It's becoming more expensive to be a Whole Foods supplier
- Whole Foods is charging vendors for the 10% discount that Amazon Prime members receive on select products, according to The New Food Economy.
- In a recent email obtained by the site, a Northeast distributor told its supplier customers that a 10% “scanback charge” would be applied to any Prime sale product purchased by shoppers. Whole Foods first implemented its Prime discounts, which offer an additional 10% discount on rotating sale items, in May and expanded to all stores just one month later.
- Meanwhile, The Wall Street Journal reports that suppliers are unhappy with Whole Foods’ new fees and policy changes, with many refusing to sign new contracts with the grocer. There’s also employee unrest, with threats to unionize after the company laid off hundreds of in-store marketing associates. Numerous executives have also left the company.
Suppliers are used to footing the bill for discounts of 10% or more. But they’re also used to having more control over those discounts and to receiving better communication from their retail partners. Most vendors interviewed by The New Food Economy weren’t aware of the details surrounding the Prime Savings Program.
In addition to these scanback charges, Whole Foods has centralized its buying efforts at its Austin, Texas headquarters; instituted merchandising fees of between 3% and 5% of manufacturers’ total; begun charging for in-store demos; and has barred suppliers’ brokers from stores. While most of these policies were put in motion before Amazon stepped in, they’ve been embraced by the online giant.
It may very well be that all the charges and new policies are worth the trouble for suppliers. Data shows traffic is up significantly at Whole Foods stores, and that brands are seeing higher sales post-acquisition. Vendors and industry experts also see an opportunity for crossover success between the grocer and Amazon’s site.
But for many suppliers, all of these changes are putting the retailer’s success far ahead of their own. It’s jarring coming from a grocer that used to be renowned for its nurturing relationships with product makers, and a lot of small vendors — the ones that have long helped Whole Foods stand out from the crowd — now say they’re completely shut out of stores.
Changes are sweeping across Whole Foods ranks, from the corporate office down to the store level. More than a dozen executives have left the company, while stores have seen hundreds of in-store marketing employees forced out. John Mackey remains the company’s CEO, but now shares power with two Amazon executives. In a recent town hall meeting, the outspoken founder said he has had numerous clashes with Amazon, and said he is not afraid to get fired.
Many predicted the cultural clash that’s unfolding between the natural grocer and the hard-driving e-commerce company. Amazon, for its part, doesn’t have much interest in maintaining the status quo, since the status quo wasn’t working for Whole Foods. The e-tailer also knows it has the size and clout to demand a lot from manufacturers, and a big-picture retail strategy that has yielded stunning success.
But if Amazon alienates too many suppliers, it could also alienate shoppers loyal to those brands. Earlier this year California Baby, a popular personal care company, pulled its products from Whole Foods shelves. Competing grocers are stepping in to sign these local and niche brands. In a recent interview with Food Dive, Nick Desai, CEO of Snack It Forward, recently signed deals with Kroger and Albertsons to distribute its latest product — a natural alternative to Cheetos called Peatos — after deciding to bypass Whole Foods.
As it has shown time and again, Amazon is able to deliver price and convenience to consumers. However, when it comes to natural and organic grocery, if it doesn’t have a well-differentiated assortment, it risks losing shoppers and damaging a carefully crafted brand.
- The New Food Economy Email reveals who’s really paying for Amazon Prime’s new discount at Whole Foods: vendors
- The Wall Street Journal New Era at Amazon’s Whole Foods Grates on Some Suppliers, Employees
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