- A federal appeals court revived a potential class-action lawsuit against Whole Foods Market that alleges it overcharged shoppers by overstating the weight in pre-packaged items sold in New York City, according to the Wall Street Journal. The allegations raised in the lawsuit stem from a since-settled 2015 investigation by the city into Whole Foods overcharging shoppers for pre-packaged foods at its stores.
The Second U.S. Circuit Court of Appeals in New York said a lower court was wrong when it dismissed the case in 2016 from a Manhattan resident claiming the supermarket chain overcharged him. In its opinion, the appeals court said the shopper had “plausibly alleged” that “Whole Foods packages were systematically and routinely mislabeled and overpriced."
- The Wall Street Journal cited a Whole Foods spokeswoman who said the company was disappointed in the court’s decision. "We will continue to vigorously defend against the plaintiff’s meritless claims,” she said.
The ruling to revive a possible class-action suit comes as Whole Foods faces a series of attacks on its business. Once the darling of the organic and natural foods space, the embattled company is struggling to compete against the likes of Kroger and Walmart that now offer high-quality, low-priced organics. It's also facing a new generation of natural and organic retailers such as Sprouts that have taken a value-first approach. Even Costco claims to sell more organic food than Whole Foods.
Whole Foods is also dealing with calls from two major shareholders — activist investor Jana Partners and mutual-fund manager Neuberg Berman — who are pushing the Austin, Texas-based grocer to sell itself. In response to the pressure, Whole Foods recently overhauled its board and made a series of changes to its business, including cutting internal costs by another $300 million, increasing targeted promotions and lowering prices. But these moves have not been enough to appease activist investors.
While not a devastating blow to the retailer, the latest court ruling is unlikely to help the company in its efforts to recover from its recent woes and assist it in wooing once-loyal customers back to its stores. The Wall Street Journal noted Chief Executive John Mackey has apologized for the overcharging, calling the mislabeling an error. The company settled the allegations for $500,000 with the New York City Department of Consumer Affairs and agreed to conduct quarterly audits and increase training around pricing.
To be sure, Whole Foods is not the only company that has been accused of misleading the consumer. Last month, a judge ruled that a lawsuit against Hershey could go forward alleging the company short-changed customers by selling packages of candy that were only partially full. Similar lawsuits are currently pending against Barilla — accused of underfilling boxes of dried pasta — and McCormick, which reduced the amount of pepper contained in a package without changing its size.
For Whole Foods, the grocer runs the risk of a prolonged court battle sending more customers to other retailers, further squeezing the company's bottom line. In May, Whole Foods posted its seventh-consecutive quarter of falling sales in stores open for at least a year. That could further pressure the board to considering selling the organic pioneer and appease uneasy investors — a move that Whole Foods, at least publicly, has appeared unwilling to seriously consider so far.