Walmart, Target, and Aldi are addressing a huge weakness -- and it's turning into Whole Foods' worst nightmare

Big-box retailers and traditional grocery stores are expanding their organic food offerings, and that’s bad news for Whole Foods.

Walmart, Target, Kroger, and Aldi have all been investing in more organic, gluten-free, and natural foods.

In response to the growing competition, Whole Foods has promised to lower its prices.

But it still has a long way to go to make an impact on customers’ perception of its brand, according to a recent survey of 1,000 customers by BMO Capital Markets.

Roughly 70% of Whole Foods customers said they haven’t noticed any price changes at the grocery chain over the past three months.

In our own price check, we found Whole Foods’ prices were roughly 30% higher than Kroger’s prices on a basket of 31 nearly identical items.

Whole Foods defended its prices to Business Insider at the time, saying its products have strict quality standards that contribute to the higher costs.

Whole FoodsBusiness Insider/Hayley PetersonWe saw several ‘sale’ signs during a recent store visit to Whole Foods.

But unfortunately for Whole Foods, only 24% of customers believe organic products at Whole Foods are “definitely” higher quality than organic food at grocery stores, according to the BMO Capital Markets survey.

More than half of those surveyed said the quality of the food was “sometimes” better at Whole Foods and 22% said “not at all.”

We reached out to Whole Foods for comment on the survey, and will update this story when we hear back.

Whole Foods is opening a lower-cost chain of stores, called 365 by Whole Foods Market, to better compete with the increasingly crowded market for low-cost organic goods.

At the same time, Walmart is expanding its fresh produce offerings and promoting more locally sourced and organic products. The company is growing its Neighbourhood Markets stores, as well, which are much smaller than its Supercenters and focus solely on groceries and pharmacy.

Walmart Neighbourhood MarketBusiness Insider/Hayley PetersonA Walmart Neighbourhood Market.

Target is also investing more in organic food. Target CEO Brian Cornell said the new options have been a major driver behind food sales growth in recent quarters.

“We’ve been very focused on assortment changes and bringing more natural, organic, local items into many of our categories, and we’re seeing the guest react very favourably,” Cornell said on a conference call in November.

Kroger has been expanding its “Simple Truth” organic brand and now devotes several aisles in its stores to organic and natural foods.

Aldi, which is even cheaper than Walmart, is also stepping up its game in the organic-food space.

AldiBusiness Insider/Hayley PetersonAldi’s produce section.

The grocery chain is expanding organic-food brands, removing some artificial ingredients from its products, and adding more gluten-free items in hopes of attracting more health-conscious shoppers.

Customers have yet to find out what Whole Foods’ new 365 concept will offer, and how prices will compare to Walmart, Target, Kroger, Aldi, and others.

The company has announced leases for nearly a dozen 365 stores set to open in Bellevue, Washington; Houston; Portland; Santa Monica, California; Los Angeles; Cedar Park, Texas; Cincinnati; San Francisco; and Chicago.

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