Amazon’s Changes to Whole Foods Mean Empty Shelves, Fewer Local Products

After Amazon bought Whole Foods last year, dozens of amateur theorists tried to guess what might happen next — but no one expected the nation’s top organic grocer to start sporting empty shelves. “They’re out of kale,” a shopper at the location in Manhattan’s Union Square remarked to her friend one evening last week. “That’s, like, very off-brand.” Shoppers may also notice far fewer sample offerings, and not as many items from local makers.

Earlier this month, near-empty shelves and produce bins caused a flurry of complaints at Whole Foods stores across the country. This was due to a new inventory management system, according to Business Insider, which interviewed several Whole Foods employees and managers. “Regional and upper store management know about this,” one Illinois-based manager told BI. “We all know we are losing sales and pissing off customers. It’s not that we don’t care — we do. But our hands are tied.”

Though Amazon is a leader in delivery, logistics, and online sales, it doesn’t have much experience in traditional retail. “The way I see it, every retailer goes through the balancing act of trying to weigh inventory flow and stock,” says Kathleen Egan, VP at Wiser, a data collection and retail tracking company. “The more inventory you have, the more cash flow you need. It takes up space on the balance sheet.” It sounds like Amazon was trying to cut the fat, and simply cut too much too quickly.

“It’s like a pendulum, this learning curve,” Egan says. Large companies have programs that track the sales of each SKU and spit out minimums for what needs to be on the shelf. The trouble is that Amazon is an online retailer used to stocking distribution centers. It’s not as much of an expert in what the industry calls “presentation minimums.”

“In a warehouse, you only need to have what you know you’ll sell,” Egan says. “But in a store, consumers want to see plenty, they want shelves to be stocked. There’s a psychology behind it, where you need x-amount of an item on a shelf in order for it to look appealing. There are even minimums where you need different sizes of a product next to each other for the shopper to buy one. If they only see one size — even if it’s the one they want — they might not buy anything.”

But there’s more to these empty shelves than a silly programming snafu: It also has a lot to do with sourcing, particularly of smaller, locally made products and brands. Immediately after Whole Foods’ board accepted Amazon’s offer, CEO John Mackey pledged to “continue to expand our efforts to support and promote local products and suppliers.” It wasn’t long before some makers wondered how Mackey would keep that promise.

For years, Whole Foods employed staffers called foragers who went out into their neighborhoods in search of local artisans at farmers markets or state fairs. There, they found home-made jams and mustards and dressings that they’d buy in bulk.

For mom and pop preservers and picklers, selling their wares at Whole Foods was a boon, and over the past decade, thousands of small brands — many of which still put each label on each jar or package by hand — have come to depend on Whole Foods for the bulk of their business. As part of each store’s local sourcing program, the maker was responsible for stocking their items on Whole Foods’ shelves and could pick a few weekends to set up a table and offer customers a sample. Makers said they were far more likely to sell their items when they were present in the store, answering questions about a product and forging a personal connection while making that sale.

“Whole Foods was always an advocate for the small business. They always wanted to support local artisans,” says Erika Kerekes, founder and owner of Not Ketchup condiments. Not Ketchup was sold at Whole Foods locations in Southern California, near where Kerekes lives, for several years, up until six months ago. (Now it’s sold via its website and on Amazon.)

In September 2017, one month after the acquisition and Mackey’s initial statement, Whole Foods quietly announced it would be discontinuing parts of its local sourcing program. “Instead of allowing brands to frequently pitch their products to individual stores or regions,” the Wall Street Journal reported, “Whole Foods executives in its Austin, Texas, headquarters will choose a higher percentage of the inventory.”

According to the Journal, this year, Whole Foods started charging local makers to offer samples in store. They’re also requiring makers who sell over a certain threshold to pay a percentage fee to the store. “To suddenly not to be able to sell at Whole Foods, or to have to go through the same vetting process as the bigger names,” Kerekes says, “is a challenge, to say the least.” More often than not, small purveyors don’t have the marketing budget to fly out to Whole Foods’ headquarters in Austin, Texas, to present their product for a tasting.

“One of the things they want,” Kerekes says about presenting at the corporate level, “is for you to have a marketing plan for at least the next 12 months. They want to know how much money you’re putting into marketing, merchandising, trade shows, online and television advertising... they want to know how often your item is going to be on sale. But unless they have an investor behind them, small, local brands in their early stages of development just don’t always have this mapped out.”

Consumers aren’t happy about this change. “Frankly, this is why I shop at Whole Foods at all,” Egan says. “Because I can get the basics but I can also get these local products that my local grocer doesn’t stock.” San Francisco-based customer Poppy Southcott wrote on Twitter that she won’t be returning to Whole Foods if they do away with the local program. “Half the reason I shop there is for the local brands,” she wrote.

“It’s a double whammy,” Egan says. “In accepting fewer local products, Whole Foods is reducing assortment while not having a handle on in-store presentation minimums.”

Amazon’s biggest Whole Foods learning curve might involve that retail inventory. “They probably don’t understand how in-store inventory works,” Egan says. It’s more complex than taking inventory in a distribution warehouse where everything has a bin. “How many times have you picked up an item in a grocery store, changed your mind, and left it on a shelf two aisles over? In a retail store, inventory can be in the back, it can been in a restocking bin, it can be in someone’s cart, it can be on the wrong shelf. If they don’t account for these variables, they’re not ordering what they need to keep the shelves stocked.”

Still Egan says she has “a lot of faith in [Amazon’s] data driven culture and data science. These shortages are going to smooth out, and quickly.” Indeed, a quick check at three Whole Foods locations in Manhattan in the past week showed fewer empty shelves, and many more workers stocking shelves along with supervisors checking inventory in nearly every aisle. Staffers acknowledged that there had been some hiccups lately, but that ordering was slowly evening out.

“The next step,” says Egan, “is how Amazon is going to use the data they collect on shoppers’ habits at Whole Foods to take over the grocery market entirely.” As long they keep rotisserie chickens stocked under the heat lamp, they’ll probably be just fine.