Whole Foods goes all-in on centralized buying

Discussion
Photo: RetailWire
May 17, 2021

Whole Foods Market announced last week an organizational realignment that includes fully centralizing product buying.

“We are merging our global and regional Merchandising teams into a single team that will support purchasing across the entire company,” the company said in a statement.

The move, according to an employee memo, will “help us continue to sell the highest quality natural and organic products, including elevating our selection of local products, exclusive and emerging brands, and new innovations.”

The retailer is creating leadership roles that will be focused on local products and supplier relationships. In 2020, Whole Foods said it introduced more than 950 local brands, over 10,000 local items and more than 650 exclusive brands.

The move, according to the company, will allow regional operations to “focus exclusively” on running their businesses, including e-commerce and store support. Changes were also made to reinforce recruiting and career development consistency at the regional level and to expand hiring in software engineering and program manager roles.

Allowing brands to sell to individual stores or regions was often touted as the way Whole Foods discovered and supported emerging and local brands.

Reports began soon after Amazon.com’s 2017 acquisition of Whole Foods that the grocer was accelerating a shift already underway to centralize buying in order to ensure a balanced mix of major and niche brands across stores. Becoming more price competitive against conventional grocers that are already centralizing their buying was believed to be another factor behind the move.

Amazon’s brick-and-mortar sales, supported mainly by Whole Foods, have declined for the last four quarters, including a 15.5 percent first-quarter drop. The declines could have been offset by online sales, however, which tripled at Whole Foods between March and December 2020.

According to last week’s statement, Whole Foods “continues to grow across all channels, including delivery, pickup, and in-store.” Plans call for opening nearly 40 more stores and hiring an additional 10,000 people.

“As shown over the past year, Whole Foods Market’s industry leadership is a result of our ability to remain nimble, be responsive, and continuously innovate,” read the statement. “As a company rooted in our higher purpose, we are confident these changes will position us to better support our stores and serve our customers as we continue to grow.”

DISCUSSION QUESTIONS: Does shifting to centralized buying offer more benefits or risks for Whole Foods? What do you think is behind the reorganization?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Centralized global buying that balances consumer demand to buy local improves Whole Foods’ competitive position. "
"...this reminds me of “My Macy’s” an initiative that sought to centralize more buying functions yet retain local flavor. It didn’t work so well."
"Why do it? Profitability and margin are the major drivers. It is much easier to control and drive better negotiation in a centralized team than with regional buying operations"

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25 Comments on "Whole Foods goes all-in on centralized buying"


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Suresh Chaganti
BrainTrust

Centralized, decentralized, or hybrid models of supply chain all work depending on the level of local decision making that is allowed. It is a trade-off between speed/agility/flexibility on one side and costs/quality on the other side.

By going centralized, Whole Foods is also limiting the flexibility on localized assortments, local sourcing, and the ability to react faster for local/regional needs.

Xavier Lederer
BrainTrust

You are making a great point Suresh. Additionally, there will probably be an impact on many food start-ups: Whole Foods has often been considered the gateway to retail — first locally, then regionally. A venture capitalist told me once: “If a food start-up can’t get into Whole Foods, I don’t even want to meet with them!” It looks like these innovative companies may need to find another avenue to grow their business in their early days.

Zel Bianco
BrainTrust

The question becomes, can centralized buying support local brands? Can this be done in a way that works logistically while still supporting local product sourcing and without raising prices to compensate for the extra costs?

Ken Morris
BrainTrust

It seems to me that centralized buying and local product selection are polar opposites. How can you centralize and get better at the local level? It has taken many years to develop local buying relationships at the decentralized store level. I worked with Bread & Circus Whole Food Supermarkets which was acquired by Whole Foods and their strength was this local decentralized structure. I don’t see how this will improve localization for the consumer.

Matthew Brogie
BrainTrust
1 month 2 days ago

We’ve done a tremendous amount of work over the years with emerging brands, particularly in the beverage and natural categories. Many of these brands got their first shot at major expansion through Whole Foods. Most of the stories from these entrepreneurs are around a regional buyer discovering them in some way (e.g., at a farmer’s market, or through a local referral). One of the things that has made Whole Foods such a success is the feeling of discovering something unique in the store, and of buying from someone who truly supports “local.” The Amazon acquisition may have hurt these pieces of the brand initially, but has proven over time that it actually is committed to carrying these virtues forward. I suspect that they will find a way to continue to project an image of wholesomeness and support for local when making the move to centralized buying, as long as their plan includes keeping those on-the-street connections in place.

