New Era Amazon/Whole Foods

New Era Amazon/Whole Foods
July 4, 2018 No Comments Blog Richard Kochersperger

7-2-18 10:13 AM EDT | Email Article

By Heather Haddon and Laura Stevens

Amazon.com Inc. 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 giant 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 liaise between 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 staff 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 staff 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 that have seen sales grow 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 around $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 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. They also will 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.”

Write to Heather Haddon at heather.haddon@wsj.com and Laura Stevens at laura.stevens@wsj.com

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