Grocery Update Volume 2, #10: Top Four Merchandising Trends (My Keynote).

Also: Why New Yorkers Voted For Public Grocery Stores. And Amazon Moves Whole Foods Leadership In-House.

Discontents: 1. Amazon Moves Whole Foods Leadership In-House (NOSH). 2. Why New Yorkers Voted For Public Grocery Stores, Explained (Forbes). 3. Top Four Merchandising Trends: My Keynote Highlights From The 2025 Fancy Food Show.

But first:

HELP WANTED: DOES THE WATERBED EFFECT EXIST?

The waterbed effect is a theory by antitrust scholars and independent retail advocates that lower prices at market monopolies forces prices up to the rest of the market. Indie grocers have testified to Congress about it. Food system scholars write about it. It is an article of faith for them. But I have never seen the math.

I am looking for emerging brands or indie grocers willing to share data to prove whether or not selling into mass merchants, discounters or other market segment bottlenecks (like Whole Foods/UNFI or Sprouts/KeHe) lowers margins that must be made up elsewhere in the form of higher prices to other retailers or passed along in some form to consumers.

I need to see the math. I will keep asking until I understand.

I will keep data and contact info anonymous and confidential as needed.

I will be sharing this data with some good antitrust scholars I am working with. I can also make direct introductions to brands willing to go on record.

Thank you all for your support here.

1. Amazon Moves Whole Foods Leadership In-House (aka, Whole Foods Turns Blue).

by Lukas Southard

Originally Published in NOSH.

Almost exactly eight years since acquiring Whole Foods Market, Amazon is on the verge of restructuring the natural grocery chain’s leadership.

In an internal memo obtained last week by Business Insider, Amazon is consolidating the Whole Foods leadership team under Amazon’s Worldwide Grocery Stores, with former Whole Foods Market CEO Jason Buechel in the top seat.

In January, Buechel (who was named Whole Foods CEO in 2022) was appointed VP at Worldwide Grocery Stores, putting him in control of Amazon Fresh, Whole Foods Market and Amazon Go. At the time, the move already signaled that there were plans to align the grocery banner deeper within the broader ecommerce giant’s executive oversight.

The new leadership arrangement will bring the Whole Foods corporate team under Amazon’s performance review and pay structures over the next 12 months. It will not affect Whole Foods warehouse and in-store workforce, according to the memo.

The move gives Amazon direct control over the Whole Foods banner after initially taking a more hands-off approach to the grocery chain.

The news comes after Amazon Fresh banners began touting “low prices” outside of many stores in recent weeks.

“Amazon is following the same blueprint as Walmart,” said grocery consultant and former Whole Foods executive Errol Schweizer. “Walmart does this all the time. They announce price drops and then a week or two later, you read they are laying off a thousand back-of-house or white collar supply chain employees or restructuring their management levels to eliminate redundancies.”

The strategy was likely always to centralize Whole Foods under Amazon and use Buechel as the figurehead of that trajectory, Schweizer said. “Grinding more and more revenue out of the same pot.”

“Buechel was the chosen one because that’s the language he speaks. He comes from the consulting world; he was heading up the Whole Foods IT Division, and they trained him towards more leadership.”

What does this mean for Whole Foods suppliers? Schweizer expects the cost of doing business with the natural channel retailer will continue to climb.

“Know your point of contact and who the decision maker is in your category,” he said. “Keep your ear to the ground about higher fees, higher deductions and, generally, higher costs attached to doing business at Whole Foods.”

2. Why New Yorkers Voted For Public Grocery Stores, Explained.

By Errol Schweizer. Commissioned and Published in Forbes.com.

The Democratic mayoral primary victory of New York City’s Zohran Mandani has attracted global attention. The 33 year old from Queens won due to an impressive grassroots field campaign and a focus on economic justice issues. At the top of that agenda are publicly-owned grocery stores, which would be a first for the sprawling metropolis. But New York City already has thousands of grocery stores. Why would America’s largest city want to road test such a plan?

Mamdani’s proposal would establish a pilot program of municipal grocery stores with the goal of providing affordable groceries to New Yorkers. Recent polling from Data for Progress and Batul Hassan of the Climate and Community Institute (CCI) shows the idea resonating with New Yorkers. Two-thirds of New York City voters (66%) support a proposal to create municipal grocery stores, including a strong majority of Democrats (72%), as well as a majority of Independents (64%) and Republicans (54%).

The polling found that 85% of New Yorkers are paying more for groceries now compared to last year and 91% of New Yorkers are concerned about how inflation impacts what they pay to get food on the table. Four out of five households in New York report finding it harder to afford groceries over the last year. More than half of all families struggle to cover basic expenses.

