Trader Joe's widening price gap with Whole Foods: Analyst

Trader Joe's appears to be widening its price advantage with rival Whole Foods Market, with indications that the Monrovia, Calif.-based retailer may have have ambushed Whole Foods with a fresh round of across-the-board price investments, an analyst said Tuesday.

Citing recent price checks in the New York market, Karen Short of Deutsche Bank Securities in a report said Trader Joe's had a total price advantage of 26% over a neighboring Whole Foods Market across a basket of 77 like items — with Trader Joe's prices cheaper on 60 of the 77 items checked. Prior price checks, Short said, had not indicated such disparity.

Short said the price check may have signaled that Trader Joe's has proceeded with a round of price investments not unlike it had in 2013, when the retailer reached the 300-store mark and slashed its everyday prices on some 200 items. That event triggered a response from Whole Foods, which historically has priced its goods — particularly its private brands — within reach of of its privately held rival. Short said her research indicated Trader Joe's would proceed with an additional round of investments when it reached the 500-store plateau — or about where it is now.

"With this in mind, we conducted a price check across all categories to see, if, in fact, a meaningful price gap existed," the report said. "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."

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The price study indicated Trader Joe's prices were 30% cheaper on perishables and 24% cheaper on non-perishables, Short said.

Significantly, Trader Joe's had an 15% advantage in overall pricing vs. Whole Foods' 365 private-label goods.

"The wide price delta between TJ’s private label products and WFM’s ‘365’ private brand ... was a surprise to us given that the ‘365’ brand strategy has generally been to match TJ’s on price in private label despite the fact that WFM’s private label is meaningfully higher in quality and therefore justifies a premium," the report said. "In prior price checks, WFM’s private label has matched TJ’s item by item — until this most recent check."

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