Small suppliers worry about Whole Foods' mainstream drift

Dive Brief:

Since its founding, Whole Foods has been known as a place to find local products, and to that end has given regional stores autonomy to make local buying decisions. But an article in Civil Eats says the company’s recent move to centralize more of its buying operations at Whole Food’s headquarters has small producers worried. The grocer has also, according to sources, scaled back promotion of local products on its website in favor of low-price messaging.
The move towards centralization, intended to fuel efficiencies, started before Amazon’s acquisition, but the merger added impetus to shift from a decentralized approach. Whole Foods, which has not publicly acknowledged any changes to its buying practices, maintains it is committed to offering local brands.
Local producers are concerned about getting shut out of stores, but independent grocers could become a haven for small producers, filling the niche if Whole Foods moves on.

Dive Insight:

Whole Foods is known as the go-to place for fresh produce, local products and sometimes quirky finds (asparagus water, anyone?). This has helped forge Whole Foods' image as a home for the little guy, with brand reps invited to pitch their products directly to local and regional buying managers, and local companies often receiving financial loans from the retailer to help them along.

Most importantly, Whole Foods' local selection helps it stand out in the very crowded grocery market.

But all of this local sourcing is expensive, and as Whole Foods' sales slipped in recent years the company began looking at ways to make its buying processes — along with other operations — more efficient. Now, under Amazon, which is nothing if not efficient, that effort could be gaining steam. Although Whole Foods hasn’t publicly announced changes to its local buying program, small suppliers across the industry have reported the grocer is severing ties.

Granted, Whole Foods has inefficiencies, with some of the highest operating costs in the industry. But at what expense should a company go against its core identity?

This change comes at a time when consumers are excited about local products. The USDA says sales of locally produced foods were $12 billion in 2014 and are expected to rise to $20 billion by 2019. Consumers are willing to open their wallets for local goods, with 78% of consumers willing to pay more for local products in all the grocery aisles.

If Whole Foods does shift its focus away from local products, Kroger is ready to pick up the reigns. Kroger already sources local products, and wants to increase the supply. In September, the grocer introduced a new online portal making it easier for local suppliers to pitch to regional store buyers. Independent grocers and specialty stores seem eager to fill the void, as well.

But as consumers seek convenience and time savings, will the desire for local products be great enough that they will make an additional stop on their errand path? Although Whole Foods is pulling back on niche and emerging brands, it has sharpened its pricing focus under new parent company Amazon. Traffic data shows Amazon's initial round of price cuts at Whole Foods boosted store visits by 25%. Subsequent research has shown the company achieved this without lowering prices overall — which raises its own set of questions, of course.

Amazon's continued focus on price, along with still-to-com technology and e-commerce enhancements, may cause loyal customers to defect. However, it could also bring in droves of new shoppers.