DTC Briefing: Why one startup is ‘breaking up with big grocery’ and pulling out of Whole Foods

Mark Overbay started Big Spoon Roasters with his wife and business partner, Megan Lynam Overbay, back in 2011. In 2012, Overbay left Counter Culture Coffee, where he was the marketing and communications manager, to focus full time on Big Spoon. The company has been growing organically and bootstrapping ever since. Overbay said that Whole Foods, in particular, was a dream retailer for the brand. The relationship began when Big Spoon Roasters started selling its nut butters through Whole Foods’ Local program in Durham, then added more cities and regions over the past 10 years. 

“This was back when individual stores could actually bring products in – I know they’re talking about moving back in that direction – but that hasn’t been possible for a while,” Overbay said. But as Big Spoon Roasters began servicing more regions through UNFI, Overbay said the increasing pressure and rising costs of merchandising outweighed the benefit of being on national shelves. Added expenses like slotting fees and inventory errors also resulted in a smaller profit. Whole Foods and UNFI did not respond to requests for comments on these issues.

In this interview, Overbay breaks down the obstacles smaller CPG brands like Big Spoon Roasters run into as they expand into major retail chains. The interview has been edited for length and clarity.

How did you come to the decision to leave UNFI and, in turn, Whole Foods after years of growing through those channels?
There was a moment last summer when Megan and I had a meeting to talk about all our challenges. At the time, there were several invalid chargeback fees from the distributor that we knew we’d have to fight and disprove. We won 100% of those disputes and know how to do that. But it’s just become so exhausting to do that. 

National grocery distribution just hasn’t worked in the way we had hoped, and it’s moving in a direction that is less and less a fit for our business. The relationship often starts with a big financial hole for the maker or supplier, and that can be really difficult to climb out of. We did the math for what it would look like to take that wholesale channel out of the equation for revenue. And while it is a sizable part of our revenue, when you look at how cost-extractive that system is for a supplier like us, the profit margin is very slim.

What were some of the biggest issues you encountered while selling through a big retailer?
Inventory management and pricing were consistently the biggest. For instance, there were two regions of the same grocer that had wild swings of pricing across our products. One was almost 20% higher than our suggested retail price, and the other was almost 20% lower. Our customers are angrily asking why we’re charging so much in their market compared to others. In reality, we had zero control over pricing on the shelf. 

Then there were customer complaints about out-of-stock, which is always disheartening because we work hard to make our products by hand in tiny batches of 100 jars per batch. A lot of costs go into every batch. We have certified living wages for our team, and a lot of our culture revolves around zero waste. We meet every distributor order on time or even early. So to hear about empty shelves, that means there was a forecasting or data or a buyer error. Either way, the supplier is always the one that suffers and takes the reputational and financial hit. So we just thought: we don’t have to do this and keep feeding this system.

How did you start the transition of pulling your products with your retail buyers and distributors?
We went through the conversations involving these issues and tried to find solutions to minimize them within the actual organization. On pricing, we tried to have that conversation many times, from the distributor to the retail level, and were always given the same answer, that pricing is its own team. It’s driven by an algorithm that tries to set prices based on what it thinks your products will be successful in that market. That’s very different from how pricing was set even eight or 10 years ago. At the end, we were told “Sorry, we can’t really do anything about that.”

We’ve had a great relationship with Whole Foods for many years and were actually a supplier of the year in the South Region a few years ago. From our perspective, it absolutely does not feel like burning a bridge. Primarily because we included people that we work closely with at Whole Foods and UNFI in the decision and had some great conversations with them about the model. They were receptive to that and understood our decision. There was some sadness on both sides, but this was not about the personal relationships, those will always be there. We’ve been fortunate to have had yearly growth and are grateful for the success and the opportunity, but in the end, it wasn’t a good fit for us.

How do you plan to grow Big Spoon going forward?
Right now we work with about 1,000 independent retailers around the U.S. and a handful internationally, which we’re trying to grow as well. This community is where we’ve built the backbone of our wholesale business. These retailers typically have a passionate ownership who are really involved in bringing in inventory, so that’s a perfect fit for us. We’ll also focus more on direct wholesale customers and direct e-commerce customers. Working with big grocery, it required an incredible amount of staff time and resources to manage that system. Now we’re freeing up those resources to focus on these other channels.

We don’t just sell to any retailer and there needs to be a value fit. Unfortunately, through most distribution networks, we have little say in who can buy our products once it’s in the distributor’s hands. That was another thing we wanted to change and weren’t able to.

Is there a chance you’ll get back to distributing through big retail chains again?
I don’t want to ever say ‘never.’ Maybe if the system in national retail could be set up to provide more protection, particularly for small-batch, values-based makers like us. Our goal is always to reach more people and if that system becomes more nurturing to businesses like ours, you never know what the future might hold. 

I also want to say that there is so much pressure for brands to grow in general. Almost every conversation we have as business owners is about what retailers we’re in and how many doors we can get into. Growth is wonderful and should be celebrated, but we’ve always measured our success in our own terms, and I think this decision is a reflection of that. I hope that with us being public about this decision, it could inspire other businesses to look at the values that they founded the business on and make sure that they’re still following them.

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