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Why Whole Foods Matters (or Why Safeway Hurts Innovation )

08/09/05 @ 10:47:07 am, by Kate Hopkins Email 977 views • Categories: Shopping

I'm sorry, did I miss the memo saying that we need to dog pile on Whole Foods? First we had Julie Powell's article equating shopping at Whole Foods with classism, then we had a post at Chicagoist equating Whole Foods with Wal Mart (full disclosure, I write for Chicagoist's sister blog Seattlest).

Let me explain, in clear language, why Whole Foods is revolutionary (and i DON'T use that word lightly).

In short, your old-school, massive grocery store chains are addicts. What they are addicted to is something called "Slotting fees". "slotting fees" are money, specifically money paid to grocery store chains from the largest food producers in the nation. The results of this addiction include a lack of innovation in a majority of food products being sold in our country, and a near monopoly on our food supply by companies such as Conagra, Coca-Cola, Kraft, Pepsi, and other mega-corporations.

Here's how slotting fees work: There is only a finite amount of shelf space available in any given supermarket. Each supermarket only allots a specific amount of space for any given food item. For example, with soda, any given supermarket will have 5-10% of it's shelf space dedicated to soda.

Coke and Pepsi both understand how valuable that shelf space is. To their way of thinking, it's essentially real estate. So Coke will go to the Supermarket chain and say "I will pay you x amount of dollars for 35% of your available soda space." Pepsi will then say "I too, will pay you x amount of dollars for 35% of your shelf space". Dr. Pepper/7up will then say "Since I don't have the resources of Coke or Pepsi, I will pay you a little less than x for a smaller percentage of soda shelf space".

What this means is that for a new soda company, there is somewhere between 0 and 15% of shelf space for which they can put up a new product. Since these are often new companies, they can afford little or no money for these slotting fees. This puts them at a tremendous disadvatage within the supposedly free market.

And if a new brand gets a little too popular? Well Coke, Pepsi and/or Dr. Pepper can increase their slotting fees in return for more space, leaving less space for the newly competing brand.

This activity doesn't just happen with soda. It happens with chips, candy, cereal, frozen foods, pickles, you name it.

So where does Whole Foods come into this picture? They've essentially told the major food corporations "We don't want your money. We'd rather give you space only if you adhere to our food standards." To which the food corporations said "Screw you". This is why you rarely see the major food corporations represented at Whole Foods.

What Whole Foods has done is changed they way food is supplied to their customers. Instead of the major food corporations dictating which products get put on the shelves, Whole Foods does. The choices that Whole Foods makes are based not only which product gives the best profit, but what the demand for each product is, and if the food product is adhering to their food philosophies.

That's not to say that Whole Foods is perfect...they've got issues with unions than make me uncomfortable. They also may be putting foods on their shelves that may not deserve to be there. But at least there's a Supermarket company that is not putting profits as it's sole purpose for existance. Few (if any) other supermarket chains can make the same claim.

This is why I don't get the recent slams against Whole Foods. Are they being targeted simply for doing something different? Or is it because there's a level of paranoia against companies that get fairly successful in a fairly short period of time? I can't answer these questions. What I do know that it's best to fully understand a company before you start criticizing them.

Oh, and just so we're clear. Slotting fees are BAD! Learn it and repeat it to all who care to hear it.


Comments, Pingbacks:

Comment from: Abby [Visitor]
People bash Whole Foods because it's a successful corporation. Back when it was a small natural foods store everyone loved it. Sorry, I still love Whole Foods. I've been lucky enough to live in several cities with Whole Foods Markets (Austin, Dallas, Ann Arbor, Durham, Chapel Hill, Berkeley, Seattle) and I always shopped them for my edibles. The best thing about Whole Foods is that even though they're a big corporation, each store retains its own feel and you can always get great local products (Oh do I miss the Durham store). I now live in area that has a local co-op and I think it's good, but it just doesn't have the buying power of Whole Foods so the variety and quality just aren't consistently there. To those of you with a Whole Foods close by: give John a big thanks, and try to remember that successful doesn't automatically mean bad.
PermalinkPermalink 08/09/05 @ 11:53
Comment from: Tara C [Member] Email · http://www.dementedkitty.com
I agree with Abby. Though I don't like that Whole Foods won't allow their labor force to unize and their prices are steep for my paycheck, I love WF. I think you should post this article on Seattlest and start a rumble between sister blogs. Be a foodie rabble rouser.
PermalinkPermalink 08/09/05 @ 12:07
Comment from: Fatemeh [Visitor] · http://www.gastronomie-sf.com
Thanks for the very straightforward explanation of slotting fees.

