Whole Foods said the changes would save on costs and centralise operations © Whole Foods Market
Whole Foods said the changes would save on costs and centralise operations © Whole Foods Market

Whole Foods hit suppliers with controversial fees

9 January 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, upsetting smaller brands.

The changes, outlined in an email sent to the company’s suppliers, come as Whole Food’s new owner, Amazon.com, pushes to reduce prices at 473 US stores.

Suppliers were previously allowed to oversee their own merchandise on shelves or use third-party firms to assist but the new rules require suppliers to work with retail strategy firm Daymon and its subsidiary SAS Retail Services to schedule in-store tastings, check inventory and create displays.

The email said local suppliers would have to pay $110 for each four-hour product demo by Daymon, while national suppliers would have to pay $165. Suppliers previously were given free three-hour demos and tastings to introduce their brands and products to shoppers.

The email also stated that vendors that sell more than $300,000 worth of products annually to Whole Foods would be required to discount their products by 3% for food or 5% for health and beauty products to fund the new programme.

Don Clark, general vice president of purchasing for non-perishables, said the changes are intended to save on costs and centralise operations.

“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,” he said.

“The changes to our in-store execution and demo programmes are creating a consistent, high-quality experience that benefits both our suppliers and our customers.”

However, some suppliers said the new policies put them at a disadvantage because they rely on regular three-hour demonstrations and tastings to introduce products that might be unfamiliar to shoppers.

Jenna Huntsberger, owner of Washington DC-based bakery Whisked, which sells produce to local Whole Foods stores, told the Washington Post that the policies would push out smaller vendors.

“Right now, you can set up your table and sample away – 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,” she said.

“Whole Foods has done a great job of creating a community of local food producers and brands but with these new rules, companies like mine could be pushed out.”

Jay Jacobwitz, president of Retail Insights, said the new set of merchandising fees would have a knock-on effect and limit the variety of products in stores. 

“Basically, the company is focused on scale and efficiency, taking costs out of the system, or shifting costs to vendors,” he said.

“This will add costs to vendors and at the margins, reduce the variety in assortment Whole Foods carries, as marginal vendors opt out due to unsustainably high service costs.

“We’ll see how much true product quality, innovation and delight remains after Amazon’s Whole Foods gets done streamlining.”

Before Amazon’s take over, Whole Foods was struggling financially, reporting its worst performance in a decade and closing nine stores in early 2017 – the most it had ever closed at one time.

At the time, the grocery chain blamed its troubles on the entry of new players into the organic grocery market, which broke what had been a monopoly for Whole Foods.

Since taking over the grocery chain in August, Amazon has looked for ways to combine the power of the two well-known brands. Whole Food stores now sell Amazon Echo devices and Amazon has added more than 1,000 Whole Foods 365 Everyday Value label products to its website.

In the first four months following its takeover, Amazon sold £10m worth of Whole Foods-branded products; according to analytics firm One Click Retail.

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