Trader Joe's Might Be Once Again Catching Whole Foods Off Guard With Price Investments

Trader Joe's might be once again catching Whole Foods Market, Inc. (NASDAQ: WFM) off guard with its new price investments, according to a report from Deutsche Bank.

Deutsche Bank said its recent pricing study in NYC showed Trader Joe's had a significant advantage over WFM.

In a note, analyst Karen Short said, "It is our understanding, based on industry checks, that TJ's next reduction could occur at the ~ 500 unit mark - basically where TJ's sits today. With this in mind, we conducted a price check to see, if, in fact, a meaningful price gap existed. 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."

The analyst has three observations from the recent WFM/TJ's checks. First, Short found that TJ's had a wide price advantage, with a basket of 77 SKUs priced 21 percent below WFM (WFM was +26 percent above). Second, TJ's had a clear pricing advantage across both perishables (WFM was +30 percent above) and non-perishables (WFM was +24 percent above).

"In fact, we found that TJ's had lower prices on 78% of the items checked, while WFM had an advantage on just 9% of the items (13% were at parity)," analyst Short said.

Third, the analyst's checks found that TJ's private label was priced at a 15 percent discount to WFM's private label (WFM was 18 percent higher) and said "this was a surprise as WFM has historically been very focused on matching TJ's prices on private brands."

Deutsche Bank has a Hold rating on Whole Foods with a $28 price target.