Kiss that crunchy food co-op goodbye. Organics used to be a niche category—former indie brands like Burt’s Bees and Odwalla are now owned by Clorox and Coca-Cola—but Amazon’s acquisition of Whole Foods in August 2017 brought further mainstream attention to natural goods. It is also bringing mainstream business practices.
Slotting fees, the figures suppliers pay to get placement on grocery store shelves, are standard practice. But Whole Foods is now asking smaller companies to pay the high fees routinely paid by major CPG brands like General Mills.
The Wall Street Journal reports that the average $25,000 fee for prime placement at Whole Foods is increasing, and the company is asking suppliers “to offer bigger discounts on their products to earn the space.” Additionally, grocery suppliers with $300,000 in annual sales at Whole Foods will have to start paying a 3% fee for products to be added to new stores or reorganized on shelves, presumably to pay for a third-party company hired by the supermarket to stock shelves.
Empty shelves at Whole Foods have confounded and angered customers for months. Initial speculation was that the rampant out-of-stocks were due to the Amazon deal increasing foot traffic. But the shortage has been attributed to a system that was implemented pre-Amazon called order-to-shelf, where smaller deliveries bypass the stockroom and go straight to store shelves to decrease costs and waste.
According to eMarketer’s Retail Database, Whole Foods’ operational changes are an effort to increase its revenues, which have been slowing since 2013. The retailer’s growth rate declined from 2.2% in 2016 to 1.9% in 2017 for total revenues of $16.0 billion.