Grocery Update #8: Mom's (Mostly) Knows Best.

Also: When UNFI Sneezes.

Discontents: 1. Why I Love Small Format Grocery Stores. 2. Mom’s Organic Market. 3. When UNFI Sneezes. 4. Amy’s Boycott. 5. Product Reviews. 6. Tunes.

1. I have a soft spot for smaller format grocers.

It’s my upbringing. I grew up in a diverse, outer borough, working class neighborhood with many grocery options. It was not upscale but definitely not a “food desert”. I went to the corner bodega 2 or 3 times a day. I knew the guy at the counter by name, and likewise. I bought many a fried egg on a role, along with cat food, “quarter waters” and bags of NY Deli potato chips. There was a small Korean-owned green grocer two blocks away, with piles of produce on bins spilling out onto the sidewalk, New York City-style. A slightly bigger deli/convenience store was across street. Even the chain stores in my neighborhood, C-Town, Bravo and Key Foods, were under 20,000 square feet. Typical urban layouts, packed to the gills with huge hand-printed signs on the windows. But easy to get in and out of in less than an hour with a full cart of groceries.

My first retail experiences were working at smaller format stores. I volunteered and made a nuisance of myself at the student run food coop in college. I worked at an indie book store. And then a pet supply store and a small, now-defunct indie grocer in New York City, but the former was pretty awful and the latter never paid me. My first Whole Foods was on Peters Road in Plantation, Florida and it was less than 25,000 square feet. I spent a few years at this store stocking shelves, ordering products and working overnight inventories. I even got the key to be an opener at 5 A.M. in the mornings, so a big shoutout to store managers Paul and Lori for entrusting me with that responsibility. (BTW, The company closed this store 10 years ago and relocated it across the highway to Davie. That new store is a beast.)

It's not that I dislike big format stores.

In fact, much of my time professionally has been spent buying products, working, opening and consulting for them; I opened 6th and Lamar in Austin and was on the board of Fairway. But I just feel more at home in a smaller, cozier retail space. The ceiling isn’t looming over you like the Astrodome (because boo Astros). You don’t clock a quarter mile walking from produce around the perimeter and back to the registers. You know where things are without using GPS. You don’t need half the afternoon to do a basic shopping trip. I would guess that smaller format stores are more environmentally friendly. Energy usage, construction and material costs, they can be close by to walkable areas, this all seem to fit this thesis.

Sure, there are shortcomings to smaller format stores. They don’t push out the massive sales volumes of mass marketers, they can have higher overhead costs and don’t always get the pricing right. They don’t always have everything you need. They run out of inventory more quickly (although so does Target). They can get a bit crowded during busy times. But they just feel more like home to me.

Small format stores are vital to their communities, especially when they nail the product assortment and pricing strategy. Small formats are replicable and frequently convivial. They have to be scrappy. It is no coincidence that the fastest growing discount chains like Dollar General and Aldi, as far from convivial as possible, also leverage smaller formats. They can open them anywhere, cheaply. So, take note. Small format grocery is the future.

2. One of my favorite smaller format chains is Mom’s Organic Market.

Mom’s is privately owned, was started in 1987 and has 23 stores in 7 states. Mom’s really hits the sweet spot in format, layout, assortment and pricing. Their produce is all organic. Organic is a major draw since it is the most popular, transparent and authentic good food production framework. But more than that, the produce is really high quality and they do a lot of in-season local products. We got some locally grown lettuce, a handful of garlic scapes, a few bunches of Hakuri turnips (I am obsessed with these turnips) and some pea sprouts.

This produce assortment is exactly why I think fresh produce should be free at point of sale.

…perhaps through an expansion of SNAP or Double Up Food Bucks. It was pretty pristine. Everyone should have access to this bounty. It is tough for cash-strapped folks to access good, fresh produce, either because monthly SNAP runs out so quickly, value-focused stores don’t stock good, fresh stuff or food banks mostly distribute shelf stable cast-off’s from industrial food producers.