I don't shop at Whole Foods very often (we're too blessed with a Farmer's Market, butcher and Trader Joe's in close proximity to our house), but the few times I've gone in, I've lamented the ridiculous pricing on stuff at "Whole Paycheck" (as I've heard it referred to).

Understanding how different their profit model is from other markets makes it easier to understand.
PermalinkPermalink 08/09/05 @ 13:16
Comment from: Sheryl [Visitor]
I had issues with WF when they first came to Canada, because it was feared that they would do to local health food stores what big book chains did to smaller retailers - that is, destroy the market.

However, I will shop there occasionally for items I can't get elsewhere. There are a few items I go to WF for specifically. Most items that I use are cheaper at smaller, local stores, though, and that's where most of my grocery money goes.
PermalinkPermalink 08/09/05 @ 13:57
Comment from: Kate Hopkins [Member] Email · http://www.accidentalhedonist.com
Sheryl,

I'm all for buying and supporting local businesses. And those conerns that WF may destroy local health food stores are not necessarily unfounded.

But from strictly anecdotal evidence, it appears as if Whole Foods brings their customers from the Safeways and Krogers of the world, and only a minimal amount of customers from food co-ops and health food stores. A great majority of these people, I think, see WF as an alternative and not a replacement.

I've no data to back that up however.
PermalinkPermalink 08/09/05 @ 14:03
Comment from: megwoo [Visitor] · http://www.iheartbacon.com
Bravo Kate. Thanks for standing up for Whole Foods. No, they're not perfect, but they are better than a QFC or Safeway...
PermalinkPermalink 08/09/05 @ 14:22
Comment from: Barbara Fisher [Visitor] · http://www.tigerberries.blogspot.com
I think a lot of folks mistrust WF for the way in which smaller Mom & Pop health foods places were put out of business by them in the past decade. It may also be a simple mistrust of corporate business practices.

However, I have to agree with your analysis on their refusal to do business with the "slotting fee" model, and for that alone, I am grateful for them. They do indeed, allow smaller food companies to flourish, and offer an alternative to the Safeways and Krogers of the world.

However, I will note that here in Athens, our Krogers has an entire section devoted to locally produced foods. In addition, all of the Krogers stores in Ohio that I know of, have a section that just recently grew in size of organic foods that feature the same brands carried by WF. It is smaller than the amounts of stuff that WF carries--but the mere fact that the section exists, and has grown in size in the past year, tells me that even the "slotting fee" corporate whores are responding to consumer demand for alternatives to the questionable products of the petroleum-driven ag-business giants.

