What the Amazon / Whole Foods deal means to a handmade business like ours
Posted on June 19 2017
On Friday, news broke that Amazon is buying Whole Foods Market for $13.7 Billion. This prompted vast speculations of the death of the handmade middle market, to USA Today articles about disruption in grocery and disruption in retail.
But what does it mean to us?
Well, the truth is, we don't know yet.
We can speculate like crazy (which we'll do in this post, in a bit), but the truth is, we don't have any insider information aside from our own experience. And our own experience in the past 5 months has been radically different than our experience in the previous 5. This is a vastly changing market, and we are corks on the water of change.
Outlaw Soaps has many horses in this race.
We are uniquely positioned here, because we sell on Amazon and we sell in Whole Foods. Those two customers combined make up more than half of our annual revenue. We work extensively with both to grow and optimize the sales on each, and so this news is massively relevant to us.
That said, here's my wild speculation...
I think this is good news for us, for you, and for everyone who cares about small manufacturers.
I have long held a view that within every seemingly challenging situation is the seed of an even more positive outcome.
Yes, this is Pollyanna thinking, but it works.
We are proven in both markets and have shown value to both customers of Amazon and of Whole Foods. With the merging of these behemoths, Outlaw Soaps could become available in any Whole Foods store virtually overnight, since we already ship to all the Amazon distribution centers.
Whole Foods has been good to us as independent manufacturers. They pay their invoices ahead of the due date, they are positive and supportive, and they really support people like us in our business. (more news on that in mid-July, since I have been sworn to silence on news that is coming in mid-July... big news).
Amazon has been good to us as independent manufacturers. Their online business model reaches our ideal customers (who are focused on efficiency and getting the things they want, no matter how niche or specialized... which is us). We do have to work within their massive and impersonal infrastructure, but we have been navigating that effectively for several years now, and we have grown in triple-digit % increase year over year.
We are committed to continuing to invest and enhance our product offerings on Amazon and in Whole Foods... and now, we can only speculate what that means... but we're pretty sure it means consolidation and good things. We know both systems and like both systems.
We recently got picked up by UNFI, the largest natural food distributor in the US (and maybe the world) based on our Northern California Whole Foods relationship. UNFI won't distribute us in other regions until we get a critical mass of customers in those regions.
Our relationship with UNFI has opened up many other relationships that wouldn't have otherwise existed -- relationships like Staple & Spice in Rapid City, SD, Cid's Market in Taos, Top's Market, Nugget, Sacramento Natural Foods Co-Op, and others. We're very excited to work with these new customers, and we're honored and delighted that UNFI is working with tiny manufacturers like ours.
But every person who touches the company between us (the manufacturer) and you (the customer) charges money... and those pennies (which become dollars, which become about 18% - 22% margin on every product) gets factored into the cost of the product.
Between us and you, distributors, reps, brokers, retailers... everyone who touches it adds to the margins.
Which is why Amazon's prices can be cheaper in a lot of circumstances. They are a closed system, fully containing their own distribution network, working directly with manufacturers, and making sales on their own, directly to the consumer.
If they own both the distribution and the retail locations (which they now do), Whole Foods (now known for craft-based "whole paycheck" pricing) could see a quick and brutal reduction in prices. Amazon can leverage its dominance in the market to aggressively fight for lower prices, which they'll do for you so you pick Amazon (and Whole Foods).
You may be thinking "ugh, this sounds terrible for _____! What about them?"
Again, I go back to the "well, we really don't know what it means" argument. We have no idea what it means. And the marketplace is always evolving - MUST always be evolving.
The makers who aren't willing to sell on Amazon will likely see either no change in their customer base, or will see a rise in farm-to-table (or farm-to-shower, as my friend calls it) awareness and interest, as handmade becomes more accessible to regular customers. Most of the people who sell at farmer's markets aren't charging the margins required to be in grocery stores anyways, so they may still be the cheaper option.
For Independent Grocers
Independent Grocers are the people most at risk from this deal, so if you care about the sale of Whole Foods to Amazon, stop what you're doing and go grocery shopping right this minute. We'll wait.
We are committed to supporting our independent grocers and retailers however we can. For us, that means promoting them on our blog and on social media, which we will be doing, starting this week (stay tuned). We feature them on our Instagram account and are going to consult with INFRA on what we as manufacturers can do to help.
This means that people will have to be better at showing value from shopping at local independent grocers... and I don't just mean "value" as in "cheap." You can get a brick of American Kraft Cheese for a lot less than a brick of Extra Sharp Tillamook Cheddar, but my guess is that you'd rather have the Tillamook. That's because Tillamook has shown their value beyond the price tag, and people shop value.
Nugget Market is a great example... they are a small independent grocery chain that has, in my opinion, created a fun and immersive experience of grocery shopping. In addition to having a curated fine selection of products, they also have friendly, knowledgable staff, and gorgeous displays. People love shopping at Nugget Market and it's because they have done amazing work showing the value of their grocery experience.
For Larger Companies
It's unlikely that massive companies like Dr. Bronners, P&G, etc will want to change distribution models. Their company structures are organized around ways that make the current model efficient.
And will we continue to work with UNFI? Definitely! There are thousands of independent markets who are so important to Outlaw Soaps and companies like us, and it's most efficient to go through UNFI. Finding and ordering from a thousand different independent sellers is nigh impossible at grocery scale, so UNFI provides a streamlined, efficient, one-source system for stores.
The market is changing. Trying to stop that is as futile as standing on the shore holding our hands up to stop the rising of the tide.
We don't know what it means, and any conjecture is just philosophical musing.
The future is up to you.