The layout of the Mom’s produce department was really smart too. There was plenty of space between the bins and the wet rack, but everything was packed in, piled high and freshly rotated, even on a mid-week afternoon. Price signs were hand written. It was probably the best produce section I have seen since doing stores visits with PCC Community Markets in Seattle, who also do a bang-up job on local and organic.

The assortment in center store was a good mix of industry heavy hitters: Dr. Bronner’s, Badger, Nature’s Path, Simple Mills, Frontier Co-op spices, and UNFI Field Day value-tier brands. Mom’s also did a great job with lots of weird and innovative beverages, including Sanzo, Aura Bora, Ardor Energy, and Clean Cause. They had plenty of old school faves like Guayaki and Steaz. They had Seth Goldman’s new line of RTD teas, Just Ice Tea, now that Coke choked and nixed Honest Tea. Sad but true.

Mom’s also did a great job with snacks. They had plenty of the usual chips and pretzels but also plenty of oddball stuff like plant-based pork rinds, plantain chip scoopie things, chickpea crisps and mung bean chips. I am all about responsible snacking. Don’t judge me.

The dairy and frozen sections were small but adequate. Both dairy and dairy-analogues in milk, yogurt and cheese were well stocked. They had Sunja’s Kimchi and Hawthorne sauerkraut, some of my favorites. They had plenty of value-tier private label in frozen fruits and vegetables, many national organic/natural frozen entrée and pizza options and then some cool and interesting local stuff like Neilly’s Yuca Fries.

I have long been a fan of the Mom’s purchasing team and their commitment to organic food sourcing and local/regional suppliers.

Their products were not priced too high. There were actually some good sale prices and in general the place was not as expensive as other indies I have been visiting. The purchasing team is doing some good work to distinguish Mom’s and keep the stores competitive, compelling and welcoming.

Mom’s had signage saying “low overhead means low prices”. I thought that was interesting. Here is how I read that. Prices and product decisions are made by their central purchasing team while store staff runs operations and manages inventories. In terms of product assortment, Mom’s probably has good cost-plus deals with wholesalers and produce distributors. They had both Field Day and Cadia brands, which are wholesaler private labels from UNFI and KeHe respectively. My guess is that their wholesale markups are in the 8-10% range due to their smaller volumes. Whole Foods, Sprouts and co-op’s are a bit lower due to their larger contract volumes, and the fact that they are primary accounts, whereas Mom’s is not.

Mom’s stores do not have full service delis, meat, seafood or cheese counters. They also seem to schedule lighter during shopping hours and keep heavy staffing during stocking hours when trucks arrive. These practices alone must save 5-6 points on labor. This also has less to due to with pay rates per se, but how labor is budgeted and scheduled across the business. For comparison, Whole Foods is one of the country’s largest restaurant chains and those service counters in cheese, meat and seafood are major draws. That is popular but expensive to run. And Sprouts has old school meat counters and a decent deli and cheese section, a bit cheaper to run but not self service like Mom’s. My guess is that while Whole Foods labor runs over 16% of store sales, Sprouts is 13-15% and Mom’s is under 10%. That means that off the bat, Mom’s is saving 5-6 points on labor budgets and is therefore in a similar bracket as Natural Grocers or Walmart. That savings goes right into lower prices.

In terms of the staff themselves, the stores had a few staff on the floor and they were all helpful, made eye contact and even some conversation. That may sound weird but employees can be so stressed and alienated these days that I always clue in when folks seem into it. The cashier was in his early 20’s and we had a good chat about some of the weird produce I bought and how I would cook it (I am a very basic cook). He was concerned that many of his friends did not know how to eat healthy.

Mom’s also had reused bags from customers. My groceries were packed in repurposed Amazon Prime bags because god forbid Jeff Bezos doesn’t have enough cash to create his own reuse program for Prime packaging. Mom’s +1, Amazon, 0.

Yeah, Mom’s is not perfect.

