Whole Foods Market Has a Credibility Gap

Whole Foods Market might have a serious credibility gap when it comes to GMO and non-GMO foods. One of the supermarket's big selling points in recent years has been its well-publicized opposition to genetically modified organisms, which many consumers distrust.

Last year, Whole Foods committed itself to stocking only food with labels that mention the absence or presence of GMO ingredients within five years. This was more than just a statement of philosophy; it was a clever marketing move designed to appeal to all the people who distrust GMOs. Among other things, the non-GMO pledge generated a ton of free publicity for Whole Foods in the middle of a major expansion drive.

Well, now there's an Internet rumor that could seriously damage Whole Foods' reputation when it comes to GMOs. A blogger named Jonathon Engels, who writes for One Green Planet, is charging Whole Foods with secretly stocking ingredients containing GMOs in its stores.

Engels bases his allegation on the fact that Whole Foods places labeling from the Non-GMO Project, an organization that certifies foods as not containing any genetically modified ingredients, in its stores. He notes that Whole Foods sponsors the Non-GMO Project, adding that many of the products with its labeling were certified years ago and haven't been checked since.

Basically, he's saying that many the products at Whole Foods have not actually been checked for GMOs. The logic here is questionable, but we must remember that Whole Foods' appeal to customers is based largely on passion and emotion, not logic.

Reputation could be Whole Foods' Achilles' heel
It's too early to tell if Mr. Engels' blog will have any effect, but it underscores a major weakness to a brand such as Whole Foods. Whole Foods' reputation is built upon the trust of consumers who believe it sells pure, high-quality food. If those consumers start distrusting Whole Foods, they have a reason to go to cheaper competitors such as Kroger.

All it would take is one rumor that Whole Foods is secretly stocking GMOs to go viral to destroy its hard-won reputation. That could be a real problem for a company in the midst of a major expansion effort; the plans call for Whole Foods to triple its number of stores to 1,000, according to Bloomberg.

Whole Foods, after all, operates in a highly competitive segment with notoriously low profit margins. It also faces aggressive and highly efficient competitors such as Wal-Mart and Kroger, which can offer the same products at lower prices.

Whole Foods' vulnerability to rumors should make investors think twice when they invest in companies based on their likeability and customer loyalty. Likeability and customer loyalty can vanish overnight if a company loses the public's trust, and it might never regain that reputation.

Whole Foods looks unstoppable
Such a rumor would have to do great damage to hurt Whole Foods. Chart watchers know that Whole Foods has been on the upswing lately. The company's trailing annual revenue increased by $1.1 billion, or 9.4%, during 2013. It would take an awfully big rumor to reverse that trend.

Whole Foods might simply be too big to be hurt by such rumors. The revenue growth indicates that the company may have moved out of the niche business and into the grocery mainstream. Simply, the momentum of growth might make any bad publicity that Whole Foods gets over its credibility gap on GMO foods irrelevant.

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The article Whole Foods Market Has a Credibility Gap originally appeared on Fool.com.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Daniel Jennings has a position in Kroger. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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