Some Whole Foods suppliers say they're losing money since the grocery retailer stopped implementing minimum shipment quantities and quit paying shipping fees, according to Business Insider. At least two of them told the site that they wouldn't fill orders from Whole Foods when the cost of delivery was more than the cost of their products.
Other changes from the grocery chain include charging suppliers for prime shelf space, as well as in-store product demonstrations. Suppliers are also being asked to pay ongoing fees to third-party companies for food-safety audits and photographs of their products. Another new requirement is that any vendor doing more than $300,000 in business each year with Whole Foods has to give the retailer a 3% to 5% discount, The Washington Post reported.
As a result, some suppliers are considering no longer doing business with Whole Foods. Brands backed by large companies are more likely to be able to afford the new fees.
The operational changes at Whole Foods keep rolling along.
While it's well-known that the retailer has had some of the highest operating costs in the industry and understandably wants to become more organized and efficient, its new policies could alienate customers that have come to rely on the grocer for local and niche brands.
Before being purchased by Amazon, the grocery chain had been known for featuring regional and local products, in part because local store management had leeway to make purchasing decisions. Given implementation of new centralized policies, however, it's become harder for those products to make their way to store shelves.
This latest dustup isn't the only problem to surface since Whole Foods became part of Amazon. During and after the recent holidays, complaints surfaced about empty store shelves and poor produce quality, among other issues. The company blamed the situation on a new inventory management system implemented before Amazon took charge.
As Whole Foods' sourcing policies increasingly favor large natural and organic brands, the grocer may be able to broaden its appeal and attract more customers from traditional supermarkets. But the company has to bring its prices down first — a promise that the company has not so far delivered on, flashy discounts aside. There's also a risk that Whole Foods will lose the qualities that differentiate it from other retailers. If a retailer adds mainstream products customers can get almost anywhere, what's the point of going there anymore?
Amazon is starting to offer fast and free delivery of Whole Foods items through Prime Now in limited markets, and while convenient, that may also not be enough to win back brand loyalty if the in-store service and stocking practices decline further.
Shoppers have many grocery options these days, and with millennials — who like to experiment with local products and who care more about patronizing startups with missions and values — entering their prime spending years, grocers can ill afford to turn them off to their stores.