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Why is Whole Foods cutting 1,500 jobs?

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Julie Jacobson/AP/File

(Read caption) A shopper leaves the Whole Foods Market store in New York's Union Square (June 24, 2015).

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Whole Foods Market Inc. is planning a cut of 1,500 employees (1.6 percent of their workforce). The cuts will mostly affect "back line" workers and not staff that interact with customers. 

For Whole Foods, layoffs are anything but the norm. The chain has been an innovator in labor models that incentivize productivity, and  the grocery chain traditionally has had below average turnover. Many employees benefit from the Whole Food treatment, receiving above average pay for the grocery industry, stock options, and health care benefits.

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“This is a very difficult decision, and we are committed to treating affected Team Members in a caring and respectful manner,” Whole Foods co-CEO Walter Robb said in a statement on the company’s website.

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The layoffs are part of an active attempt from Whole Foods to lower prices and shed its “whole paycheck” reputation. In May, the Austin, Texas-based company, announced plans for a sister chain called 365 by Whole Foods, which will focus on affordability. The move comes as Whole Foods faces growing competition from mainstream grocers, like Kruger’s and Wal-Mart, who have emerged as competitiors in the organic food market.

The company is doubling down on brand rehabilitation after recent accusations of overpricing. Over the summer, New York City officials alleged that Whole Food locations in the city were mislabeling the weight on prepackaged food, thereby overcharging customers. The company faced a fine the previous summer (2014) for overpricing in California.

The result of high prices, overpricing scandals, and increased competition has been a stock drop of more than 40 percent over the past six months and dismal quarterly reports. In July, the company’s third-quarter report came in below Wall Street expectations.  The company hopes the layoffs and restructuring will turn this trend around.

 “We believe this is an important step to evolve Whole Foods Market in a rapidly changing marketplace,” Mr. Robb said in a written statement.

According to the company, the employees facing layoffs will be offered “transition pay, a generous severance, or the opportunity to apply for other jobs." Whole Foods will also be paying the affected employees in full for the next eight weeks.

The company's corporate statement says that it "anticipates many of the reductions to be managed through natural attrition and expects a significant percentage of affected Team Members will find other jobs from the nearly 2,000 open positions across the company….”