Whole Foods Is Competing With Traditional Stores Like Never Before

flickr/shankboneAs Whole Foods starts to compete on price as well as quality, traditional grocery stores should be very scared.

The Austin-based chain — once jokingly known as "whole paycheck" — is increasingly benefiting from economies of scale, meaning that things get cheaper when it buys in larger quantities, as Kyle Stock points out in Bloomberg Businessweek.

With lower prices and more sales, Whole Foods has been able to penetrate smaller or less affluent cities, like South Bend, Indiana and Detroit.

The brand still has a ways to go, with 349 stores compared to 1,678 for Safeway and 2,435 for Kroger, but it's getting there.

The stock market agrees. Whole Foods stock trades at a 38.35 price-to-earnings ratio, compared with Kroger's 12.51, which means that investors expect quite a lot more growth.

At the same time, Whole Foods maintains the highest sales per square foot in the industry.

"If we can be relevant on price, we can get to the quality conversation that we really want to have," co-CEO Walter Robb told Fortune.