Some of the signage and messaging was too hokey for me. The store felt like they were keeping inventory levels down to save cash, cutting it close to having critical out of stocks. They also had a little H.R. face-palm a few years back. Some of their employees wanted to unionize and company leadership got boomer-level awkward. Mom’s employees even filed unfair labor practice charges. When will CEO’s learn it is not their role to gatekeep whether staff should unionize or not? Just get out of the way and let folks decide for themselves. If you can entrust staff to open stores at 5 A.M to stock, clean and run the joints, they can be trusted to choose what is best when it comes to unions. Props to Patagonia on this point, btw.

In the meantime, Mom’s grocery staff have done a bang-up job of running these scrappy, small format stores.

They are stocking them with the best products, not pricing themselves out of market and making them convivial, welcoming places to shop. That is no small thing. There is a beautiful Whole Foods right across the street. Wegman’s is down the road. There is Shop-Rite, H Mart, Trader Joe’s, Costco, Quality Foods, Walmart, Aldi and Lidl all within a short drive. So competition is fierce. But Mom’s seems up for it.

3. When UNFI Sneezes.

There is a lot of controversy lately about a new supplier program at United Natural Foods (UNFI), a broadline wholesaler of natural, organic and specialty foods. UNFI is one of the largest wholesalers in the U.S., with over $30 billion a year in sales. They are a major supplier to Whole Foods, Key Foods, Wegman’s, Safeway and most food cooperatives. UNFI has grown rapidly through acquiring many of its competitors.

Wholesale is a very competitive sector that is a step removed from the general public.

Eve Cohen and I recently did a deep dive on wholesale on The Checkout Podcast and it is required listening if you read any further.

Why does wholesale matter? Most grocers depend on wholesalers, unless they have their own warehouses. Wholesalers are the vital middle ground between producers, manufacturers and retailers. Think food hubs times a thousand, aggregating millions of products for thousands of stores daily. They have very thin margins. They are frequently the subject of labor disputes. Because of these and other reasons, many wholesale business practices would be surprising and even disturbing to consumers.

My friends at NOSH/Bevnet recently covered this new supplier program at UNFI, called the Simplified Supplier Approach (SSA). It replaces many of the supplier service fee programs with a 2.5% fixed fee for all brands above $100,000 a year in sales. It has stirred up a lot of controversy because UNFI is already very expensive to brands. UNFI has also had a few tough financial quarters and has been restructuring its operations and laying off long time staff to cut costs. The theory is that the SSA will help UNFI pay the bills, appease Wall Street and turn things around.

Here are my unabridged comments for NOSH on the UNFI SSA program and the political economy of modern grocery wholesale:

UNFI is dependent on supplier income. Their cost of doing business is 14-15 points but their cost plus agreements with key accounts are in the 5-8% range. Their core function is to aggregate and distribute food from brands to retailers, yet they lose 5-10 points on that. They are therefore dependent on either higher mark ups to independent retailers or food service customer, or in this case, brand/supplier income, through marketing programs, manufacture chargebacks (MCB’s), Off invoice (OI) bridge buys/forward buys, deductions/billbacks and now this SSA program. (What??You don’t understand? Link to that podcast again).

I have seen estimates of over $750 million a year if they can implement this across almost all suppliers. How is that sustainable that brands must subsidize the low cost agreements of larger retail chains? As these grocery chains get larger they most likely have cost de-escalators so they will see even lower mark-ups, putting more pressure on UNFI's P&L. Keep in mind that UNFI acts as a primary wholesaler for key retail accounts, making UNFI a gatekeeper and virtual monopoly to service those stores (with few exceptions such as regional wholesalers like Chex Foods and Rainforest or startups like Pod Foods). These are structural issues based on how the wholesale and retail sectors have consolidated. 25 years ago the industry was much smaller but there were dozens of wholesalers servicing grocery chains. 

