The strategic question is whether this is a strategic opening or merely a brief reprieve. JL
Heather Haddon, Saabira Chaudhiri, Nick Kostov and Laura Stevens report in the Wall Street Journal:
Suppliers say they are angry at higher rates Whole Foods now charges them to sell their products there, with some refusing to sign new contracts. At Whole Foods stores, hundreds of layoffs have upset workers and led to calls for unionization.(Meanwhile) two of the world’s biggest grocery chains, Tesco and Carrefour have struck a deal to collaborate how they buy from suppliers in an effort to cut prices amid competition from Amazon.
Amazon.com has infused Whole Foods with its efficient, data-driven ethos in the year since it bought the natural grocer. But not all Whole Foods employees and suppliers are happy about that.
Suppliers say they are angry at the higher rates Whole Foods now charges them to sell their products there, with some refusing to sign new contracts. At Whole Foods stores, hundreds of layoffs have upset workers and led to calls for unionization.
“There has never been a time in Whole Foods’ history more ripe for widespread labor organization,” a group of employees wrote in a letter last month as part of their efforts to organize workers.
Amazon and Whole Foods spokeswomen declined to comment.
A year after Amazon bought Whole Foods for $13.5 billion, the e-commerce company is making its mark on the nation’s largest natural and organic supermarket. Year-over-year sales at Whole Foods stores are up since the takeover, as consumers respond to new delivery options and enhanced benefits for Amazon Prime members. The store recently introduced 10% discounts for Prime members at all 460 stores, and it offers two-hour delivery in 19 cities.
Employees said Amazon’s changes since its August purchase closed have been gradual and considered, and many said they were relieved that activist investors are no longer putting pressure on Whole Foods, as they were in 2017 after two years of falling sales and before the chain sold itself to Amazon.
One thing that hasn’t changed: Whole Foods co-founder John Mackey is still at the helm and continues to spend time in stores, talking to employees and checking out operations.
Still, Amazon is exerting its influence. Whole Foods has hired workers from Amazon, including a new head of compensation and benefits who worked at Amazon’s Seattle headquarters for nearly four years as senior compensation manager. Amazon also has been looking for a Seattle-based executive to develop products for Whole Foods and work with the companies “on everything from strategy to execution,” according to a job posting.
At the same time, Whole Foods is laying off hundreds of in-store marketing employees who filled out chalkboard signs and organized local events. Monday is their last day. More finance and purchasing decisions are being made at Whole Foods headquarters in Austin, Texas. Whole Foods executives say that centralization is making the company nimbler and saving money.
“Please note this wasn’t an easy decision and isn’t a reflection of the dedication of the work you do,” Whole Foods leaders said in a recent conference call announcing the cuts to marketing employees in the Midwest, according to an audio recording reviewed by The Wall Street Journal.
For many suppliers, Amazon is helping spur Whole Foods sales after two tough years. Cereal maker Kashi Co. and kombucha brewer GT’s Living Foods are some of the health-food brands whose sales have grown since the deal, according to data firm inMarket.
But many suppliers are angry that Whole Foods has added fees of at least 3% to restock shelves and run promotions for vendors who sell about $300,000 in products annually. The increases surpass what rival chains routinely charge for merchandising changes, food-company executives said.
“A lot of our members are perplexed, just completely dumbfounded,” said Phil Kafarakis, president of the Specialty Food Association, which represents both suppliers that have gone along with the new fees and ones that have refused.
Whole Foods planned the fee increase before Amazon’s acquisition, but executives are now using the promise of wider, Amazon-fueled sales to push suppliers to agree to the charges.
“We are excited about the new growth opportunities that exist as we continue to innovate with Amazon,” Whole Foods wrote in a recent email to vendors who hadn’t agreed to new contracts. “Unfortunately, we have yet to receive your full commitment to support the program.”
Whole Foods says the fees and centralized merchandising strategy mean that suppliers’ goods will be displayed and promoted more consistently, helping drive sales. There will also be additional marketing efforts, according to the company.
Many food companies say they have no choice but to go with the tougher terms.
“You play ball,” said Donald Snyder of Green Hasson Janks LLP, a Los Angeles-based accounting firm that met with clients last month to discuss the changes at Whole Foods. “They are a great source of revenue.”
Two of the world’s biggest grocery chains, Tesco TSCDY 0.54% PLC and Carrefour SA, CRRFY 0.45% have struck a deal to collaborate on how they buy from suppliers in an effort to cut prices amid mounting competition from Amazon.com Inc. AMZN 0.64% and other rivals.
Tesco, Britain’s largest grocery chain, and Carrefour, the French giant, said they would jointly source certain products to lower prices, raise quality and broaden their product offerings.
The agreement, which the companies said would initially last three years, will give the pair more scale in negotiations with global suppliers. It will cover joint purchasing of own-brand products and goods not for resale, like cleaning products or pallets.
Financial terms of the deal, which is expected to be formally agreed within the next two months, weren’t disclosed. “We are light on detail,” said a Tesco spokeswoman. “The details are very much still being worked out.”
The deal is the latest in a string of moves by traditional grocers the world over as they race to find new ways to compete with Amazon’s growing food ambitions and fast-changing shopper behavior. Online shopping, discounters and meal-delivery services are all eating into once reliable profit margins.
Monday’s announcement comes just over a year after Amazon said it would buy Whole Foods for $13.7 billion. Since then, Amazon has slashed prices and used the Whole Foods network of stores to ramp up its online-grocery business.
In the U.K., like the U.S., Amazon has also ramped up its fresh food delivery service, recently expanding outside London. In France, Amazon earlier this year signed a deal with Casino Guichard-Perrachon SA to deliver items from its Monoprix chain.
Amazon’s inroads into the grocery sector have struck fear into supermarket chains world-wide and prompted a number of recent deals.
Kroger Co. , America’s largest grocery chain, in May said it would increase its stake in British online delivery specialist Ocado Group PLC and license its technology to run automated warehouses and process online orders.
Analysts say Amazon’s ambitions were also partly responsible for Walmart Inc.’s decision in April to sell its British arm Asda Group Ltd. to J Sainsbury PLC, creating the largest player in the U.K.’s fiercely competitive grocery market. That deal is expected to pressure Tesco in its home market, with the combined Asda-Sainsbury pledging to cut prices.
Both Tesco and Carrefour have moved to beef up their online delivery and technology in the face of growing competition.
A year ago, Carrefour named Alexandre Bompard chief executive, tapping someone who had gone toe-to-toe with Amazon when he ran book, music and electronics retailer Fnac Darty to help close its e-commerce gap. Mr. Bompard announced a new five year growth strategy in January that included a pledge to invest €2.8 billion ($3.27 billion) in digital commerce by 2022, and a target of €5 billion in sales in food e-commerce in five years—a six times increase on last year.
Tesco last week said it would trial a checkout-free method of payment for its convenience stores that would allowing shoppers to scan products on their mobile devices and then leave with them. Last year it became the U.K.’s first retailer to offer a same day grocery delivery service across the U.K.
Both companies have also made deals to beef up their purchasing heft. Carrefour teamed up with French competitor Système U to pool purchases in France, while Tesco bought British wholesaler Booker.
Jefferies analyst James Grzinic said Monday’s sourcing deal “appears to be the most in-depth co-operation in what is now a well established industry trend.” He estimates the partnership between Tesco and Carrefour could bring total savings of £400 million ($528 million), with the French company standing to benefit more given its lower margins.
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