Protection or Plunder? Whole Foods and New York City

I wanted to like this Associated Press story because, in theory, it is about the government doing what the government is supposed to do. It is supposed to punish fraud. I was actually prepared to say something nice about New York City’s government–a rare event for any government but especially in the case of the Big Apple.

Sadly, there are enough doubts raised in the story that I can’t be so positive. In fact, looking at another news story, I think this amounts to blackmail with AP only reporting enough to make the city government’s case look plausible.

The headline is accurate: “Whole Foods Market agrees to pay $500,000 to NYC to settle overcharging allegations.” It is accurate because that is all we have: unproven allegations.

Whole Foods said Monday it will pay New York City $500,000 to settle allegations it overcharged customers for prepackaged foods.

The city’s Department of Consumer Affairs said the settlement also requires Whole Foods Market Inc. to conduct quarterly audits to ensure products are accurately weighed and labeled.

The city had said in June that its investigation tested 80 different types of prepackaged food at Whole Foods and found mislabeled weights on every one. The overcharging included $4.85 for a package of chicken tenders and $14.84 for coconut shrimp, the city said.

Well, if the accusation is true, it is significant. Though I would like to know if the weight on the label was always greater than the real weight.

AP doesn’t tell us, but this ABC News TV report does: sometimes the mistakes were in the customer’s favor (see the video below).

And when you think about it, it is really hard to believe that a grocery store chain would conspire to mislabel amounts and weights. Not many people make big bucks in the grocery business. A person making a living labeling products is not going to risk jail to pad the profits of his bosses. And the person above him will not be able to trust his underling to keep his mouth shut. The employee is much more likely to turn whistleblower.

Furthermore, anyone could investigate Whole Foods by simply weighing the produce. Since Whole Foods has many competitors, I don’t see how they could afford the risk. What is to prevent Trader Joe’s from hiring someone to periodically check the accuracy of Whole Foods’ labeling?

For whatever reason, Whole Foods had allowed quality control to slip. Since they damaged themselves as well as customers, they wouldn’t catch the problem right away.

Now they’ve invested the money in fixing the problem.

Mackey had previously expressed bewilderment over why “Whole Foods was singled out for this attention,” saying that he doesn’t think the company’s track record on the matter is any different from other supermarkets. The grocery chain had nevertheless said over the summer that it would take steps to prevent overcharging, including training for workers, and pledged to give away products if customers discovered they were mispriced.

Whole Foods has already put in place third-party audits to ensure pricing accuracy, spokesman Michael Silverman said in an emailed statement.

I suppose this is all good… except what if prices rise because Whole Foods has a new business expense in avoiding trouble with the New York City government. That would be fine if it kept customers from being overcharged.

But how many customers were overcharged?

[See also, “Teachable Moment: Whole Foods Wants to Sell to Poor People.”]

I ask because, when I buy grocery items that have the weight and price on the label, I think I would notice if an item were massively overpriced compared to others. They are typically packaged in saran wrap so you see what you are buying. If one were much more expensive that the others, I would choose another.

So while small inaccuracies might have hurt customers, I suspect the really overpriced items were left on the shelf until they were put on clearance with a new reduced price. No one has shown evidence that customers were actually paying for the more highly overpriced items.

So, for all we know, Whole Foods lost more than it gained from these mistakes. While customers probably bypassed the highly overpriced items, they probably snapped up the highly underpriced items.

Maybe I am wrong in my thinking. A trial might bring clarity to what happened.

But the city never wanted to go to trial.

Whole Foods refused to consider the city’s initial demand for $1.5 million, but it agreed to the $500,000 settlement to “put this issue behind us,” Silverman said.

The Department of Consumer Affairs said the money will go into the city’s budget.

How convenient!