Whole Foods hits suppliers with in-store merchandising fees
- Whole Foods has restricted suppliers' control over in-store merchandising, and now requires them to pay for a program that oversees demos, shelf management and displays, according to The Washington Post.
- Under the old system, suppliers could run in-store demos for free and oversee their merchandise. Under the new system, companies are required to schedule demos, inventory checks and related activities through Daymon, a retail strategy firm. Whole Foods is also making suppliers help pay for this new management system. In an email to manufacturers, Whole Foods said those selling more than $300,000 worth of products annually through the retailer will be required to discount their products 3% (groceries) or 5% (health and beauty).
- Whole Foods is also requiring suppliers to pay a fee for in-store demos. Local companies must pay $110 for each four-hour sampling or related program, while national suppliers have to pay $165. If a manufacturer wants to run a demo rather than have SAS Retail Services, a Daymon subsidiary, run it, they must pay a scheduling fee of between $10 and $30, according to the Post.
In September, The Wall Street Journal reported that Whole Foods would begin barring brand reps from running demos and checking inventory beginning this year. Industry sources speculated that the grocer would turn this into a revenue opportunity, but until now any details of this effort were unclear.
Along with reports that Whole Foods is centralizing its buying system and scaling back its supply of local and niche products, this new in-store merchandising system hits cottage manufacturers particularly hard. These suppliers have limited capital and often rely on the retailer, long a champion of locally sourced goods, for a large portion of their sales. A pasta sauce company in Nevada told the Post that its sales had fallen 75% after Whole Foods scaled back its supply of its product.
The new system also impacts companies that run demos and other in-store merchandising efforts for manufacturers. Some of these outfits have built their business around Whole Foods' stores and supplier community, and see their expertise as a valuable asset for lesser-known brands.
Whole Foods has not publicly discussed any changes to its local sourcing efforts, other than to say it's still committed to these manufacturers. Over the past few months, though, reports have emerged of small suppliers being cast aside by the grocer in favor of mainstream brands.
Whole Foods had begun streamlining its buying operations before its acquisition by Amazon, and the e-tailer seems to be accelerating that process. Many have argued that the grocer is losing its identity, but from Amazon's perspective, keeping Whole Foods the same doesn't make much sense. The grocer has some of the highest operating costs in the industry, and has struggled against mainstream competitors in recent years. Its wide selection of local products hasn't kept consumers from defecting to Kroger and Safeway — so why hold on to that very expensive part of the business?
Amazon is no doubt confident, too, in its plans for Whole Foods, including the wider rollout of its Prime loyalty program, further price cuts, and its much-anticipated e-commerce platform.
At the same time, there's no denying the popularity of local products and their ability to differentiate a retailer. Whole Foods may eventually shed its "Whole Paycheck" image (though its first two rounds of price cuts seem to be more about marketing and less about moving the dial). But it's also becoming more of a traditional grocer with these latest moves. Will lower prices and Amazon's plans be enough to make Whole Foods an industry leader? Will Whole Foods' performance even matter against Amazon's broader plans to move sales online? Since August, the online giant has sold more than $10 million worth of Whole Foods' 365 Everyday private label products.
Other grocers certainly see an opportunity. Kroger recently launched an online portal that allows small manufacturers to pitch products directly to company buyers. Like other retailers, the Cincinnati-based grocer is eager to distinguish itself from the most-watched company in the supermarket industry.
- The Washington Post Whole Foods places new limits on suppliers, upsetting some small vendors
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