Grocery just got interesting

If you happen to be in the grocery space, then you know that regardless of the advent of Whole Foods in 1980, that the flow or merchandise on to the shelves has pretty much not changed in decades.  There are layers of people who are taking a piece of the pie before the product actually gets to the shelf and there are very little differences of inventory between supermarkets chains. Having Amazon (Jeff Bezos) insert himself into the middle of the supply chain starting with step one of lowering prices is more than likely going to create a whirlwind, perhaps slowly but eventually it will happen.

For those who have not been in the know of how a new CPG product gets to your shelf at Whole Foods, I will give you a play by play.  You create a new product.  You go pitch the Whole Foods buyers as a group in the NY office who have quarterly meetings to see new products.  They love your product and put you in a few stores.  You think to yourself, I am on a roll but wait, Whole Foods NY does not represent Whole Foods in the other regions of the country so even if you blow out the door in those four stores, you are going to have to figure out how to leverage those sales to the other buyers.  Then in order to get to those stores, you are going to have to use the trucking company(distributor) that they use for your products to get the merchandise on the shelves.  That bleeds into your margin but you have no other choice.  The products get there and your relationship with the buyer is now over because the distributor now owns that relationship.  You do not get weekly numbers to tell you the sell through of your product.  You must rely on the distributor.  Then there is another layer of people you can hire to make sure that your product is fully stocked on the shelves for maximum sales because WF does not do that for you.  Some of the stores are pretty good at keeping the shelves full but mostly it is these teams you hire to do it for you so that takes another bite out of your margin.  Then WF wants you to come and give in-store presentations to the customers and by doing that you can probably sell more wares and connect with the end user.  When they do that, they usually want you to give away coupons.  The time they pick for you to be in the store and give a major discount would be when the customers would buy the item at full price anyway. For instance, discounting hot dogs and relish during July 4th weekend makes zero sense but it does at Xmas.

That is essentially an overall view of the brick and mortar supermarket business.  It is frustrating as an entrepreneur.  It is hard to build any business but food is the toughest.  Low margins, capital intensive and selling to business models from a century ago.

Amazon is changing everything. Wise move.  Everyone operates independently from the suppliers to the truckers to the buyers and only a powerhouse like Amazon can force change.  That change is from the supply chain that brings us our food.  We will see more private label, lower prices, delivery options, shifts in what each grocery carries and I am sure more new businesses built around a changing model.

Grocery just got very interesting.


Comments (Archived):

  1. awaldstein

    Ahh….A shared nightmare of the ice cube in the sun impossible business model for artisanal brands.Two things I might add:-My thoughts on this as I am both a veteran of working with them and a complete optimist on the acquisition as you are:Amazon, Whole Foods and our food supply…-One small correctionWithout a doubt distributors and data are a nightmare and provide little and in fact consider your sales date private to them and don’t share. Bat shit crazy.But–Whole Foods provides for all brands, either direct or through disty, data from their customer portal which you can track on a store and sku level each of your sales as they go through the cash register on a daily basis. At the end of every day you can see what sold where.Thanks for continuing this thread.Needed change is on the way. I think as large a change will happen on the supply side with either Amazon owning part of it and vertical farms which even here are starting to be tested.

    1. Gotham Gal

      Agree. Vertical farms for sure.We will probably go backward before going forward. CPG products will get tons of push on price reductions first which will be unfortunate because many will not survive.

    2. LE

      Needed change is on the way.As someone who is only a WF customer and does not sell to them as a vendor, Amazon getting involved is not a positive for me personally. I shop there for the quality of the product and because of the employees. As I have said before they are not ‘supermarket’ grade. I like that. [1] But that will all change as Bezos attempts to wring out the last ounce of profit on the backs of both vendors (who will inevitably lower the grade of their product or make it smaller) or the workers. Very Walmart like. Works well with artisanal small brands owned by entrepreneurs, right? With employees as I mentioned the other day this is already happening. The person at the customer service counter will no long ring up my small morning order. She said I have to use the regular checkout lines. They want her to do other things not checkout customers.Seen the other day at WF in the frozen food eisle? $500 Yeti Coolers!!…[1] Guys at the fish counter who flag me down and tell me a particular fish in in and prepared. Or tell me they will prepare it for me if I want them to.

      1. awaldstein

        If Amazon had’t bought them one of the other suiters would have.They needed to get acquired so to me this is the best.I disagree about the employees. I know quite a few at the buyer up to regional level and all are positive. The biggest fallout will the death of the distributors as they are where a huge chunk of the margin is eaten up and they are archaic at best.I think the bigger changes are in the general areas I described here.

        1. LE

          The employees are positive as well in the local store.That is because they have been told that everything will be ok and nothing is going to change or only slightly (for them) and so on. [1] Maybe even that it’s better for them in some way. But things will change. Business wise they are just putting their mind at ease and giving them hope. Not 100% sure but that is the way I see it.I mean if you just bought a new business and had thousands of employees (or even 20) what would you do? Create an atmosphere of distrust, contempt and ‘better think about getting another job’? Or make people kick their emotional can down the road?[1] But that’s not in some contract, right?

  2. Ben LeBlanc

    I totally agree that we’re going to see significant change, and probably sooner rather than later. You hit the nail on the head with the problems of launching a new CPG business with the idea of going grocery first. So many layers to work through, and it’s hard to keep checks on all of those layers. That’s why we’re going to try to build a direct-to-consumer business first. As you said, building any business but particularly food is tough. And this is going to be a serious undertaking. But we want to try to control as much of the customer experience and relationship as possible, so we think it’s worth it. Fortunately, parts of the supply chain have changed to make this easier. And it’ll be very interesting to see the changes Amazon will bring about as well.

  3. AMT Editorial Staff

    As a consumer, I would like to see more of the products listed online for informational purposes. Since the products come in on a regional basis, this could be very challenging. Ideally, I’d like to see the products offered at the 2-4 WF stores I frequent. I’d like the ability to get ideas and understand nutrition/ingredients/pricing BEFORE I shop. I’d like more targeted purchasing and less impulse. Even now, the app is done by store, yet when I was there 2 days ago, the product deal I wanted was not…store personnel said, “oh well, you never know which stores…” I replied, “app said this store.” “OH.” said store employee… Amazon can likely fix this; or at the very least improve upon it. Side note: HUGE buyers. No Costco or other stores beyond grocery for the most part. All from Amazon.

  4. LE

    It is frustrating as an entrepreneur. It is hard to build any business but food is the toughest.Tough and frustrating is also a nice barrier of entry that keeps others out. That is also a good thing.

    1. awaldstein

      Nope–if this case its a bitch.Unless you can figure out direct to consumer for perishables (good luck!) you are completely at the whims of the big players and you will most likely get crushed.That’s reality.

  5. Pointsandfigures

    Retail CPG in grocery is very difficult. I am invested in a company that is doing things right, They are in Whole Foods and other grocery chains.I am trying to put some context around what Amazon could do. For example, in the 1950s/60s, the underwriters made all the money in the insurance business. They took the risk, and did the heavy lifting. In the 80s it changed. The carriers started to increase their share to the detriment of the underwriters. The carriers owned the customers. The underwriters didn’t. Trying to figure out how this carries over to other businesses. Amazon via Prime owns a lot of customers. If they can marry that to Whole Foods, which has a loyal client base, could be pretty powerful.

  6. creative group

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    1. Gotham Gal

      For sure