​Is Whole Foods cutting prices? Customers say "nope"

There is a reason Whole Foods (WFM) has vowed to change its reputation as "whole paycheck," as cheaper competition lures customers away.

Co-chief executive John Mackey promised late last year to increase discounts, hoping to attract shoppers with deals and not just artistically arranged organic vegetables. So how is that effort working out? Not so great, according to BMO Capital Markets analyst Kelly Bania.

Seven out of 10 Whole Foods shoppers told Bania and her team that they had not noticed a change in pricing during the past three months. Only 13 percent said they believed prices had dipped, while another 16 percent felt prices were actually higher. Given that almost half said they shop at other grocery stores aside from Whole Foods to find lower prices, that suggests the market will continue to see shopper defections unless it takes stronger action.

"With new competition across the retail landscape in both natural and organics, and more likely coming, we see increasing risk that Whole Foods will have to accelerate and broaden its price investments beyond current expectations to change consumer perception," Bania wrote. "Lower prices elsewhere continue to be the dominant reason cited by our respondents as to why they are decreasing frequency at Whole Foods."

Bania's research indicates that Whole Foods may be keeping its prices high for organic food in an attempt to convince consumers that their products can command more money given their better quality. But this "poses an uphill battle," she noted, given that consumers don't really differentiate between one organic cauliflower from a rival's.

Because of the risk of losing more consumers due to high prices, Bania lowered her rating on Whole Foods to "underperform" and slashed her target price from $26 to $23 per share. In early afternoon trading the company's stock was up 0.3 percent to $28.87, down nearly 50 percent from its 52-week high of $57.57.

Whole Foods didn't immediately respond to a request for comment.

Bania isn't alone in finding confusion about whether Whole Foods is actually lowering prices. One trip taken by Business Insider late last year to a Whole Foods and a nearby Kroger store found that a cart full of nearly identical items cost almost 45 percent more at the Whole Foods.