Whole Foods may not dominate specialty-foods retailing the
way it once did, but for startups targeting Americans’ growing hunger for
natural and organic fare, it remains the ultimate gatekeeper. Its imprimatur
can open the way not only to Whole Foods’ more than 400 stores, but to bigger
retailers who covet the cachet of brands carried at Whole Foods, entrepreneurs
say.
As a result, small companies are willing to do a lot to get
into Whole Foods and stay there—from changing recipes and tweaking packaging to
selling certain products exclusively through the chain.
John Simmons, founder of Third Street Inc, began selling
bottled chai tea concentrate to Whole Foods in Colorado in 1998 after one of
its buyers sampled it in a local coffee shop. Today, the Louisville, Colo.,
company has multiple products in Whole Foods nationwide, including a bottled
iced tea it developed exclusively for the chain. Its original concentrate sells
at Kroger Co. and other retailers.
Meeting Whole Foods’ druthers can be expensive. Kate
McAleer, founder of Bixby & Co., which supplies candy bars to Whole Foods,
says certifications cost at least $10,000 a year—a hefty sum for her company,
which she expects to break even this year. And Whole Foods lists roughly 80
“unacceptable” ingredients including vanillin, bleached flour, and aspartame
that must be removed from products seeking to appear on its shelves.
Cultivating new brands and exclusive products has become
even more important to Whole Foods as mainstream retailers have expanded
natural-food offerings. Kroger, the biggest traditional supermarket operator in
the U.S., with 2,600 stores, last year sold more than $1 billion of Simple
Truth, a line of natural-and-organic foods it launched in 2012.
Such competition has helped slow Whole Foods’
growth. On Wednesday, Whole Foods said that for the 12 weeks ended April 12,
sales at stores open at least 13 months rose 3.6%, adjusted for currency
fluctuations. Profit rose 11%, but Whole Foods stock sank 11% in after-hours
trading, to $42.48 on the company’s disappointing outlook on sales and margins.
To keep its pipeline full, Whole Foods has provided
low-interest loans totaling $15 million to small food makers over the past nine
years. It also helps with sales forecasting, ingredient purchases, and
marketing. Brands that grow too big can become vulnerable. In late 2013, Whole
Foods said it would stop carrying Chobani Inc.’s Greek yogurt, saying
it wanted to make more room for niche brands and especially those that were
organic or made without genetically modified organisms and not sold at
mainstream grocery stores.
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