Amazon's purchase of Whole Foods last year made the grocer somewhat less expensive for many shoppers, particularly lovers of avocados and tilapia--but small businesses are starting to feel the pinch.

The Austin-based supermarket chain recently introduced a new program for managing its national supplier network, which involves potentially higher fees. Going forward, for instance, a company that sells at least $300,000 annually through Whole Foods locations will now be asked to pay three percent of the cost of goods delivered (or five percent for beauty products,) Whole Foods confirmed. Meanwhile, some suppliers will see an increase on the standard $25,000 fee to be featured in high-traffic areas of stores. The company is also introducing a $10 a day fee for real-time product demonstrations. 

Naturally, all of this has some vendors nervous. "It could be very cost-prohibitive to continue doing business with them," says Kate Weiler, co-founder DrinkMaple, a Saint Albans, Vermont-based beverage maker. Currently, her 8-person company sells its plant-based drinks in retailers including Whole Foods, CVS and Kroger--the latter of which reportedly does not charge shelving fees for small suppliers.

The aim, a spokesperson tells Inc., is to create more consistency in distribution-related costs for businesses. Previously, a supplier that sold through more than four Whole Foods locations would be forced to pay rates that varied by region, but now those costs are standard across the board. (These include fees related to in-store shelving, as well as product demonstrations.) In the meantime, local Whole Foods buyers can focus on recruiting and maintaining relationships with small businesses that manufacture local products, such as honey, soap or cheese.  

Weiler acknowledges that Whole Foods' moves to consolidate pricing could be beneficial. Yet she's concerned that if the costs do remain static, that extra three percent fee could hurt her bottom line. For this reason, she says she would consider looking to other grocers to shore up costs. "Before there was so much emphasis on doing business with Whole Foods, but they are not the only retailer in town," Weiler adds.  

Still other suppliers say they plan on fighting the moves. "A blanket policy like this is not effective," suggests Lindsey Rosenberg, co-founder of the Santa Cruz, California-based Cherryvale Farms. "I'm planning to fight it," adds the entrepreneur who logged more than $1 million in sales last year. Currently, her baking mixes and desserts are available in roughly 230 Whole Foods stores. 

Because of the associated changes, Rosenberg decided to launch her latest product--mixes for cakes that can be cooked in coffee mugs--on her own e-commerce platform, as opposed to through a retail partner. "Normally it would have gone to Whole Foods," she says, "but we knew we couldn't do it this time with the flux of Amazon's purchase."

Business as usual

To be sure, Whole Foods has long been a supporter of startups and local small businesses, offering shelf space and sometimes even financing for fledgling firms. For many of these brands, the associated fees are a drop in the bucket compared with the massive reach that the company affords them. That certainly rings true for Back to the Roots, an Oakland, California-based maker of indoor gardening kits and aquaponic fish tanks. The company initially raised its first financing--a $25,000 loan--from Karen Christensen, then the vice president of Whole Foods in Northern California.  

"I'm not impacted by any of that [the fees]," says co-founder Alejandro Velez, adding that Amazon and Whole Foods accounts for a large share of his business. "This is not unusual for retail in general," he continues, noting that his largest supplier in terms of revenue--Home Depot--has a similar fee structure. 

Indeed, Whole Foods says it's not concerned with losing suppliers. "We are always interested in hearing feedback from our suppliers to ensure that there is a win, win solution," says Brooke Buchanan, the firm's global vice president of communications, in a phone call with Inc. "Ultimately we believe that the new category management program and partnership with suppliers will be beneficial in the long run." 

But the way some suppliers see it, there's always a Plan B. Says Cherryvale's Rosenberg: "Now we're in chains like Safeway, Meijer and Kroger, and we just want to build off of that momentum. We can't let Whole Foods hold us back."

Published on: Feb 9, 2018