These household economic strains are at crisis levels, and the private sector cannot solve for them in the current economic climate.

Syndicated market data from NIQ shows that grocery prices have spiked over 32% since 2019. Prices have shot up even higher in many ultra processed food categories such as snacks, frozen foods and meat that make up over 60% of America’s calories. Such categories are usually dominated by a handful of companies. Market concentration in the grocery industry has enabled processed food conglomerates to raise prices and generate enormous profits, all while actual food consumption has been stagnant since 2019, vastly increasing food insecurity.

According to CCI’s Hassan, the resources needed to establish a public grocery program are infrastructure within the city’s control. Grocery store planning and rollout would be driven by communities, incorporating the food preferences of people in the neighborhoods.

Some grocers have expressed skepticism at the idea, including the billionaire owner of Gristedes and D’Agostinos, who has threatened to close stores.

But publicly owned grocery stores are quite common and already exist at scale—in the U.S. military.

Every branch of the military has its own public grocery system, called an exchange or PX, that provides goods and services for enlistees. These include groceries, commissaries, department stores, gas stations and convenience stores, the same services that many full service grocers provide for civilians. The exchanges provide basic consumable goods, tax-free, and generate over $4.6 billion in annual revenue across 236 commissaries. This size enables commissaries to leverage supply chain efficiencies at the level of any national grocery chain. If the PX were a U.S. grocery chain, it would rank in the top 20 by sales nationally.

How much of a stretch would it be to municipalize such the PX model, especially if there were a large scale, committed effort to build multiple locations quickly and create the efficiencies of scale to make it viable?

Exchanges keep their costs down by operating as cost (not profit) centers, with a 2-3% percent gross margin, while budgeting labor and administrative expenses, rent, occupancy and utility costs centrally and not through each operating unit. This math means exchange prices can be 30% lower than typical retail prices, and saved military families and veterans over $1.6 billion in 2023.

By comparison, independent and specialty grocers typically run at 35-40% gross margins, while national chains such as Walmart and Kroger run at 22-25%, all to cover their costs and generate a thin profit margin, usually 2-5% of sales. Lower costs and massive profits are the result of massive sales volumes that give bigger chains market power with suppliers, especially due to lax enforcement of antitrust laws such as Robinson Patman. This is also why smaller independent grocery operators, such as those that dominate the New York Metro area, typically have higher prices and high operating costs. Like a post exchange, a civilian-facing public grocery option could take some of these costs out of the consumer price equation.

Military exchanges still rely on the same supply chains as the private sector, stocking familiar brands and products.

For example, the wholesaler SpartanNash, which was just acquired by C&S Wholesale, is a large supplier to military exchanges. A network of New York City public grocery stores could leverage city purchasing power to negotiate strong wholesale contracts and keep markups low, as well as buying food directly from local growers and producers in the Northeast.

And public grocers could require vendors to meet values-based purchasing standards, such as those being implemented in New York City’s public schools. Such standards emphasize healthier, whole food options, fair wages for workers, environmental impacts and diversifying supply chains. In South Korea, such public investment in “precautionary” supply chains ensures that public institutions have access to healthy, safe and sustainably grown products. In New York City, it could mean healthier options are also the most affordable, turning typical grocery value chains on their head.

Public grocery stores could therefore operationalize the Right To Food, an idea supported by over 80% of Americans.

A public grocery option would not be a utility, which would imply a monopoly. New York would still have a thriving and diverse grocery sector, from Food Bazaar to Trader Joe’s, to thousands of immigrant-owned bodegas, even Gristedes- if they want to stay open. Nor would it be a charity vehicle, dependent on donated or lower quality products from grocers, wholesalers and processors.

A public grocery sector could instead be a backstop, a vital public service and an expansion of the safety net in the tradition of the New Deal, one that bridges affordability and access for cash-strapped New Yorkers. With the Trump Administration delivering a one-two-three punch of raising grocery prices through tariffs and trade wars, sharply cutting back on SNAP food assistance and not enforcing antitrust laws to ensure fair competition, a public grocery option presents a proven, pragmatic and timely policy solution.

In an era of constant supply chain crisis and disruption, Mamdani’s idea for public grocers is not any more radical than the Pentagon. But it has captured the imagination of hard-working New Yorkers hungry for change.

3. Highlights From My “Big Ideas” Keynote At The 2025 Fancy Food Show: Top Four Merchandising Trends.

I spoke to a packed house on Monday June 30th at the Javits Center, in the midst of the bustling Fancy Food Show. Stay tuned for an upcoming webinar for subscribers where I will do a run through of the data below with hundreds of photos I took as examples. I have a few below.

