After rocky Amazon transition, Whole Foods bets on buying local
It was a feeding frenzy on the floor of the Flynn Cruiseport. Small-batch chocolate makers mingled with hummus entrepreneurs toting Igloo coolers. Baskets of meat sticks and chickpea puffs adorned clusters of circular tables. Brad Mahan, cofounder of the Granby-based natural food company Squirrel Stash Nuts, strode around in a blue T-shirt that said, “Ask me about these nuts.”
Whole Foods summoned 250 food entrepreneurs from across the Northeast to the Seaport on June 20 for a major networking event in an effort to restore the grocery store’s strained relationship with local food makers. For veterans of the farmer’s market and the natural food store, it was a chance to break into the big time.
Selling in Whole Foods, Mahan beamed, would be a “dream come true.”
The summit represented an important moment for Whole Foods, too. For decades, the company cultivated small mom-and-pop brands, helping them grow and expand their distribution through its national network. But in the two years since Amazon announced it would acquire the grocery store, the relationship between Whole Foods and its local partners has frayed.
Amazon injected its data-driven insights into Whole Foods, streamlining its supply chain and placing a greater emphasis on larger brands. As it attempted to bring down prices, the parent company also placed limits on what could be sold and demoed in stores, and introduced new stocking fees for its suppliers. Many felt squeezed out.
As a result, it’s been a stressful, uncertain time for small food suppliers, many of whom relied heavily on their Whole Foods relationships, said Phil Kafarakis, president of the Specialty Food Association, a major trade group of artisans, importers, and purveyors that hosted its Fancy Food show in New York City in late June.
But now the luxury grocer is rebuilding relationships with local food makers as it hastens to reposition itself in a rapidly shifting supermarket industry — and to recover from last year’s distribution disruptions that resulted in empty shelves and outraged customers. The company recognizes that selling organics no longer distinguishes it from its competitors in kale — Walmart and Costco now sell millions worth of organic products a year — and Whole Foods is hoping to harness the fact that consumers increasingly value local products over ones with the organic label.
So the Local Supplier Summit was a chance for the grocer to repair some of the damage and cozy up to local purveyors. All day, Whole Foods executives lavished attention on 250 local suppliers and would-be suppliers from throughout the North Atlantic region, which stretches from Maine to northern Connecticut, stressing their plans to reinvigorate their commitment to local products.
Don Clark, the global vice president of purchasing for non-perishables at Whole Foods, acknowledged that the company had let its relationships with local food businesses languish.
“It wasn’t that local wasn’t important to us as we were launching with Amazon and Prime,” he said. “It just got muted. It wasn’t mentioned as much in our stores.”
He said this summit, and an accompanying new We Love Local ad campaign that will feature the photos and stories of local food businesses in stores, re-ups Whole Foods’ commitment to small independent brands.
And the company outlined its efforts to bolster local product sales. It’s doubled the number of staff working on local programs. It has initiated local Wednesdays for store employees, letting them sample regional products so they can better sell them to customers.
Store executives encouraged vendors who attended the summit to sign up for its in-store demo programs, which they said typically result in sales increases of more than 200 percent.
Jon Olinto, cofounder of the b.good chain of healthy fast food restaurants, testified to how Whole Foods has nurtured his new business in Lynn, One Mighty Mill, which makes baked goods using stone-ground, freshly-milled local flour. Olinto joked that he speaks to Holly Long, the grocer’s local coordinator for the North Atlantic region, almost daily.
“We need a way to convince a mom who wears Lululemon pants that she needs to buy bagels,” said Olinto. “Whole Foods is that partner.”
And Whole Foods execs cheered the efforts of the four-person Beckon Ice Cream team, an Allston-based lactose-free dessert brand that just expanded into all 501 US Whole Foods stores.
“Our point of difference was that we are real dairy and lactose free,” said Beckon cofounder Gwen Burlingame. “No other brand was making this offer nationally, and they saw it as a gap that could be filled.”
The decision by Whole Foods to double down on local purveyors could help it regain ground it lost during the Amazon transition, said Sucharita Kodali, a retail analyst with Forrester. The brand was already struggling and facing investor activism when Amazon swept in and bought it, she said.
Customers feared that Amazon’s ownership might dilute the Whole Foods mission, she said, and many panicked when they found some shelves empty last winter as the company transitioned its distribution network. She added that placing an emphasis on low prices also likely alienated a subset of diehard customers who associate low prices with lower quality.
“Nothing about the way [Amazon] approached Whole Foods was customer-centric,” Kodali said. “It wasn’t about how can we surprise and delight the Whole Foods customer. This newfound commitment to local goes back to their values, and the fact that they’re trying to get back this customer that has so many other places to go.”
Now Whole Foods is playing catch-up. Supermarket chains like Wegmans, Sprouts, and Roche Bros. have all put an added emphasis on local products, said Burt Flickinger, the head of the retail consultancy Strategic Research Group.
“The high-volume regional competitors have really gained ground on Whole Foods in part because the local vendors, while still favored by Whole Foods, don’t have the favored-nation status they had,” he said.
Kafarakis said that many members of the Specialty Food Association have been finding inroads into retail channels like Walmart, CVS, and convenience stores. That’s helping to take specialty products mainstream, he said, leading to a jump in total sales of specialty foods, known for their small-batch, high-quality ingredients. Sales went up 9.8 percent between 2016 and 2018 and totaled $148.7 billion last year.
Meanwhile, some local food makers say the changes Whole Foods has implemented in the past year have made them difficult to deal with.
Tom Rogan, founder of Sudbury-based Goodnow Farms chocolate, wrote in an e-mail that new protocols — smaller tables lacking the elbow room to fully showcase products, for example — were so restrictive that he decided to forgo in-store demos entirely, and that’s hurt sales. He hopes Whole Foods’ new local push will result in changes to the program.
Vendors working with Whole Foods say the grocer has also put a premium on a brand’s ability to generate online sales. Julia Paino, the founder of Swoffle, feels fortunate to have gotten her stroopwafel snacks into Whole Foods before Amazon took over.
“Folks who haven’t been able to correctly position themselves as a direct-to-consumer online product feel more of a difficulty now that the organization is owned by an online giant,” she said.
Although Whole Foods isn’t the “holy grail” anymore, the grocer is still a kingmaker for small independent purveyors, said John Hopkins, the founder of Five Way Foods. The grocer recently introduced a section of the store devoted to gut health, a boon to his vegetable and bone broth business.
“I don’t think we’d be in business if it weren’t for Whole Foods,” he said.