In terms of how brands are responding, this will absolutely result in consumer cost increases. 2.5% will not just magically appear in the P&L's of thousands of brands. This is on top of the incremental 10-15% that working with UNFI already costs brands, plus 3% merchandising fees at chains like Whole Foods. It is unlikely UNFI will pull back and the startup/emerging brand sector is mostly afraid of pushing back or speaking out on such policies. These brands are already under pressure from high rates of attrition at retail and huge competitive pressure from incumbent CPG giants and a major influx of high attribute private labels from key retail accounts. There has never been so much diversity and energy in the emerging brand sector but it has also never been such a meat grinder. The Hunger Games have nothing on the grocery industry.

In terms of whether retailers push back, they are ultimately responsible for how the wholesale sector is behaving, so if they push back it is against their own interests as well. They should be considered a big part of the problem because retailers and wholesalers are wholly codependent right now and there are few wholesaler alternatives that can distribute the broad range of goods at the low costs retailers are demanding to stay price competitive.

UNFI is a vital link in the grocery supply chain.

…but is in for a tough time over the coming years. When UNFI sneezes, the industry catches cold. Right now that means the costs of UNFI's financial and operational challenges will be passed on to the thousands of brands that depend on the wholesaler. The industry needs to take a hard look at how expensive and complex something as simple as wholesale has become and start building and supporting more alternatives. There is a non-zero chance that UNFI will follow in the steps of past wholesalers who have gone bankrupt, been acquired by larger entities/investors or spun off/broken up for spare parts. Investors should also be aware that although consumers want such better for you products they distribute and that there are thousands of cash-hungry emerging brands with great potential, both retail and wholesale have become consolidated, expensive, complicated and high risk links in the value chain.

4. Amy’s Boycott Has A Happy Ending

Food Empowerment Project (F.E.P.), a vegan food justice organization, has announced the ending of a protracted boycott of Amy’s Kitchen products. The boycott began in January 2022 and was called by workers to improve safety, increase wages, and provide better health insurance after several safety issues, whistleblower firings and a facility closing at the company. Amy’s Kitchen is based in California and is a leading manufacturer of frozen entrees and pizzas, soups and more.

Hundreds of consumers, labor organizations, and grocery cooperatives honored the boycott and supported Amy’s line workers demanding better treatment and conditions.

“Over the past eight months of collaboration with the Food Empowerment Project, Amy’s is pleased with the learnings and progress we’ve made together,” said Paul Schiefer, President of Amy’s Kitchen, Inc. “This collaboration has facilitated productive discussions about how we can better meet our workers’ needs and enhance our communication. We look forward to continuing this positive dialogue and making meaningful improvements for our workforce.”

Some of the agreements made by Amy’s Kitchen include a commitment to:

• Not using labor relations (i.e. union avoidance) consultants now or in the future.

• Having bilingual employee service representatives at each plant who are trained to support employees in navigating their benefits, including healthcare; increased communication; and focus groups to help employees utilize their benefits.

• Worker safety and well-being. The company is committed to achieving zero accidents or injuries. They want their employees to suggest ways the company can improve safety and to know that they are empowered to intervene and speak up if they see an unsafe situation.

• A 3% merit increase budget for their employees in 2024 with a new review process.

5. Product Reviews.

I have a thing for hot sauce. Anything in the cayenne to habanero range. Not ghost peppers or any of that sadistic crap. I love this hot sauce made in my hometown of The Bronx from Small Axe Peppers (note: Bob Marley reference). It is made of peppers grown by community gardeners across the U.S., probably the coolest supply chain I have heard of. The sauce is moderate heat, made with serrano peppers. It is quite savory, not vinegary and pretty versatile. Highly recommended.

I am a huge fan of A Dozen Cousins. The founder Ibraheem Bashir, cut his teeth as a brand manager at General Mills. He is also a Brooklyn native and growing up with his extended family inspired the warm Afro-Caribbean vibes of his products. The products are tasty, high quality and compare well to established products in their categories. They are also reasonably priced. The packaging is eye catching while not pandering to hipster/contemporary styles that have subsumed most new products. I also like the brand’s cute tie-in with Marvel’s Black Panther, among the better franchises in that cinematic universe.

6. Tunes

I already mentioned this track in another context, so here we go…

peace.