Bob Amster
BrainTrust

The all-central buying model can work. Because food has regional and local nuances, to be successful, the model will require a structure whereby there is an effective and respected way for individual store managers to communicate the need for local and regional products to the centralized buying office. This will increase the regional operations’ ability to focus exclusively on running their businesses but cannot eliminate their input into the buying decisions.

Neil Saunders
BrainTrust

There is a fine balance here. Local products are important to many Whole Foods shoppers, especially when it comes to the discovery of new brands. However efficiency is also key and, on that front, Whole Foods has never been best in class. There are too many poor processes and too little commercial focus. By making this move I suspect Amazon intends to introduce more rigor. That said, this is not just about buying, it’s also about merchandising. In most Whole Foods stores, displays of local produce could be far more impactful and enticing.

Jeff Sward
BrainTrust

Great point. Localize — and then get maximum credit for it.

Dave Wendland
BrainTrust

Pros and cons.

On the pro side: Cost/quality/containment — all good for the bottom line.
On the con side: Speed/localization/experience.

A delicate balance that will undoubtedly require wisdom and resilience.

Richard Hernandez
BrainTrust

I think what we have to remember is that Whole Foods is now part of Amazon. The processes for which Whole Foods was known for many years such as local vendors selling their products to stores does not create the level of consistency that Amazon is looking for and is harder to manage to larger scale. I believe this will be a negative in the long run as that uniqueness was a reason to shop Whole Foods. Whole Foods will become more of a order, pickup and delivery destination instead of a cool place to shop.

Michael Terpkosh
BrainTrust

Centralized buying and merchandising creates many efficiencies. Reduced costs of operations and leveraging size for CPG negotiations are a couple of the big benefits. The risks include loss of local market understanding and acceptance of local brands. The keys to successful centralized buying and merchandising are a well trained team of retail experts, skilled use of analytics, and maintaining local relevance at the shelf.

Andrew Blatherwick
BrainTrust

It is entirely possible to centralize buying and still have a strong local assortment. In fact, it makes the management of the buying processes and supply chain easier and usually results in better buying prices and margins. The structuring of the buying operation is important to have control over space in stores and get the right assortment in each store. Good technology can really help here and the linking of supply chain and store space solutions makes for a very efficient operation.

Why do it? Profitability and margin are the major drivers. It is much easier to control and drive better negotiation in a centralized team than with regional buying operations. If Whole Foods manage it properly, there is little downside. Good communications with store operations and the use of modern technology will help deliver success.

Lisa Goller
BrainTrust

Centralized global buying that balances consumer demand to buy local improves Whole Foods’ competitive position.

Efficient, streamlined processes save time as consumers demand omnichannel speed. Economies of scale save money by boosting purchasing power. Competitive pricing on organic, natural and innovative products could make Whole Foods accessible to more shoppers, improving the top line.

A hunger to win market share in the strategically significant grocery sector is driving this reorganization. This move is wise as grocery rivalry gets more intense, global and data-driven.

Scott Norris
Guest

For local producers moving as fast as they can to cover local demand, however, there are no scale improvements that can be realized from this arrangement — only more demands to cut prices/increase promo contribution to match the national and overseas brands. Either you’re putting local producers out of business/forcing consolidation, or pushing them into the arms of regional merchants who will be more effective at telling the story and connecting with local shoppers.

Jlauderbach
Guest

Centralized buying is a cost saving move in terms of consolidation and elimination of redundant activity. Most large organizations are centralized, so this is not surprising. It is the antithesis of the John Mackey Whole Foods organization which was extremely regionally designed. The old organization stayed close to the small producers. The centralized buying will make the local suppliers work harder to get their product on the shelves. The question will be if customers accept the inevitable product changes. All organizations change or they cease to exist. The move seems appropriate.

Paula Rosenblum
BrainTrust

God, this reminds me of “My Macy’s” an initiative that sought to centralize more buying functions yet retain local flavor. It didn’t work so well. The assortment just wasn’t diverse enough. Apparently, the central buyers didn’t realize that Latinx in Miami were very different from Latinx in New York, and the assortment in Miami was way, way off the mark.

