julie Menin stated in a press release that it was “the worst case of mislabeling [our inspectors] have seen in their careers.”
This isn’t the first time Whole Foods has been caught overcharging. In 2014, the company was forced to pay $800,000 in penalties after an investigation found similar pricing irregularities at stores throughout California. But the New York City probe comes at a particularly difficult time for the grocery giant, as competition from mainstream chains such as Costco and Safeway weakens its hold on the specialty food market. In May, Whole Foods announced plans for a new line of cheaper spin-off stores, in a bid to court millennial shoppers. But now there’s little chance that the company will shed its “Whole Paycheck” moniker anytime soon.
The “systemic” overcharging at New York stores is a bitter pill to swallow on its own. But more than that, it’s a violation of consumers’ trust in the Whole Foods brand—that virtuous halo of health, sustainability, and responsible agricultural practices. No one goes to Whole Foods for a “good deal.” We go because the “Fair Trade,” “Non-GMO,” and “organic” stamps make us feel like we made the smart, ethical choice. And we’ll pay a premium for those good vibes.
Research has repeatedly shown that shoppers associate high price with high quality. Rightly or wrongly, this perception serves as a cognitive shortcut for sifting through a bewildering array of options. A 2012 University of Wisconsin-Madison study, for instance, found that the higher the price premium on organic eggs, the more likely households were to purchase them, suggesting that consumers perceived the higher price as an “indicator of better quality.”
When that image doesn’t pan out, customers can feel betrayed. Responding to news of a health code violation at a NYC Whole Foods, Lower East Side resident Nikki Delventhal told amNewYork, "You go to Whole Foods because you expect it's wholesome all over. It's clearly deceiving and it's upsetting."
Consider the trust we place in the “organic” label. Whole Foods doesn’t exclusively sell organic products, but it does have a reputation for doing so—and when it comes to “health food” shopping, it’s the perceptions that matter. Agricultural economist Konstantinos Giannakas explained in a paper on organic food mislabeling:
Organic products are what economists call credence goods, and the information about the nature of the product is asymmetric; while producers know whether the product is organic or not, in most cases the presence or absence of the organic characteristics are not detectable by consumers even after purchase and use of the product. ... consumers do not know whether a product is organic unless they are told so.
This is why trust is so important for a company like Whole Foods—and why scandals like this one could be so damaging to its bottom line. If shoppers can’t trust that Whole Foods’ higher prices reflect higher quality, they’ll be less likely to fork over that extra dollar for organic dinosaur kale. In this case, it really is the principle of the thing.