NOSH Voices: Understanding Whole Foods’ Shift To Start Sharing POS Scan Data

About The Author: Michael Movitz, founder of The Movitz Group LLChas more than 25 years natural/organic products industry experience across retail, manufacturer, broker and market research organizations, including 16 years with SPINS, the leading provider of retail consumer insights, analytics and consulting for the natural, organic and specialty products industry.

After a decade of going it alone, Whole Foods Market is returning to cooperator status, a move that will empower its manufacturer supplier partners to provide more sophisticated insight back to the retailer, and help Whole Foods make more informed decisions accounting for broader market dynamics.

The move is part of Whole Foods’ strategic nine-point plan to evolve and improve its trajectory, as the natural products industry has also expanded and evolved in many awesome ways the last several years.

First, a brief definition: A “retail cooperator” is defined in the syndicated market research industry as a retail chain that agrees to share its Point-of-Sale (POS) scan data with a market research reporting agency. That sharing agreement typically permits the agency to incorporate a retailer’s data into an aggregate of other retailers’ data that defines a channel or market (i.e., natural supermarkets, grocery stores, etc.), and to license that aggregated data to manufacturers and other suppliers who partner with or support the business in that marketplace. A majority of the time, the sharing agreement also permits the agency to license a retailer’s data as stand-alone information (“key account data”) to allow vendors to measure its performance specifically at that account, as well as collaborate with the retailer on product assortment, introductions, promotions, pricing, merchandising and myriad other initiatives. The benefits to the retailer include receiving its raw POS information back from the agency cleansed, categorized and appended with product attributes (flavor, size, organic, natural positioning, etc.); being able to measure and evaluate its own performance and opportunities against the rest of the marketplace; and of course working with its vendors in close collaboration to optimize its opportunities for success.

whole_foods_cashierWith this in mind, why is Whole Foods returning to the fold such important news? At the end of 2006, Whole Foods Market did not renew its information supplier cooperation agreement, isolating itself (and the vendor community) from what’s a pretty common partnering practice. I believe Whole Foods felt this was necessary to insulate itself from its competitors learning about and more easily replicating and competing against it.

There are many reasons why Whole Foods would now return to being a cooperating retailer. However, one only needs to look at its sales, comps and profit trends, alongside the state of the increasingly competitive retail and e-commerce environment for natural/organic/specialty (premium) products across retail formats, to see that Whole Foods’ well-intentioned move of isolation ultimately did not insulate it, and more likely put it at a disadvantage. Certainly its absence from cooperation the past 10 years is hardly the sole reason for its current business status. But on the surface, Whole Foods experienced exactly what Walmart did: Walmart withdrew from cooperation in 2000 for the same reasons mentioned above, and returned in 2010 (also 10 years later) after an extended period of competitor evolution to which it had limited line of sight and poor financial performance.

Isolation may temporarily solve some issues, but ultimately, accepting some give and take to work together leads to better long-term outcomes for all parties. To paraphrase from Whole Foods’ own vision statement, our reliance on each other speaks to our interdependence. So true – we are all part of a perfect system that depends in some way or at some point on other parts and processes of the system in order to thrive.

However, there is a lot of work still to be done and many decisions to be made before vendors will start to see Whole Foods’ data again.. Timing was not announced for when Whole Foods would begin reporting. Also, these things take time to build, prepare and test before release, but suffice it to say this is yet one more seismic development for our industry to strengthen its momentum, importance and influence within the larger consumer packaged goods sector.

So what will be the impact of this return? On the surface, market coverage will be improved, but this is an oversimplified takeaway. For example, as a condition of its cooperating agreement, a retailer will sometimes restrict reporting of exclusive items or departments of high internal value (including private label). Reporting agencies may be required to include a retailer’s sales in an aggregated channel or channel segment to inhibit clear reads on a given retailer’s business (Walmart, for example, only reports in the all-channel aggregate of “Multi Outlet” that includes club, military, dollar and others). Reporting agencies are also sometimes only allowed to use a small sample of stores instead of all stores in the chain. All of these conditions are intended to balance a retailer’s willingness to cooperate with protecting the retailer from exposure of what it deems to be unique or sensitive products in its chain.

Consider scale, too: at $15 billion in sales, Whole Foods represents about 2.5 percent of the $600 billion brick and mortar grocery retail landscape. However, if WFM sales information is being reported within the $1 trillion “Multi Outlet” channel aggregate including Walmart, club, etc., Whole Foods represents about 1.5 percent of this total. In either case, the impact and visibility of Whole Foods in conventional channel reporting will be nominal at best. Couple this with the fact that its model, and particularly its assortment and velocities of premium products, is quite unlike traditional grocery and mass retailers. The integration of WFM sales information into this dissimilar “comparable market” leads to a lot of noise and challenges when attempting to understand data trends if the right tools and resources are not being used. It also further accentuates the line blurring, convergence and emerging ubiquity of premium products already underway for our industry over the past several years. We don’t know yet how Whole Foods information will be reported, what its expectations of the vendor community will be, and whether any of these reporting tactics will be employed.Account-level specific reporting is the only clean read on a retailer’s performance, and customarily, only manufacturers selling in a chain are permitted to license account specific data. We don’t yet know if this will be offered to vendors or in what form.

All of this being said, I would make the analogy of Whole Foods Market returning to cooperation status being similar to a CPG investing in or acquiring a core natural products brand. Whole Foods and the entire natural products industry – including all manufacturers, supply chains, and the people and families behind them – will get bigger, stronger and more influential faster thanks to the sophistication, resources, breadth, depth and reach of cooperation partners and deeper engagement with its vendor community. Like that investment, this move underscores the momentum with which the market is evolving, and the need for all businesses to adapt and transform to new realities to remain relevant. It’s great that Whole Foods will be back, as well as to see the progress it is making to evolve and transform its business – not to just stay competitive, but to remain differentiated, a destination and a leader in retailing.

At Project NOSH and BevNET we pride ourselves on having a robust network of food and beverage entrepreneurs, industry insiders and advisers. To that effect, NOSH Voices is a series of columns by respected experts to provide a spectrum of points of view from within the community. Interested in contributing as a NOSH voice? Contact the Editors.

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