The Single Biggest Reason Kroger Is Destroying Whole Foods

The Single Biggest Reason Kroger Is Destroying Whole Foods

By Brian Sozzi Follow | 12/19/15 – 12:16 PM EST

Despite renewed efforts to slash some prices in produce and packaged foods, organic grocer Whole Foods (WFMGet Report) is still having difficulty shedding its "whole paycheck" image, much to the delight of hard-charging traditional supermarket Kroger (KRGet Report) .

According to a new price checking survey by Wedbush analyst Phil Terpolilli, Whole Foods is making "slow but steady progress" on improving its prices, particularly in departments such as produce and other "non-value added categories" like packaged foods.

But the good news on prices for Whole Foods stopped there, as overall, the survey found that Whole Foods remains grossly overpriced relative to grocery stores that have ramped up their discounts and offerings in the natural food space.

Whole Foods’ price premium on a basket of items including produce, dry goods, frozen goods and meat versus conventional grocers increased during the fourth quarter to 29.4% from 28% in the third quarter. In the meat category, Whole Foods had a whopping price premium of 50% compared to competitors, due in part to its higher quality offerings.

Whole Foods has more work to do to get its prices competitive with traditional grocery stores.

As Whole Foods tries to get its overall house in order, Kroger — armed with a greater number of organic offerings and cheaper prices compared to Whole Foods — has continued to thrive.

Kroger’s third quarter marked an astounding 48 consecutive quarters of same-store sales growth. For the quarter, Kroger’s same-store sales rose 5.4%, outpacing Whole Foods’ 0.2% decline. Kroger said it saw an increase in both the number of households shopping at its stores and a lift in the number of visits per household.

All geographies and departments notched same-store sales growth in the quarter, with deli and produce (where Whole Foods is selectively dropping prices) leading the way. Same-store sales from Kroger’s natural foods department, where its private label Simple Truth continues to be well-received by consumers, rose by a double-digit percentage, according to the company. Simple Truth set a record high for total sales in the third quarter.

Kroger did not reply to requests for comment for this story.

Kroger went on to raise its full year earnings guidance to a range of $2.02 to $2.04 a share, compared to $1.92 to $1.98 a share previously. Same-store sales, excluding sales at over 1,300 fuel stations, are expected to increase 4.0% to 4.5% in the fourth quarter. S

Shares of Kroger have surged about 32% this year, compared to a 34% plunge for Whole Foods and a modest 0.7% drop for the S&P 500. The disparity in stock price performance between Whole Foods and Kroger would be worse if not for speculation that Whole Foods is exploring a transaction to take it private — shares of Whole Foods are up about 13% in December.

Co-Founder John Mackey recently denied rumors it was looking to make a deal.