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Food & Power: The Walmart of Organics? Whole Foods Moves to Centralized Purchasing

Friday, January 13, 2017 8:33
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(Before It's News)

Cornucopia’s Take: As access to organic food has increased, as mainstream retailers respond to consumer demand, specialty retailers like Whole Foods, which have historically been the go-to outlets for accessing better food are losing out. This has also been true for the nation’s approximately 300 member-owned co-op grocers (the gold standard in organic retail).

It would be a mistake for the higher-quality retailers to shift to more “generic” industrial organic brands rather than to continue to showcase artisan and local producers. For Whole Foods, this could result in the same type of death spiral that retail giants, like Sears, have experienced when not successfully differentiating themselves from the competition.

The following interesting coverage was created by New America.


The Walmart of Organics? Whole Foods Moves to Centralized Purchasing
New America – Food & Power
by Leah Douglas

Source: Masahiro Ihara

Whole Foods’ recent decision to centralize buying for its U.S. stores will likely make it much harder for smaller producers of organic and natural foods to get to market. The move could thus further solidify the control of the corporate food giants currently dominating the organic and natural foods sector.

Zach DeAngelo, a food entrepreneur and CEO of Rodeo Ventures, an investment firm, says the transition to centralized buying will “greatly diminish” the company’s likelihood of “taking bets on small brands,” depriving market newcomers of a crucial base-building opportunity.

The decision marks a major retreat for Whole Foods, which has long relied on localized purchasing to define its brand. But since facing greater competition from traditional retailers and bad publicity for its high prices, the company is moving to a more conventional model. The company says this shift will help improve efficiency and offer customers better deals.

Since the company became a national chain in 1990s, it has largely relied on a dozen regional purchasing offices to stock the stores’ catalogs. These buyers scout local products to personalize each Whole Foods outlet. The local products give customers a sense that they are shopping at a neighborhood market, rather than simply a branch of a national chain. The company doubled down on the strategy a decade ago, after food writer Michael Pollan challenged CEO John Mackey to sell more locally sourced products.

Whole Foods, which reported $3.5 billion in sales last year, outlined plans to change its purchasing model over the next two years. The plans include centralized buying of non-perishables, more product promotions and deals, and auto-replenishing of popular products. The company plans to cut 2,000 jobs in the reorganization process.

The company’s unique purchasing system earned it goodwill among many niche producers, who saw the retailer as one of few who were committed to supporting young brands. “There was a real relationship with a regional Whole Foods buyer or their local discovery team,” says DeAngelo.

The supply chain change comes at a time when Whole Foods has been confronting falling sales, largely brought on by other retailers and food companies entering the “wellness” and healthy foods space. The company also paid out an $800,000 settlement to charges that it artificially inflated the prices of some products. The company sees its main competitors as huge box stores like Target, Kroger, and Costco. The major food companies providing organic and natural products to those stores are General Mills, WhiteWave, and Hains Celestial—all massive corporations with little connection to local markets.

The restructuring will also likely put more power in the hands of United Natural Foods, Inc. (UNFI), Whole Foods’ main supplier. That company is the dominant player in organic and natural food wholesale and distribution. Centralized buying could mean less reliance on small and regional distributors.

UNFI has achieved its dominance by acquiring many of those smaller distributors, such as Tony’s Fine Foods in 2014 and Haddon House Food Products in 2015. Some UNFI employees allege that the company has abused its powerful position in the sector by treating workers poorly. In 2012, the National Labor Relations Board began an investigation into UNFI for 45 violations of federal labor laws, including worker surveillance and intimidation. In March 2015, members of the Teamsters union protested UNFI, alleging that the company was leveraging its “dominant market power” to threaten and fire workers.

The regional buying program did have some critics. In a 2007 report from the Institute for Local Self-Reliance, several small producers alleged that Whole Foods used their products to enhance the company’s pro-local image, but spent most of its resources pushing its own private-label products. Those producers also said Whole Foods listed their products at prices 40-50% higher than recommended, which deterred customers. Whole Foods reports that it has about 4,400 private-label or exclusive products, which comprised about 18% of sales in 2014.

“Local was very much part of [Whole Foods’] marketing, and the kind of brand image that they wanted to build,” says Stacy Mitchell, the co-director of ILSR. Such branding could feel like a “cynical” marketing tactic, she says. But still, for some companies landing a deal with Whole Foods could mean the difference between surviving or folding.

As for the future of the Whole Foods ethos, Mitchell says centralized buying is at odds with a pro-local brand. “It’s very much in keeping with how [the] largest grocery chains like Walmart operate,” she says.

The post Food & Power: The Walmart of Organics? Whole Foods Moves to Centralized Purchasing appeared first on Cornucopia Institute.



Source: https://www.cornucopia.org/2017/01/food-power-walmart-organics-whole-foods-moves-centralized-purchasing/

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