My talk was ostensibly about merchandising strategies for small brands and independent retailers, but it was also about the socioeconomic context for retail trends. Why?

Retailer practices don’t exist in a vacuum. They live in and impact the same political economy we all deal with every day. They make it worse by not paying living wages and charging top dollars for premium products. They react to it by what they sell and how they merchandise. Retailers are materialists. Cash rules everything around us. Dollar dollar bills y’all.

I covered four themes: Value pricing, private label trends, Local foods and “BFY”, better for you merchandising.

Special thanks to the Specialty Foods Association for both sponsoring my research and the keynote, as well as underwriting this humble newsletter. Free speech, free thought. Wonderful things. (Views expressed are 100% my own and do not imply an endorsement. But creating the space for such robust decisions is really cool too.)

(Also, Substack size limits don’t enable me to link to sources for all the info below. If you need a reference for any of these figures, please DM me. I have the receipts.)

Top Four Merchandising Trends for Specialty Food Retailers and Emerging Brands.

1. Value Pricing: Economic Context.

Why do we see so much sale pricing at grocery stores these days? Hot sales, “lower prices”, “BOGO” (buy one get one pricing), etc?

Grocery prices have increased 30+% since 2019. Key consumable categories have increased in price over 40% while many food companies raked in record profits from 2020-2023. In many categories, consumption volumes are still below 2019 levels. Retailers in many cases are actually selling less food than 5 years ago, especially relative to population growth.

Food inflation is still growing due to climate and tariff/trade war issues. Consumption and customer traffic are stagnant, also relative to population growth, with discounters, mass merchants and some specialty chains growing faster (i.e., hourglass economy). Many higher income consumers are even trading down to private labels or doing more shopping in Walmart, club and dollar stores.

Value pricing signage flooding the field of vision at HEB in Texas:

The legacy of Bidenomics: macroeconomics (i.e., GDP and stock market) did not match household economics. Infrastructure investment was long term, pandemic benefits ended in @2022, interest rates skyrocketed and did not bring down food prices. Biden shied away from price controls.

Trump so far is erratic and inconsistent (i.e., “TACO”). Prices have not come down. Tariff/trade war costs borne by consumers are growing.

Over 90% of consumers are concerned with high food costs. Over 70% are financially stressed, 58% living paycheck to paycheck. The share of income spent on food increased 13% to the highest rate in 30 years.

Over 47 million people live in households with food insecurity, an increase of 13.5 million compared to 2021. Poverty is up 65% since 2021, child poverty has tripled and 67% of Americans are living paycheck to paycheck.

At least half of the ten lowest-paid jobs in the US are in the food industry. Frontline food industry personnel are 68% more likely to live in poverty. Women in the food industry earn 66% of what men are paid. Frontline food workers are 93% more likely to be food insecure, and food workers are 60% more likely to rely on SNAP.

SNAP is close top 10% of all grocery sales annually. SNAP dollars rarely last the whole month for families. Congress is looking to cut over $200 billion from SNAP and nearly a trillion from medicaid, as well as making work requirements and purchase restrictions on certain products much more stringent.

Private Label.

The private label is sector is bustling. You know the brands. You buy them all the time. Great Value. Kirkland. 365. Trade Joe’s. Food Club. Cadia. Field Day. Simple Truth. Good and Gather. Field Day. Signature Select. Lucerne. Hill Country Best.

Over $271 billion in sales, up 3.9% and up nearly $100 billion since 2020.

Over past 4 years, PL unit volumes are up 2.3% while national brands are down 7%, a gap of nearly 10%.

Over 22% of groceries sold in the U.S. were PL. Over 98% of households bought PL.

Walmart’s Great Value has over 80% household penetration in the U.S. It is the biggest brand in the food industry. Next is Kirkland, by Costco.

Over 59% of US consumers would buy more PL products if a larger variety were available. All grocers are doubling down on PL assortment and value proposition. Grocers price private labels as “everyday low prices”, they don’t usually utilize supplier trade spend to put them on sale or discount them. Private label margins tend to be higher than national brands, but quality can vary. Many retailers are expanding premium tier private label to upsell customers. Private labeling also means retailers have more control over their supply chains and inventories, even if the products are the same stuff that every other retailer is private labeling. Private label is the imitation game. It is rarely innovative.

