The Washington Post: Whole Foods places new limits on suppliers, upsetting some small vendors
A shopper walk in front of a Whole Foods Market Inc. store in Franklin, Tennessee, U.S., on Saturday, April 30, 2016. Whole Foods Market Inc. is scheduled to release earnings figures on May 4. (Photo by Luke Sharrett/Bloomberg)
By Abha Bhattarai | January 5, 2018
Whole Foods Markets is placing new limits on how products are sold in its stores and asking suppliers to help pay for the changes, riling some mom-and-pop vendors that have long depended on the grocer for visibility and shelf space.
The changes, outlined in an email recently sent to the company’s suppliers, are intended to save on costs and centralize operations. They come as Whole Foods’s new owner, Amazon.com, pushes to reduce prices at the chain’s 473 stores.
Some small-business owners said they are already feeling the effect.
Valerie Gray, for instance, began selling her pasta sauce, Italian Heart’s Gourmet Foods, to the Whole Foods store in Reno, Nev., four years ago. For years, she said, the grocer allowed her to display 108 bottles of pasta sauce at a time. A professional photograph of Gray and her husband hung from the ceiling, alongside a sign that said “Made Locally.”
But in the past month, that photo has come down, Gray said, and the shelves now accommodate just 36 bottles of sauce as the store makes room for national brands. Sales of Gray’s pasta sauce have dropped by 75 percent in the past month, she said.
Customers at a Whole Foods store in New York City in August. (Brendan Mcdermid/Reuters)
“It feels like that local, personal touch is going away,” she said, adding that Whole Foods accounts for half of the company’s sales.
“It’s hard to set ourselves apart anymore in the sea of well-known national brands.”
Previously, Whole Foods allowed suppliers such as Gray to oversee their own merchandise or hire local firms to do so. But under the new rules, Whole Foods is requiring suppliers to work exclusively with Daymon, a Stamford, Conn.-based retail strategy firm, and its subsidiary, SAS Retail Services, to schedule in-store tastings, check inventory on shelves and create displays on their behalf. (Jeffrey P. Bezos, the founder and chief executive of Amazon, also owns The Washington Post.)
“For the last two years, we have been working to streamline our processes to ensure all our suppliers are supported and set up for success,” Don Clark, general vice president of purchasing for nonperishables, said in a statement.
“The changes to our in-store execution and demo programs are creating a consistent, high-quality experience that benefits both our suppliers and our customers.”
In an email obtained by The Washington Post, Clark advised suppliers that they would be required to help fund the effort.
Suppliers that sell more than $300,000 of goods annually to Whole Foods will be required to discount their products by 3 percent (for groceries) or 5 percent (for health and beauty products) to fund the new program. Local suppliers will also have to pay $110 for each four-hour product demonstration by Daymon, while national suppliers will have to pay $165. (Vendors can also continue to host demonstrations themselves, as long as they pay a scheduling fee of between $10 and $30.) Daymon did not respond to requests for comment.
“To successfully run this program, we need your financial support,” Clark wrote.
Some suppliers said the new policies put them at a disadvantage because they rely on regular, previously free three-hour demonstrations and tastings to introduce products that might be unfamiliar to shoppers.
“Right now, you can set up your table and sample away,” said Jenna Huntsberger, owner of Whisked, a District-based company that sells cookies, quiches and pies to area Whole Foods stores. “So many small brands have gotten their start like that, and shoppers love that they can walk by and meet the person who made their food.”
The changes are also likely to affect a cottage industry of companies that act as liaisons between local suppliers and sellers such as Whole Foods.
Sweet Leenie, a Baltimore-based firm founded by former Whole Foods employee Kathleen Overman, specializes in hosting product demonstrations for companies such as gelato maker Dolcezza and Shenandoah Spice Company. Regular tastings at Whole Foods, Overman said, make up more than 80 percent of her business.
“Whole Foods has done a great job of creating a community of local food producers and brands,” she said. “Our job has always been to advocate for those small businesses, but with these new rules, companies like mine will no longer be useful.”
Since taking over the grocery chain in August, Amazon has looked for ways to combine the power of two well-known brands. Whole Foods stores now sell Amazon Echo devices, and Amazon has added more than 1,000 Whole Foods private-label products on its website.
It is also working to combine sales systems to eventually provide discounts to Amazon Prime members. There are already signs the efforts are paying off: Amazon sold $10 million in Whole Foods-branded products in the first four months following the merger, according to analytics firm One Click Retail.