As someone said below, it’s a little bit of an oxymoron to centralize local buying. I somehow feel like we’ve received a seven year lesson in “how to destroy a brand’s value.” Not quite done, but almost there. It’s a shame, but an opportunity for other, more dedicated natural foods brands like Sprouts.

Phil Rubin
BrainTrust
1 month 2 days ago

Interesting Paula and I agree, especially with Macy’s today (post-Federated). Back working for the original Macy’s (pre- and post-LBO, way pre-Campeau and Federated), buying was regional but also done with ongoing dialogue between the stores and the buying office. It seemed to work well but that was a different Macy’s — and a long time ago (1986-7!).

Jeff Sward
BrainTrust

I’m confused. It sounds like they are saying, “We are centralizing so that we can better localize our assortments.” I totally understand centralizing for efficiency and market muscle. “Fully centralizing” and “single team” do not bode well for regional and local processes. I look forward to the next press release with new syntax.

Phil Rubin
BrainTrust
1 month 2 days ago

The real question is whether there are enough local/regional insights for a central buyer to deliver a relevant and unique assortment for each store/market. It’s easy to be cynical but the ultimate question is whether shoppers see a difference for the better or worse, or if things stay consistent and the move is not apparent to the customers.

Thus it comes down to both strategy and whether localization is still important in terms of the execution. If Whole Foods can pull this off, good for them. If not, it creates an opportunity for others, including regional chains.

As there are more local options in terms of farm to-home delivery and farmers markets, this will be interesting to watch.

Ananda Chakravarty
BrainTrust

Centralizing buying of local products can work at Whole Foods, but it usually means more resources committed from corporate. Sometimes there is a miss in terms of the uniqueness in certain local markets and, for Whole Foods, where most of their 500+ stores are concentrated in the U.S. (a fairly homogeneous region compared to Europe or Asia) the differences won’t be overwhelming. I won’t be upset by seeing Vermont maple syrup instead of my Maine maple syrup in the store. The reorg question is a bit simpler – the organization seeks to develop more rigor and data-led decision making. The distribution of local units makes merchandising and local buying decisions with cohesive data tracking difficult.

Lee Peterson
BrainTrust

At the end of the day, it’s a win for Amazon operations and perhaps even revenues (jury’s still out on that one though). But when it comes to uniqueness (a prior hallmark for Whole Foods), it is a definite loss. Local product, from cheese to beer to poultry to chips, was always a big plus for Whole Foods and especially when it comes to brand perception, something Amazon logistics people can’t measure. So ultimately, this is good in the short term, bad in the long term, in my opinion. I’ve spoken with many Whole Foods loyalists that are very disenfranchised at the moment, and were even BEFORE this move.

Kai Clarke
BrainTrust

Centralized buying has proven to be more efficient, allowing for better communications across all platforms, while affording full retail leverage for their category buyers.

storewanderer
Guest
1 month 2 days ago

Albertsons announced a week or two ago they were re-centralizing their center store buying as well….

I wonder what is driving this.

I am not really surprised to see Amazon doing this to Whole Foods. The good news is, smaller more nimble chains will pop up or have already popped up and will fill the void left by what this causes.

Craig Sundstrom
Guest

There’s nothing new or dramatic about centralized buying. But — at least to the extent that customers are award of it — it will likely be seen as a further “Amazon”ing of Whole Foods, so a flash point … a further flash point for those who are already unhappy.

Joe Skorupa
BrainTrust

I think Amazon’s point with Whole Foods is to make stores more digital or omni-commerce. Local products do not have to be exclusively in the store. They can be ordered and delivered to homes, which is the biggest trend in grocery over the last 15 months. There are a large number of local farms and suppliers signing up with new platforms that deliver to homes. Amazon/Whole Foods is joining this trend by digitizing its stores to include more local options and not necessarily stifling them by adding traditional centralizing. Amazon doesn’t do anything in a traditional way.

wpDiscuz
Braintrust
"Centralized global buying that balances consumer demand to buy local improves Whole Foods’ competitive position. "
"...this reminds me of “My Macy’s” an initiative that sought to centralize more buying functions yet retain local flavor. It didn’t work so well."
"Why do it? Profitability and margin are the major drivers. It is much easier to control and drive better negotiation in a centralized team than with regional buying operations"

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