Here’s Walmart’s hip, Zillenial-targeted PL brand, “bettergoods” (all lower case, one word, spell check hates me):

The Mondelez v. Aldi copyright infringement lawsuit may be precedent setting. Mondelez, maker of Oreos, Chips Ahoy and many other cookies and crackers is suing Aldi. I wonder why? Hm:

3. “Local” Foods.

What is “local”? How it is defined and communicated is as important as the product itself?

There is confusion and a lack of consistent execution and product data. There is no regulation of shared definition. Yet, retailers are all over it because consumers believe it’s better.

Is it grown locally?

Is it processed or manufactured locally? Job creation, near-shoring, etc?

Is it owned locally? Is the wealth kept in community? Or just a local post office box address or cubical?

How far and wide does local pertain to?

Great Local signage from Three Rivers Co-op in Knoxville:

Local versus other geographical specifications: state wide, national, DOP/PDO, regional or “bioregional”.

Is Local grower-specific?

Local is not a quality attribute or production framework.

What is the pricing strategy and value proposition? Local usually means a premium product. Are retailers price gouging on Local to offset losses on value-tier private label or competitive pressures on national brands?

Local is more meaningful with other authentic attributes, such as organic, regenerative, Biodynamic, Fair Food, etc.

Or is “Local-washing”? Many retailers confuse local and this inconsistency hurts authentic efforts to build territorial value chains based on fair trade, transparency and mutual benefit.

4. “Better For You”, BFY Merchandising Trends.

“BFY” products have outperformed the rest of the market by almost 10 percentage points 2021-2024. Products making “BFY” claims averaged 28% cumulative growth over the past 5 years, 40% higher than products without such claims. (NIQ/McKinsey).

BFY accounted for @$80 billion in annual sales, or nearly 8% of the total grocery industry. Due to inflation on commodities and conventional products, prices are high but price gaps are shrinking.

Shelf tags at Lowe’s in South Carolina:

Products with related claims accounted for 56% of all growth over the last 5 years and grew faster than incumbent products in over 2/3 of categories. (NIQ/McKinsey).

Such purchase drivers are in the top 3 for Millenials/Gen Z, including 10% who feel it is the most important, ahead of even price or quality.

Over 70% of consumers see environmental responsibility as more important than 2 years ago and 90% see eco-friendliness as a key decision criteria.

Over 78% of consumers aged 18-24 believe the current food system is not sustainable and a major cause of the climate crisis. (GLOW/Nielsen IQ) and 64% are willing to pay higher prices for such products.

This all runs in conflict with the socioeconomic data. Contradictions abound in grocery. Younger consumers have no money but want to eat better.

Over 8 in 10 are more loyal to purpose driven brands.

Over 40% of Millenials and Gen Z believe it is important for brands to behave responsibly.

Biggest BFY Trends:

Organic is $65 billion in U.S. sales, up 5%. $146 billion globally. Non-GMO Verified, $45 billion in U.S. sales.

Plant-based processed foods $8 billion in sales, down 5% but multiple segments are still growing.

Organic produce is $9.7 billion in sales, up 5.7%, and outpacing the overall produce market and gaining share. Real food, real plants. That’s what people want.

Other related terms include: cage free/pasture-raised, vegan, animal welfare, socially responsible, sustainably packaged, women-owned, BIPOC-owned, etc. Regenerative organic and regeneratively grown. Fair trade and fair labor standards. Gluten free, keto, paleo, seed oil free, etc, more specific than just “Local” attributes.

Local and Organic Specific Signage at Wheatsville in Austin:

Challenges to growth include market concentration include high rates of attrition for innovative emerging brands, high retailer and wholesaler expenses, as well as high income and wealth inequality, i.e., 10% of consumers driving 50% of all sales. Brands can’t be just marketing to the top 10%, but they are. It’s nuts.

Research shows that lower income consumers would buy more “BFY” if they had the cash (i.e., expanding SNAP) or products were more affordable. This is the opposite of what the Trum Junta is doing. This also means that much of the grocery industry should be A)paying living wages and respecting the right to organize B)Advocating for expanded SNAP, even for their own self-interests and profit-generating enterprises. But many companies are scared of a backlash by MAGA or are too cheap, stubborn or clueless.

Yet retailers with clear sourcing standards and prioritization of BFY are still growing, i.e., Natural Grocers, Whole Foods, many co-ops and regional chains such as HEB/Central Market, Lowe’s, Publix/Greenwise, Wegman’s and independent natural food stores. The market is an hourglass, as discounters and mass merchants such as Walmart, Costco and Aldi are also growing market share rapidly. There is some bipartisan momentum, i.e., MAHA, as well as state level initiatives to label or ban certain UPFs. We live in interesting times.

Thank you.

peace.