If you have been a patron of or an investor in Whole Foods Market Inc. (NASDAQ: WFM) you have seen a wild ride up and down more than once or twice. Since the 1990s this grocery chain had explosive growth, high margins and a clear and different path to serving the customer natural and organic foods. But that lead changed in recent years, and now organic food is available at most stores – often at far cheaper prices for the same item (and the same brand). Wall Street has been hoping that the Whole Foods turnaround is taking shape. A fresh research report from Goldman Sachs might be seriously debunking that hope.

Goldman Sachs did not just issue a normal downgrade on Whole Foods. The firm’s Stephen Tanal and Alison Levens cut the rating to Sell from Buy, a two-notch downgrade. Much of the downgrade is due to the competition which has always been willing to operate on much thinner margins. The worry here is that the old days of premium valuations are quite simply gone. Hard discount chains like Supervalu (NYSE: SVU) and Kroger Co. (NYSE: KR) are also cited.

One issue cited in Tuesday’s report that hurts Whole Foods is that the other chains can have better economies of scale at the local level. Another issue cited is that the competition for the Whole Foods customer is endless and seems to be intensifying. The stores in densely populated markets attract more competition and the lower-priced national chains are likely better insulated from such strong competition.

One more issue that Goldman Sachs cited is that pockets of growth exist in perishable goods and in private label offerings. Whole Foods has its 365 in-house brand, but the firm favors the stores that make healthy living (organic and natural) accessible to the mass market.

Whole Foods was also given a $31.00 price target by Goldman Sachs. One interesting issue here is that Whole Foods is expected to grow its store count, but that growth is not expected to be seen on earnings. That caused a re-rating of the Whole Foods multiple on earnings (P/E), and interesting might not be the right way to describe that concern.

Goldman Sachs now sees quarterly same-store sales at -3.0%, worse than the -2.2% consensus. Its 2016 estimate is for -2.4% same-store sales versus expectations of -1.9%. For 2016, the Goldman Sachs estimate is $1.53 EPS versus a street estimate of $1.52 EPS. The reason for the higher estimate is on food deflationary pressure and slightly lower expenses.

For 2017, Goldman Sachs sees same-store sales more or less flat with an EBIT forecast that is 5% short of estimates. It sees 2017 earnings at $1.50 EPS, shy of the $1.57 EPS consensus.

The analysts behind this downgrade simply do not see a real return to same-store sales growth until 2018, but they are still looking for gains of 1.6% rather than Wall Street’s 2.5% consensus estimate gain. Its 2018 estimate for earnings of $1.50 EPS is over 10% shy of the consensus of $1.69 EPS.

Whole Foods shares were down 1.4% at $34.09 in late-day trading on the downgrade, but that drop is perhaps not as much as you might have expected from the likes of a Goldman Sachs downgrade. One issue which may be the reason behind the muted reaction is that other firms have been upgrading Whole Foods shares of late. Macquarie raised its rating to Outperform from Neutral just a day before this downgrade.

Another issue to consider here is that the consensus analyst price target is $30.90, so Whole Foods might just be more in-line or even a tad better. Trading volume was not even excessive here, so it seems that the downgrade may not have caused any widespread panic.

Whole Foods has a 52-week range of $28.07 to $41.75 with a $11.1 billion market cap. One last parting issue is that Whole Foods had a unique model and how it was valued for years. The explanation from 24/7 Wall St. was that this was a luxury chain rather than a traditional grocery chain. That being said, when luxury goods get sold for far less everywhere else it is hard to keep those customers coming back over and over.

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