I never was into the organic food craze until my wife became a personal trainer and figured we needed to eat healthier. We swung by Whole Foods one day and at first it didn't seem any different than any other grocery store. That was until we started looking at the prices. Whoa! Whole Foods is able to charge higher prices for their products than the average neighborhood grocery store because of their differentiated products.
Whole Foods competes as a monopolistically competitive market, where many stores compete in the same industry. However, for years Whole Foods enjoyed a particular "nitch" in the market by providing natural and organic products.
For the past few years, over 70,000 new stores opened, not including those already existing competitors, that offer natural and organic products due to the increased demand. This increase in demand and few barriers to entry is causing Whole Foods to change their strategies. The overload of competition is going to force the price downward and Whole Foods will earn zero economic profits in the future.
But, let's get real. Is what they say organic, really organic?