When it comes to the grocery business, relationships are as easy to bruise as an overripe apple.
Such is the case with Whole Foods, which seems to have raised some discontent in its supply chain.
A meeting looms between Whole Foods and a slew of vendors on March 19, the focus of which will be Whole Foods’ relationships with those vendors in the wake of its acquisition by Amazon.
Whole Foods called the meeting via email last week, reported CNBC. At issue is the way Whole Foods is repositioning itself in the new, Amazon-led era, where a national focus supplants the regional and local one, where the supply chain and the way fees are levied up and down that supply chain are changing too.
As noted by various news outlets, including CNBC, one point of friction has been a new servicing fee, which comes as part of a revamp of Whole Foods’ centralization of how it gets its wares. Centralization, goes the rationalization, should improve the process and the transparency of the supply chain.
The change is a marked one. The traditional grocery model has been one where the food company — in this case Whole Foods — would pay a broker to manage the flow of goods right to the end, when they’re stocked on shelves. At the point of display lies strategic value: People cannot buy what they cannot see on the shelf. Competition for eyes and tastebuds is everything in this business. And for vendors, being seen means their products have a better chance of being bought.
Whole Foods is seeking to bring that shelving responsibility under its own purview and is charging vendors fees that range between 3 to 5 percent of sales.
Fees boost Whole Foods’ margins while dinging vendors’ margins. The changes, as noted by The Washington Post earlier this year, were outlined in an email sent to suppliers. The new service fee, ostensibly, would cushion some of the impact of its much-heralded price cuts.
The fees and new processes have other impacts, of course, as vendors grumble about the extra charges while navigating the relationship that is part of the Whole Foods ecosystem moving forward.
Many of these vendors also have their own personal broker relationships in place, which include Whole Foods (and other grocers), and so these relationships are jarred. The more money these vendors hand over to Whole Foods, the less money they have to produce more, well, produce and grow their own visibility. Now, these same vendors have to work with Daymon, a retail strategy firm based in Connecticut and its subsidiary, SAS Retail Services. Under the terms of the new relationships, Daymon/SAS works with the inventory and does the shelving.
The economics of the new relationship shakes out thusly, as the Post noted: Vendors logging more than $300,000 in annual sales to Whole Foods now are discounting their wares by 3 percent (for groceries) or 5 percent (for health and beauty items). Also, vendors have to pay $110 for four-hour product demonstrations by Daymon — i.e., tastings and samples in-store. National suppliers have to pay a $165 fee for those demonstrations. There are small firms that dot the grocery landscape that base their livelihoods on hosting such demonstrations.
Amid all the background changes, what happens to the end relationship between the consumer and the grocer? Between the shelf and the basket lies a wealth of data, as to who buys what and how and when and — by extension, why. Keeping more of the relationship in-house — i.e., what people see when they make their minds up during the 1.5 trips weekly — means Whole Foods can calibrate its offerings with a bit more precision. By way of extension, that data is kept proverbially close to the vest.
That data is especially important when you consider the fact that there are, as PYMNTS’ Karen Webster noted in this space earlier this week, that there are roughly 40,000 SKUs lining shelves in a large grocery store, and the average shopper chooses among just a few hundred of them. The better the data, the better shelf space can be utilized, ostensibly.
But disintermediation means that smaller vendors may be squeezed out before gaining traction. As Amazon turns its grocery gaze to national ambition, artisanal and local favorites may be a casualty — which is why the summit that looms next week may be less than genteel.