Amazon lowered prices on key items at Whole Foods Market, on its first day of acquisition. Here's a before-and-after comparison of five food prices. USA TODAY
Jennifer Constantine, founder and CEO of JC’s Pie Pops, surprised a group of industry executives at the Natural Products Expo East show last month with her enthusiastic reaction to Amazon's purchase of Whole Foods.
“One gentleman said ‘a lot of the young brands your size are terrified and they think they are going to get erased.’ But I think that’s the wrong way to look at it,” Constantine, said. “If you’re a little brand and you’re not really making it happen, it’s going to hurt. But if you sell, then you’ve got a much bigger platform now.”
JC’S Pie Pops, based in Los Angeles, was formed in 2013 after Constantine, a songwriter by trade, accidentally froze her homemade Panna Cotta, an Italian dessert meant only to be chilled. Whole Foods helped Constantine break into the specialty food market by selling her product in a handful stores. With $5.3 million in sales last year, JC’s products are now dozens of chains including Publix, Giant, Sprouts and H.E.B.
For entrepreneurs in the natural food and products industry like Constantine, Whole Foods has served as a launchpad of sorts for companies looking to get on mainstream store shelves. Companies and local farmers often would get into one or two locations and grow from there if their products took off. Like the big supermarkets and food manufacturers who are nervous about Amazon's size and power, many small suppliers can see benefits of the combination, but are also concerned what it could mean for them.
“I’m a little nervous because we’re a smaller player, but as an entrepreneur, I’m excited about the distribution potential,” says Anupy Singla owner of Chicago-based Indian as Apple Pie and author of three cookbooks. She started selling spices in 2015 at her local Whole Foods and now has products in about a dozen stores. Starting small gave her the time to develop products right, she said.
Amazon “may mean I can actually reach more consumers now. That’s really what we’re talking about on one level, for entrepreneurs,” she said. “Even though there’s uncertainty.”
Whole Foods has been important for startups because it brings credibility through rigorous requirements in organic and natural categories, says Natalie Shmulik, a consultant at The Hatchery, a food business incubator in Chicago that provides entrepreneurs kitchen space, consulting, classes and other services.
Change was already afoot at Whole Foods prior to Amazon swooping in. The chain was already streamlining its purchasing process before the Amazon deal closed in August, shifting to regional buyers and more approval through its Austin headquarters rather individual stores or regions, according to business owners, venture capitalists and others in the industry. Previously small business owners often dealt with the buying manager for an individual store or region which could make it cumbersome to expand.
Denver-based Birch Benders broke into Whole Foods through a single store in Boulder, Colo., after the company formed in 2011 and worked its way into the region. Now available in 7,000 stores in different chains nationally, says CEO and co-founder Matt LeCasse.
“We’re in a position where we’re not overly concerned about the acquisition. We’re Whole Foods number one pancake brand,” LeCasse said. “What’s been really exciting for all of us is that it’s just been a huge endorsement of the natural food industry, that our goal of getting better food into every American household is working.”
“We’re in a position where we’re not overly concerned about the acquisition. We’re Whole Foods number one pancake brand,” LeCasse said. “What’s been really exciting for all of us is that it’s just been a huge endorsement of the natural food industry, that our goal of getting better food into every American household is working.”
What might shift is the ability for a startup to charge more during product development as Amazon focuses on profit margins and centralizes some buying. That means products may need to be farther along before startups present to Whole Foods.
“What may happen is the stepping stone is just going to change,” said Ron Tanner, vice president of philanthropy, government and industry relations at the Specialty Food Association. “It’s going to be specialty foods store, it could be a local grocer, it could be other things and then they move into larger stores as they go forward.”
For its part, Whole Foods said it’s committed to developing small, local businesses.
“All Whole Foods Market stores will continue to sell local products, and our buyers remain committed to discovering and incubating local and innovative brands,” spokeswoman Betsy Harden said in an e-mailed statement. “Local suppliers and products are crucial to the success of the company and our ongoing work in category management helps streamline processes that ensure each store has the best possible curated selection of local and national products available for shoppers."
If Alejandro Velez's experience with Amazon is an indication, natural food and products companies may find the behemoth to be a good partner. Velez formed Back-to-the-Roots fresh out of UC Berkeley in 2012 with fellow alum Nikhil Arora after using their fraternity kitchen to grow mushrooms out of used coffee grounds. Whole Foods, he said, was "the first to believe in us."
If Alejandro Velez's experience with Amazon is an indication, natural food and products companies may find the behemoth to be a good partner. Velez formed Back-to-the-Roots fresh out of UC Berkeley in 2012 with fellow alum Nikhil Arora after using their fraternity kitchen to grow mushrooms out of used coffee grounds. Whole Foods, he said, was "the first to believe in us."
Now, Back-to-the-Roots, based in Oakland, has 21 employees, sales in the “millions” and sells products like a fish tank that doubles as an herb garden. Velez also advises and sells on Amazon Launchpad, a section of the online giant’s website focused on startups.
“I keep hearing a lot of brands talking about negative impact but this, but I couldn’t be more excited about the potential,” said Velez. “Too many people are writing it off as if this is going to become a store that loses its values and its soul and its purpose. There will just be more structure, and I think that’s good.”
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