One year after Amazon's US$13.7 billion purchase of organic and natural grocer Whole Foods Market, Amazon has changed Whole Foods' management structure and is taking charge of the business by adding veterans of the e-commerce company.
And natural and organic distributor to Whole Foods, United Natural Foods (UNFI), posted a strong third quarter net sales result, up 11.8 percent to US$2.65 billion (13 weeks to April 28), boosted by a 24.3 percent year-on-year growth to its Whole Foods "supernatural channel."
Amazon has rapidly implemented changes in its retail operations since buying Whole Foods last year. Some high-level Whole Foods executives have left, and Amazon has altered relationships with suppliers, CNBC.com said.
CEO and co-founder John Mackey is working alongside two Amazon executives, Rosanna Godden and Heather Dystrup-Chiang, to ensure a smooth transition. Ms. Godden, at Amazon since 2012, became vice president of strategic business integration at Whole Foods in March. Ms. Dystrup-Chiang, at Amazon for seven years, is now director of product management for Whole Foods.
Instead of reporting directly to Jeff Wilke, CEO of Amazon's worldwide consumer business, Mackey, Godden, and Dystrup-Chiang work under Steve Kessel. Kessell is now in charge of all physical store operations, including Whole Foods 484 stores, Amazon's bookstores, cashier-less convenience stores, Prime Now, and Fresh delivery.
And Amazon is up for an additional $22 billion in contractually obligated future purchases. The purchase commitments, which Amazon describes as "firm, non-cancellable," appeared in Whole Foods' financial statement in November and are almost entirely tied to its contract with its largest supplier, UNFI, CNBC said.
The commitment runs until 2025, an unusually long tie-up for Amazon, known for signing short-term contracts with its suppliers.
United Natural Foods' chairman and CEO Steven L. Spinner said that UNFI delivered strong results for the quarter underscoring the strength of its market position as it continues to grow amid a continuous change in the retail landscape.
"UNFI continues to be an important connector between manufacturers, brick and mortar retailers as well as eCommerce customers. We are pleased with the continued momentum in our business, and we continue to work to balance and improve upon the challenges associated with this higher-than-expected growth," Mr. Spinner said.
Net sales per customer channel were:
Gross margin for fiscal 3Q 2018 was 15.41 percent, reflecting a five-basis point decrease over last fiscal year's third quarter. "Gross margin for the third quarter included the positive impact of a change in accounting estimate of $20.9 million as the company revised its calculation for its accrual for inventory purchases," UNFI said.
According to Winsight Grocery Business, the higher sales volume came amid ongoing challenges of warehouse capacity and freight costs, low inflation, a tighter margin mix, and higher supplier out-of-stocks.
The success of UNFI's build-out-the-store strategy is driving growth in new categories, most notably, health, beauty, and supplements. The approach also focuses on distributing more fresh and specialty foods and helped drive sales to independent natural food stores and conventional supermarkets.
Foodservice net sales improved by 4.3 percent and e-commerce sales jumped by 23 percent.