Whole Foods Market became a natural and organic products mecca by selling unique products that could not be found elsewhere.
This ‘thrill of the hunt’ earned Whole Foods a reputation as the ‘go to’ place for new brands, especially niche and local brands. This happened because Whole Foods granted store-level buyers an unusually high degree of autonomy over product sourcing. Sadly, those days are ending and if the ‘thrill of the hunt’ is no more, where does that leave Whole Foods?
Go deeper with GlobalData
The Whole Foods revamp
In January, the Washington Post reported a major revamp of Whole Foods’ product procurement process, one that centralises its buying and merchandising activities.
Whole Foods is asking suppliers to foot the bill for the revamp which is expected to go live in April. Suppliers selling more than $300,000 worth of goods annually through Whole Foods must discount their products by between 3% to 5% to help fund Whole Foods’ new centralized buying and merchandising scheme.
An outside company will stock Whole Foods’ store shelves, create in-store displays and rotate stock, activities normally handled by brokers and other third parties. By controlling these tasks, Whole Foods locks down sales and merchandising data of interest to competitors.
Suppliers have also been asked to schedule and pay for in-store product demonstrations (from a Whole Foods’ designated vendor) as well as inventory checks – services that were once free or were handled directly by product manufacturers and brokers. The designated vendor for in-store product sampling is Daymon Worldwide, a Connecticut-based retail service firm best known for its private label consulting services.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData‘Corporatising’ in-store product demonstrations may not sound like a big deal, but allowing small and local niche brands to do their own demonstrations was part of the magic that made Whole Foods what it is. Consumers got a chance to actually see and meet the people behind some of the niche brands that the retailer showcased. With Daymon Worldwide now handling this function, you can kiss that goodbye.
Daymon’s involvement also signals an important shift at Whole Foods – from reliance on niche, branded products to a new embrace of private label and its juicier profit margins. Since Amazon purchased Whole Foods less than a year ago, it has added over 1,000 private label Whole Foods products to its website. Amazon sold an estimated $10 million of Whole Foods private label products in the first four months of the merger, according to One Click Retail.
Centralisation requires conformity, but conformity can be expensive, especially for smaller brands operating on shoestring budgets. One recent change phased in by Whole Foods requires that all suppliers use a pair of companies for food safety audits and product photography.
Business Insights reports that IX-One – the firm required for product photography – charges an annual fee plus a per product fee of $169. If a product is ever updated (a common occurrence with nutritional labels constantly changing), suppliers will have to fork over $169 again to update the product photo. For even a modestly sized product line, this gets very expensive, very fast. This puts a financial squeeze on suppliers least able to cope with changing costs.
The bottom line, as articulated by Lindsey Rosenberg – CEO and founder of Cherrydale Farms – and reported by Business Insights is that “young, hip new brands won’t be able to afford to go to Whole Foods first.”
This fleshes out Whole Foods’ new conundrum. When your major ‘reason for being’ is offering a changing array of niche brands waiting to be discovered, how much do you lose when these brands cannot scale your newly erected barriers to entry?
The love of novelty
Whole Foods’ changes should plump up the bottom line, at least temporarily. It costs money to move products around and retailers are always looking for ways to boost efficiency. But trashing your unique selling proposition in the name of efficiency is reminiscent of the old saying during the Vietnam war – ‘we had to destroy the village in order to save it.’ That didn’t work in Vietnam, and it may not work out for Whole Foods.
It is hard to quantify what love of novelty means, but that love was on full display at the recent Natural Products Expo West trade show in California, an industry event showcasing natural and organic innovation that Whole Foods’ itself actually helped put on the calendar over three decades ago.
The 2018 edition of Expo West brought together 3,521 exhibiting companies, more than 600 first-time exhibitors, and over 85,000 attendees to the newly expanded Anaheim Convention Center in March. With the booth count growing over 13% and the first-time exhibitor count up roughly one-fifth versus last year, this will go down as the single largest US-based trade show in the natural and organic industry’s history.
Yet the entity that helped foster this growth seems to be turning its back on it. Just prior to Expo West, Whole Foods reportedly told some key brand owners that it would be skipping this year’s edition of Expo West, at least in an official capacity.
This produced an unusual disconnect – massive product innovation on display at Expo West with the industry’s top vendor taking steps that discourage innovation and make it harder for emerging companies to survive. How long can this disconnect persist? Eventually, something has to give.
Hopefully, Whole Foods’ reputation for being open to industry innovation is not what gives first. Indeed, catering to the consumer’s ‘thrill of the hunt’ is one of the few approaches proven to work for brick-and-mortar retail in the fight against online retail.
In the wholesale club space, Costco is well known for the treasure-hunt thrill of its constantly changing inventory. In apparel, TJ Maxx and Marshalls – both owned by TJX Companies Inc. – are prospering because both capitalise on ‘discovery’ shopping via constantly shifting inventory that makes each visit different.
Turning shelf space over to packaged goods giants and private labels has the potential to make Whole Foods a less exciting place to shop. If this was Amazon’s original intention with Whole Foods, why didn’t it just buy Safeway, Kroger, etc. to begin with?
And if ‘young, hip new brands’ manage to find a new home outside of Whole Foods in ‘regular’ supermarkets like Kroger that are adding shelf space for newcomers or at natural/organic upstarts like Sprouts Farmers Market, Whole Foods may be planting the seeds of its own demise.
Whole Foods’ quirkiness and charm are key reasons why consumers shop there. Get rid of the trendy niche brands that make a trip to Whole Foods fun and you may end up killing the goose that lays the golden eggs.
Related Company Profiles
Kroger Health
Cherrydale Farms
The Washington Post Company
Costco Korea Co Ltd
Marshalls Plc