Among the many criticisms leveled against grocery stores that rely on slotting allowances and other supplier fees to operate their businesses is that these charges result in higher prices to consumers and a degree of sameness — a sort of dumbing down of merchandising creativity — across locations. That’s what makes a recent Washington Post article, which suggests Whole Foods is moving to a similar system to operate its business, a head scratcher.
According to the report, the grocer has sent an email to suppliers informing them that its shelf space, displays and in-store sampling will be set based in part on contributions made by vendors. The switch is part of Whole Foods’ migration to more centralized operations. Last May, the Omaha World-Heraldreported the company had “shifted many of its purchasing decisions to its national office, taking some power out of the hands of its regional offices.”
One of the concerns with slotting allowances is that they effectively price smaller and sometimes more innovative brands off store shelves, ceding more real estate to me-too nationals.
In an online discussion last week, many members of the RetailWire BrainTrust were concerned about the route Whole Foods is taking.
“Is Whole Foods striving to be Kroger?” said Anne Howe of Anne Howe Associates. “This whole effort makes me feel sad. One of the attractions of going to Whole Foods was to discover local and small-batch food purveyors and, in the process, enjoy something usually better than average grocery store fare.”
“As brands gain greater market share they forget what made them important in the first place,” said Tom Dougherty, president of Stealing Share. “They become the very thing they positioned their brand against. Whole Foods is losing its way and its differentiation.”
According to an email obtained by the Post, grocery vendors that sell more than $300,000 annually to the chain will need to discount their products by three percent to pay for the program. Health and beauty suppliers at the same level will be required to drop theirs by five percent.
Whole Foods will also mandate that local suppliers pay $110 per location to have the retailer’s in-house broker, Daymon Associates, run a four-hour demo in-store, while national vendors will pay $165.
Kathleen Overman, a former employee of Whole Foods, who founded a company that hosts product demonstrations at the chain’s stores, praised the grocer for its history of “creating a community of local food producers and brands” in an interview with the paper.
“Our job has always been to advocate for those small businesses, but with these new rules, companies like mine will no longer be useful,” she said.
RetailWire’s BrainTrust, however, sees an unintended benefit for small brands if Whole Foods continues in this direction.
“Good bye Whole Foods,” said Liz Crawford, vice president of research at Product Ventures. “You were a lot of fun. Fortunately, you have opened the door to new upstarts who will now take your place, offering innovative, healthy, whole foods.”
“Pay-to-play will only push those regional and local suppliers to find alternative ways of selling their product, like direct-to-consumer e-commerce which will not be beneficial for retailers in the future,” said Dave Nixon, data analytics solutions executive at Teradata.
And some, such as Phil Chang, retail influencer at Hubba, said that there’s a historical precedent for what happens to retailers that squeeze their vendors.
“In every instance in which we’ve seen retailers adopt these programs, the ‘reason for being’ goes away and it becomes solely about profit,” wrote Mr. Chang on RetailWire. “Welcome Whole Foods to the rest of boring grocery.”