And thanks for the discussion of slotting fees--I knew about them, but hadn't given them much thought in a while. Thanks for bringing them to my attention again.
PermalinkPermalink 08/09/05 @ 15:08
Comment from: huda Mussa [Visitor]
The last time I went to Austin, most of my friends were bitching about the new whole Foods store, and how obnoxious it was. To me it was like going to a pilgrimage. One does not appreciate whole Foods unless you live in a place where there is no one. When I moved to Oklahoma City from Austin, it was the lack of a whole foods store was what I missed the most. One should be grateful to live in towns where one has a choice of good natural foods store and farmers markets.
PermalinkPermalink 08/09/05 @ 15:23
Comment from: Rainey Smith [Visitor]
I live close to a Whole Foods. Although I can't afford to shop for more than 10-15% of my groceries there, there are things at WF that can't be had otherwise. Even the highest-end market in the area can't touch their cheese department or their specialty oil selections. The fish monger happily packages up 2 shrimp, 2 clams, 2 mussels, etc. if I want fruits de mer. The meat is first quality — far superior to conventional markets! And they're the only local market that sells essentials from bulk bins. I hear the concern for small health food stores' health. But even Canada has its own homegrown threat (at least in BC), Capers. And let's face it, it takes a big operation like WF and Capers to offer the variety that makes them appealing. Meanwhile, a smart consumer can tailor a shopping list that takes full advantage of farmers' markets, Trader Joe's, Costco and conventional markets. It's wonderful to see the issue addressed.
PermalinkPermalink 08/09/05 @ 17:56
Comment from: Andi [Visitor]
I love the new Whole Foods here in Vegas....
Ice Berg Lettuce is 69cent A PIECE everyday!They are fresh and huge right now.Where Whole Foods are getting them from I do not know.The Albertsons,Vons and Smiths market chains here have awful lettuce in the markets.....and HAVE SIGNS POSTED ALL SUMMER DUE TO THE RAINS,the prises are high..People should not be intimidated by the prices.The varietiy is amazing and YES if you want gourmet ,its her for sure.You can buy that here for a price.....The cheeses and meats and poultry are the best in IMO.....you can find things that are not pricy too....Their 365 lable of frozen food is better quality and is cheaper then the popular brands in most super markets.....pus healthier IMO
and you are not getting shelf life crap in them.....
PermalinkPermalink 08/09/05 @ 21:09
Comment from: Jay [Visitor]
I agree that the WF bashing is a little excessive. It's kind of like the old quote about democracy being the worst system of government ever devised, except for all the others.

A couple of things though:
- I wouldn't necessarily say that the conventional food giants necessarily lack innovation -- blue ketchup is innovative in a way.
- It's important to understand that the big boys of the food world are not taking the interest in natural/organic foods lightly. Many brands found in WF are produced by major food conglomerates, and many of these are owned (partially or wholly) by the big players in the conventional food world. (Odwalla = Coke, Boca Burger = Kraft, See http://www.organicconsumers.org/organic/corporate120604.cfm for more of these connections. Your link to the story about questioning Horizon's organic credentials is very relavant to this point. I leave it to you to decide how much this matters, but I think it's important to know that the products on WF shelves are not all from Moonbeam-and-Sunshine's-Garage type operations.
- The union issue is a touchy one. This is purely anecdotal but I have a friend who's worked in grocery for years -- first at Kroger stores and now at WF. He's as progressive as they come, but does not support unionizing of WF. First, because his experience with Unions as a Kroger employee showed him how ineffective labor has become -- basically the loyal opposition. And second because he agrees with the company's line on this, which is that the compensation and benefits packages offered by WF are already above standard.

Thanks again for the great post!
PermalinkPermalink 08/10/05 @ 07:29
Comment from: Barney [Visitor]
Jay I think your freind has got it right. But it wasn't Krogers. Close. The unions are worse than useless right now, which is why they began last week to either reorganize or fall apart (it remains to be seen). Plus, management tends to become impenetrable in opposition to them, so you can't talk to them. You can talk to the union, but the last thing anyone at the union wants to do is talk to management. What should be a continuous 3-way conversation becomes an occasional battle over a contract. All my dues were money wasted. Here's something to chew on: Employees at Whole Foods periodically vote on their benefit package
PermalinkPermalink 08/10/05 @ 17:52
Comment from: Baylen [Visitor] · http://www.tothepeople.com
Kate,

All successful businesses -- from Starbucks to Safeway to Whole Foods -- innovate. As consumers we simply choose which innovations we take prefer or advantage of.

Jay and Barney,

Kudos. What's with the love of unions? Among other things, unions cost people jobs. Imagine how expensive the already pricey WF would be if they were forced to yield to the salary/benefit demands of a union!
PermalinkPermalink 08/11/05 @ 09:14
Comment from: Baylen [Visitor] · http://www.tothepeople.com
take prefer or advantage of...

Ahem... translates from whatever Yoda-like language I typed in into English as "prefer or take advantage of."
PermalinkPermalink 08/11/05 @ 09:16

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