Amazon, Whole Foods, and the Small Producer
Amazon's acquisition of Whole Foods has been in the news recently. And it should be front and center for retailers around the world as it is another venture by AMZN in an area that they can use their muscle power to influence drastically.
In its 20 years of operating, AMZN has shown that it can execute its strategy and Wall Street is lovin' it!
I think that all small vendors and suppliers, especially those in consumer packaged goods (CPG) are studying this merger and figuring out what it means for them. As a small wine distributor with our own private label, I am following the story closely and trying to figure out what it means for me.
So far, it's not really a big deal.
I never sold to Whole Foods (despite their "preference" for things local) and my best customers tend to be small independent grocers that carry and focus on local produce and suppliers. When I make a sales pitch to a potential new customer, it's usually to the owner of the store!
So what does AMZN buying WFDS mean for small suppliers who currently sell into Whole Foods?
A number of articles I have read including this one from the WSJ, implies that there will be many changes and most of them will not be good for the supplier.
A small local supplier that currently works with Whole Foods can expect:
> more competition among fewer suppliers (AMZN will reduce their number of suppliers)
> contracting gross margins causing reduced net profitability
> a reduction in the emphasis of local vendors (since AMZN will want to buy in larger amounts and streamline payable processing)
> the introduction of slotting fees even for the bottom shelves again impacting margins and raising operating costs for the small supplier
This unfortunate chain of events does allow smaller retail vendors the opportunity to then focus on local products that will now be thrown under the bus by the AMZN - WFDS merger.
Producers and distributors of local products would do best to focus on working with smaller retailers to continue building their brand and working with their retail partners to create relationships with consumers who desire to build an emotional relationship with a local brand and support the local economy.
I will write soon about the aspect and competitive threat around delivery in the coming week.
Thanks for reading!