Whole Foods met with some of its biggest suppliers in Austin on Tuesday in an attempt to quell the concerns and uncertainty that have been brewing since the upscale grocer was acquired by Amazon last year.
At the gathering, the company outlined its new affinity program in which Amazon Prime members will get exclusive discounts on the most popular Whole Foods items and additional savings on regular weekly sales. During the meeting, Whole Foods stressed to its suppliers that buying into the new program was a way for them to grow.
The deal with Amazon has led food companies that sell to Whole Foods to speculate that the e-commerce giant is behind some of the more recent changes at the grocer, including new fees that some have balked at.
At the time of the Amazon deal, Whole Foods was trying to change its operations to take costs out of its system—a move meant to reduce prices for consumers as the company faced an increasingly competitive retail environment.
“It’s the result of a lot of the work we’ve done over the last couple of years,” A.C. Gallo, Whole Foods president and COO, told Fortune ahead of the meeting.
The area where Amazon has really helped is speed, says Gallo. “Amazon moves very quickly,” he says. “So many of the things we wanted to do over the last few years we didn’t have the ability or resources. They bring the big vision on what’s possible and where things are going.”
Selling product to Whole Foods had become a complicated business, says Gallo, and management had been getting the feedback that it was a “difficult company to work with because it’s so decentralized.”
Under the old model, large national suppliers would have to meet with global buyers in Austin and then each regional office. “It was cumbersome to do that,” says Gallo. About two years ago, Whole Foods started to develop a system under which larger suppliers would only have to liaise with the global team in Austin. The system has been tested, and is being rolled out this year.
Gallo acknowledges that the new buying structure is “one place that concern has come up, especially among smaller suppliers.” But he says the company is not getting rid of the regional buyers. Instead, with this “hybrid system,” the buyers in local markets will have their time freed up to scout new items. Gallo notes that the company added about 700 new local suppliers last year and will “continue to do that.”
“We realize for a lot of smaller suppliers, we’re a great incubator,” he says, noting that Whole Foods has the ability to allow a new product to come into just one of its stores.
Because of the complexities of the Whole Foods system, Gallo says that most of the suppliers relied on large brokerage networks to visit stores to make sure that things like promotions were being run as promised and that pricing was done correctly.
Gallo said that the company needed to “create more accountability on our side.” To do it, Whole Foods is now taking those services in-house. “We’re going to have an internal system in place,” he says, adding that it will lead to better execution and more transparency.
Suppliers will now pay Whole Foods for the services that it used to pay a broker for, but Gallo doesn’t believe it will raise their costs upfront and that in the long term it will reduce their costs.
Gallo said the meeting was also a chance to discuss the company’s new inventory management system, which got blamed for the higher level of out-of-stocks some consumers experienced this winter. Gallo says that increased demand was behind some of the empty shelves, but that’s “not to say the system we put in place is perfect.”
The new system gives employees in the store more tools for figuring out how to better manage inventory so they don’t run out of key items, Gallo explains. For suppliers, he says, it means more consistency.
