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  • 01.09.17

Will Whole Foods’ New Buying Strategy Make It Harder For Food Startups To Launch?

Getting on to shelves in one of Whole Foods regional markets used to be a tried and true path for sustainable food company’s success. Now the company is switching to a more centralized model, which it says will streamline the process. But it might also stifle small businesses and local innovation.

Will Whole Foods’ New Buying Strategy Make It Harder For Food Startups To Launch?

When an organic kids’ snack food company called Little Duck Organics launched, it followed the trajectory that many brands in the natural food industry have taken: get into Whole Foods regionally, get wider distribution because of the success of that relationship, and then quickly grow.

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“Almost every company I’ve been involved with started that way,” says Zach DeAngelo, who was the COO of Little Duck Organics and now helps lead Rodeo Ventures, an advisory firm that helps similar small companies scale up.

It’s a path that DeAngelo thinks might change. Because local and regional buyers had autonomy in the company’s 11 regions, startups have been able to go into a local Whole Foods, pitch their product to a store manager or team leader, and have a shot at getting on the shelf. Now, Whole Foods is in the process of rolling out what it calls a “hybrid” buying model. While local buyers still play a role, some control is moving to category managers at the company headquarters.

[Photo: Justin Sullivan/Getty Images]

“The shift is that the category manager becomes the owner of the strategy,” says Don Clark, global vice president of purchasing for non-perishables at Whole Foods.

National brands will deal directly with national category managers; local brands will work with local buyers who are guided by the category manager, rather than making fully autonomous decisions as they did in the past. The category manager will decide what the right mix is between national brands, Whole Foods’ own brand, and local brands, and decide where products will end up on shelves and how they’ll be promoted.

The retailer says that it recognizes the importance of continuing to discover local food startups. “We think a critical part of our strategic position in the future is to continue to make sure that we remain locally relevant and continue to be an incubator of local and innovative trends and brands,” says Clark. “So for us to do that we know we can’t just centralize buying just like a lot of competition, where all the buying is done in one place.”

[Photo: Flickr user Tyler Cipriani]

Whole Foods is moving to the new model because of increasing competition–both for customers and vendors. Target’s Made to Matter program, for example, which sells “natural, organic, and sustainable” brands, and gives them national distribution. Whole Foods wants to make its process as streamlined. In the past, getting national distribution at Whole Foods often meant taking a road trip across the country and meeting with regional buyers; the company argues that the new process will be simpler. And while the company says is not yet losing brands to Target, it is facing that risk.

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“Before, if you were in the natural and organic business and you wanted to get a start you really need to do it at Whole Foods,” says Clark. “That was the place people built and incubated their brand. And so they put up with the challenges that required.”

DeAngelo, however, is skeptical that as many new brands will have the chance they once did.

“The messaging will be ‘we want to maintain local’ but in the end, they’re trying to save costs . . . and move everything to make it more efficient for freight, transportation, item management, and all that stuff,” he says. “My opinion is that there will be fewer local brands.”

If that does turn out to be the case, it could be much harder for food startups to get their footing. Other natural retailers, such as Sprouts, already have centralized buying. Some brands may turn to direct sales.

“In terms of survival–just selling enough product to get interest from investors, or to gain enough momentum to hire somebody, or all of these practical things–when you’re starting a food company, they’re going to need to find a different way,” DeAngelo says. “I’m seeing a lot of companies lean on e-commerce, which is becoming more and more viable as a means to sell food products.”

About the author

Adele Peters is a staff writer at Fast Company who focuses on solutions to some of the world's largest problems, from climate change to homelessness. Previously, she worked with GOOD, BioLite, and the Sustainable Products and Solutions program at UC Berkeley.

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