March 11, 2016
Is de-centralized buying worth it for Whole Foods?
Through a special arrangement, presented here for discussion is an excerpt of a current article from Frozen & Refrigerated Buyer magazine.
Whole Foods’ decentralized buying approach often gets credit for the grocer’s ability to partner with small, local manufacturers. But it’s a pain for suppliers.
Just about every manufacturer we talked to as part of an extensive profile on Whole Foods complained about their buying process, a function handled by 11 different regional offices.
While it’s hard enough for small, start-up companies to present to 11 different buyers, the criteria for acceptance varies widely from region to region.
"It’s like pitching to 11 completely different companies," says one manufacturer. "Everything is seemingly dependent on the whims of the individual buyer."
Moreover, "These buyers seem overwhelmed by the amount of work they’re expected to perform and are often unresponsive to requests from manufacturers hoping to present a new item" — a sentiment we heard over and over again. For new vendors in particular, "Getting an appointment is extremely difficult."
Photo: RetailWire
But even for those lucky enough to be granted an audience, meetings are a challenge. "Whole Foods only allows vendors to present once a year," says another manufacturer. "You’re given 30 minutes or less to present — one buyer actually set a timer and stopped us when it went off, regardless of where we were — and you’re asked to put everything on one page, which allows very little insight into the category or the brand. Most often, they don’t even have time for sampling."
It’s no surprise, then, that most manufacturers applauded Whole Foods’ announcement last month that responsibility for buying packaged foods, detergents and other non-perishables would shift from regional buyers to a team in Austin, a move designed to reduce costs and boost clout with vendors.
While some worry the shift will weaken the chain’s ability to tap into the unique needs of individual marketplaces, "I think it makes sense in center store," says Don Stuart, managing partner at Cadent Consulting. "You don’t want to lose that local touch, that connection to the community, but Whole Foods can leverage the perimeter for that. I think it’s a good balance and represents a big step forward."
Discussion Questions
Do the advantages of decentralized buying for Whole Foods offset the disadvantages? What steps should national retailers using a decentralized approach take to make the buying process easier for its large and small vendors?
Poll
BrainTrust
Cathy Hotka
Principal, Cathy Hotka & Associates
W. Frank Dell II
President, Dellmart & Company
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Centralized buying should work better for both Whole Foods and its current and potential suppliers. Items in the center store are far less likely to have local or regional suppliers. Further, nothing in having a centralized buying office would prevent a regional or even local supplier from making the trip to Austin to make a presentation. In fact, it may make it easier for those companies to actually get an appointment.
Providing fresh, organic ingredients that aren’t sourced from other continents isn’t easy, but it’s what makes Whole Foods Whole Foods. Steve is right that center-store items aren’t affected. Let’s hope that Whole Foods (and Chipotle too) can continue to support local farmers. (There was a hugely interesting story on NPR yesterday about a coming blight on the one kind of banana found in supermarkets — scary stuff. Diversity is good.)
The issue of centralized versus decentralized buying has been an industry issue since the first distributor opened its second warehouse. The best example where centralized buying did not work was when an eastern chain put southeast BBQ sauce in Texas stores. This told the customer the chain did not know much about the market and did not care. Eventually the chain closed all their Texas stores.
As the industry consolidated this centralized vs. decentralized issue has become more of a real issue. There is no question decentralized is closer to the consumer, but lacks real controls. Centralized provides the control but not local market knowledge. Two approaches seem to work somewhat. The first is centralized for the national brands and most of the center store, decentralized for the perishables. The second approach is to centralize the item approval or authorized item list. Then decentralize the item selection from the approved list and order placement.
Trying to strike the balance between the economies of scale that are presented by centralized buying and the ability to cater to local customers that is enabled by localized buying is not always easy. Some retailers are overly centralized and have limited local items and others, like Whole Foods, can appear to be overly decentralized which can lead to increased complexity and cost.
It sounds like Whole Foods is moving down the path towards striking a balance between the two approaches by centralizing buying of some center store categories. This is consistent with some of the best practices that are in evidence today — there is often a core assortment that is consistent across all stores, a regional component of the assortment and sometimes even a local component that is determined by the store personnel.
The key to success is to leverage data and insights about the appeal of individual products and categories to customers at a local level and then use that understanding so the core, regional and local assortment decisions can be made with the most confidence.
I believe what the article does not mention is that at these regional buyer presentations, not all items presented are accepted and bought in large quantity right then and there. Most of the time they are merely presenting an item to be sold in or accepted at the local store level. A Whole Foods buyer may just be saying, “yes we give your sales reps permission to sell this in at the individual store level.” That way the department manager can still reject the item from the local vendor if he deems it a bad fit for the community.