AMZN Amazon.com Inc

By Heather Haddon and Annie Gasparro 

Whole Foods will change the way companies can sell and market their products in its stores beginning next year, one of the biggest moves yet in its push to operate more like a traditional market.

Under the changes planned for April, Whole Foods' 470 locations will no longer allow brand representatives to promote their products or check to make sure they are stocked and displayed correctly.

Whole Foods also is centralizing much of its decision-making regarding the assortment of products across the chain. Instead of allowing brands to frequently pitch their products to individual stores or regions, Whole Foods executives in its Austin, Texas, headquarters will choose a higher percentage of the inventory.

The move was slowly getting under way before Amazon.com Inc.'s deal for the chain in August, and its acquisition has added incentive for Whole Foods to shift from its decentralized model and become more efficient.

"This is another step in the conventionalizing of Whole Foods as we know it," said Jim Cusson, of Theory House, a brand consultancy based in Charlotte, N.C.

A Whole Foods spokeswoman said the chain remains committed to offering local brands across its stores, and their streamlining of purchasing will help ensure a mix of small and big products.

"Local suppliers and products are crucial to the success of the company, " she said.

Amazon is hoping to boost sales at the struggling grocer, in part, by standardizing operations and prices. Market reports show traffic improvement since the deal closed last month, likely because the chain lowered prices on key items like eggs and milk.

Whole Foods' share of the U.S. grocery market jumped by upward of 16% week-over-week in the first three days after the Aug. 28 price cuts, but is now trending up by more-modest margins, according to inMarket location data.

The changes are among those expected to be discussed next week by top executives and managers at the chain's quarterly meeting in Seattle, a regional hub for Whole Foods and Amazon's home base.

Whole Foods representatives informed suppliers and third-party brand representatives about the plans during a series of closed-door meetings at an industry conference last week.

Whole Foods is unique among large retailers in the extent to which it has let representatives of lesser-known products into the stores to promote their offerings.

Some suppliers and natural-food consultants say sales of specialty products could suffer because items such as chia-soaked seeds and charcoal body butter require some explanation and more marketing. Some consultants also say they expect local brands to take their products elsewhere, rather than having to make a pitch to Whole Foods' headquarters.

"This is a major inflection point," said Jay Jacobowitz, president of Retail Insights, a Vermont-based natural-products industry consultancy that works with independent retailers. "The product mix at Whole Foods will shrink. The niche lines will trickle out to other grocers."

Brand representatives in health and beauty currently educate employees about how their products can help treat a customer's allergies or other health conditions, one brokerage owner said. Employees typically don't have time to learn about updated products, an issue particularly when health goods are involved, the person said.

"I'd expect the education and hence knowledge, of in-store associates will diminish over time," Mr. Cusson said.

Other suppliers said they welcome the change. They said they expect Whole Foods to begin offering brand advocacy themselves for a fee that is similar to what they pay the third-party providers, and that this arrangement could produce better results. "Whole Foods' staff will know each other and the brands. You'd expect higher service because of this," said Greg Fleishman, a natural-foods consultant at Purely Righteous Brands.

A Whole Foods spokeswoman said having brand advocates in stores is distracting to employees and inefficient. Whole Foods has had them there for years, but sales declines in recent years have brought scrutiny to the grocer's long-held practices.

The new system, the Whole Foods spokeswoman said, is intended to save money and provide more consistent service and a national approach to its locations. She declined to detail what Whole Foods will do to make up for the work these third-party brand-support companies have provided in stores.

"We are still working on that plan. But independent [providers] are being eliminated," she said.

One company that promotes brands in Whole Foods' stores said it is laying off half of its employees in response to the grocer's decision.

Whole Foods recently came out with a noncompete agreement for its employees, barring them from selling into Whole Foods if they go to work at one of the brands it carries. The Whole Foods spokeswoman said the policy is common to big retailers and it lasts only a year.

Write to Heather Haddon at heather.haddon@wsj.com and Annie Gasparro at annie.gasparro@wsj.com

(END) Dow Jones Newswires

September 21, 2017 17:16 ET (21:16 GMT)

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