Whole Foods Co-CEOs Apologize for Overcharging Customers

NEW YORK (TheStreet) -- After being publicly called out by the New York Department of Consumer Affairs late last week, Whole Foods Market (WFM) officially apologized on Wednesday for overcharging customers on prepackaged foods.

The Austin, Texas-based grocer initially denied the agency's claims, but in a video apology posted to the company's YouTube page, co-CEOs Walter Robb and John Mackey admitted "straight up" they had made some mistakes.

"Mistakes happen, and they're inadvertent," Robb said. He said the company's dedication to bringing its customers fresh food requires a hands-on approach and with that human-powered method, things sometimes mistakenly get mixed up.

For his part, Mackey proposed a three-part strategy for salvaging the company's reputation as a high-quality and reliable supermarket. The plan included increased training programs for employees in its stores across the country; an external audit of the company that will lead to a status report to be released within 45 days; and most importantly, the promise that if customers point out what they think is a pricing mistake not in their favor -- and they're correct-- the company will give that product to them for free.

The pricing turmoil does not come at the best time for Whole Foods, which has struggled to maintain its standing as the premier organic grocer while  mainstream chains have been introducing their own organic and high-quality offerings.

"I think they have been fighting an image problem for a while now," said Wolfe Research managing director Scott Mushkin. "What you're seeing from consumers broadly is frustration, and I think there is growing feeling among consumers that they're being ripped off."

Shares of Whole Foods are down 4% since the DCA's report was released and were not bolstered by the CEOs' apology, which was posted to the company's blog on Monday and to YouTube on Wednesday. Shares were down fractionally in late afternoon trading on Thursday.

The DCA's report, released June 24, revealed that New York locations of Whole Foods had repeatedly overcharged for prepackaged goods. The report cited overcharges on packages of vegetable platters by an average of $2.50,overcharging on packages of chicken tenders by an average of $4.13, and overcharges by an average of  $1.15 on packages of berries.

Whole Foods could face substantial fines for false labeling -- as much as $950 for the first violation and up to $1,700 for subsequent violations, according to the DCA. The potential number of violations at Whole Foods' New York stores is in the thousands.

This is not the first time the chain has come under fire for pricing irregularities. In 2012, California city attorneys from Santa Monica, Los Angeles and San Diego brought a civil consumer protection case against Whole Foods, and as a result, the grocer agreed to pay almost $800,000 in penalties and began an in-house price checking program, similar to the one now being proposed for its New York locations.

The company has also long been criticized for its normally high prices, with many consumers referring to it as "Whole Paycheck." In an effort to quash criticism and attract young people back to its stores -- and away from competitor Trader Joe's -- Whole Foods announced in May that it was launching a spinoff chain, 365 by Whole Foods Market, that will offer lower prices.

But regardless of the complaints, Whole Foods continues to be ranked among Americans' favorite grocery stores. When Consumer Reports released its rankings in April, Whole Foods came in 15 out of 68 chains, placing it behind competitors Trader Joe's and Fresh Market, ranked 3 and 9, respectively.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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