February 8, 2018
By Zlati Meyer
Considering the cavernous size of its stores, upscale reputation and prices to match, Whole Foods Market isn’t the kind of supermarket chain where customers would expect to find shortages of everyday items.
But that’s exactly what customers such as Farah Murphy are discovering across the country—and the chain’s purchase by Amazon hasn’t made a big difference so far.
The stay-at-home mom started noticing empty shelves at the Whole Foods store near her home in Swampscott, Mass., a couple of weeks ago—no strawberries, bananas or microgreens. Also, the meat and fish departments were “pretty bare.”
“I’ve gone back three times since. Today is the first day I’ve seen grapes, the first day I’ve seen chocolate croissants,” said Murphy, 40. “They told me they’re out of strawberries because of the Super Bowl, and I was thinking, ‘Yes, strawberries are definitely in high demand for the Super Bowl.’”
Murphy is among the patrons who are leaving Whole Foods supermarkets disappointed when they encounter inventory that is anything but whole.
The problems are being traced to a change in Whole Foods’ supply chain more than a year ago, a system called “order-to-shelf inventory management.” The system was in place before the Amazon $13.7 billion acquisition in late August.
The system was intended to create more consistency in what is ordered, the chain says. Also, OTS was supposed to help reduce or eliminate the time that goods are kept in a store’s stockroom before hitting the aisles.
But it has led to shortages, and problems appear to be widespread, not confined to perishables such as the meat and produce issues Murphy encountered. In a research note last week, Barclays analyst Karen Short said one store was out of cookies, crackers, popcorn, canned beans and peaches, and bottled water. Clerks had tried to “make shelves appear more stocked than they actually were—so, the out-of-stocks could have been more pervasive than we were able to notice.”
Inventory problems, coupled with the need to cut more prices now that Whole Foods is under Amazon’s control, will go right to the chain’s bottom line, Short wrote. Until the issues are resolved, “we believe traction on sales will stall.”
Whole Foods officials say they are aware of the problem and are trying to fix it, but they add that the ordering system isn’t entirely to blame.
“Numerous factors impact product availability, including, most recently, higher sales and recent storms,” spokeswoman Brooke Buchanan said. “We’re working to improve our forecasting and ordering processes and will continue to learn and listen to our customers and team members.”
She declined to comment on why the Austin-based company switched to the OTS method, whether the company was concerned consumer dissatisfaction could hurt revenues and what, if any, steps it was taking to address the empty shelves. But Amazon officials said on the tech giant’s earnings call last week they are dead set on fixing Whole Foods.
Part of the problem was that demand soared on some items after Amazon followed through on its vow to cut more prices, Chief Financial Officer Brian Olsavsky told investors, according to a transcript by S&P Capital IQ.
“Where there’s issues, they’ll be corrected,” Olsavsky said, “but it’ll be something that we’re working on.”
It could be tricky: Amazon is known for its expertise at managing inventory at its distribution centers, a key to the formula that built it into an online sales powerhouse. Now, because of Whole Foods, it needs to master the stocking of physical stores, as well, as more customers take notice.
One shopper, David Papazian, said some bulk food dispensers in the Whole Foods store in the Pearl District of Portland, Ore., were empty. Shelves that are supposed to be filled with toilet paper and a variety of LaCroix sparkling water were bare. In the bakery department, “display cases were sparse, like it was picked over. That was surprising to me,” said the 59-year-old photographer. “I’d chalk it up to a one-time bad day. If it’s consistent and next week I see the same thing, I may have to go someplace else.”
Supply-chain experts say the issue goes to the core of the careful choreography that all stores face when it comes to keeping store shelves full yet not becoming overstocked.
“The danger is if you do it wrong, if you’ve lowered (inventory) too much, you have empty shelves,” said David Huff, a Penn State University clinical professor of supply chain management. “There are some customers who’ll be so upset about this that they’ll go away, at least for a while.”
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