Whole Foods asks vendors to pay to play
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 using 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 the retailer will set shelf space, displays and in-store sampling based on contributions made by vendors. The switch is part of Whole Foods’ shift to more centralized operations. Last May, the Omaha World-Herald reported 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 they effectively price smaller and sometimes more innovative brands off store shelves while me-too nationals pick up the real estate.
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 require local suppliers to 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.
- Whole Foods places new limits on suppliers, upsetting some small vendors – The Washington Post
- Will centralized buying make Whole Foods a more formidable competitor? – RetailWire
DISCUSSION QUESTIONS: How will Whole Foods’ new program requiring vendors to help pay for shelf space, displays and in-store sampling affect its business? What will it mean for rivals and for its vendor relationships?