Overcharging claims lead to class action against Whole Foods

A securities class action lawsuit was recently filed against a natural and organic foods retailer following allegations that it violated federal securities laws.

The class action filing against Whole Foods Market was made in the U.S. District Court for the Western District of Texas on behalf of individuals who invested in the company during the class period between Aug. 9, 2013 and July 30, 2015, according to a press release. The class action suit comes following claims that the natural and organic foods retailer failed to disclose that it was routinely bumping up the weight of its pre-packaged products, and, as a result, overcharging consumers for these foods.

Whole Foods began with a single store in Austin, Tex., in 1980 and has since expanded to 427 locations in North America and the U.K. The retailer states that it “maintain[s] the strictest quality standards in the industry” and that it has an “unshakeable commitment to sustainable agriculture.”

“Whole Foods failed to disclose that it was bumping up the weight of its pre-packaged products.”

New York City agency hits Whole Foods with allegations of overcharging 
On June 25, 2015, the New York City Department of Consumer Affairs announced that it had discovered “systematic overcharging for pre-packaged foods” at a number of of the retailer’s New York City locations.

“It is unacceptable that New Yorkers shopping for a summer BBQ or who grab something to eat from the self-service aisles at New York City’s Whole Foods stores have a good chance of being overcharged,” said Julie Menin, NYCDA commissioner, according to the Washington Post. “Our inspectors tell me this is the worst case of mislabeling they have seen in their careers, which DCA and New Yorkers will not tolerate.”

The company, in denying the allegations, stated that overcharging was never intentional, and that if it occurred, consumers were always given the opportunity to seek a full refund, the news outlet stated. However, the New York City agency found that the majority of the packages tested – 89 percent – deviated too far from acceptable prices. Whole Foods responded by denying the allegations and stating that it would defend itself against the NYCDA’s claims that the retailer was overcharging consumers for certain products.

The NYCDA's allegations against Whole Foods negatively impacted its quarterly earnings.The NYCDA’s allegations against Whole Foods negatively impacted its quarterly earnings.

NYCDA allegations negatively impact Whole Foods’ share prices
However, not long after, on July 29, 2015, the company filed its Form 8-K disclosing its financial and operating results for the quarter ending July 5, and held a rather disappointing earnings call. Whole Foods revealed lower-than-expected quarterly results, ascribing the issues to the NYCDA’s allegations against the company.

“The impact was really felt across the whole country, not in New York City. This was national news,” said Glenda Flanagan, the chief financial officer and executive vice president, according to the press release.

On news that the NYCDA’s allegations affected the company’s earnings, Whole Foods’ stock fell $4.74 per share, or 11.61 percent, to close at $36.08 on July 30, 2015.