Here is another sad story of a small business forced to close their doors. Was the root cause an overzealous market expansion into an area beyond the company's core competency or the lack of foresight to build-in contractual protections against reasonable future conditions? A function of consumer demand or changing retailer conditions?
The Press Release from AtlantaFresh Artisan Creamery ...
"After Whole Foods Cancelled its Purchasing Contract AtlantaFresh Creamery forced to shutter doors."
"In 2015, Whole Foods Market asked AtlantaFresh Artisan Creamery, a Southern regional producer of grass-fed Greek Yogurt, if they would supply 100% grass-fed, certified Non-GMO milk and cream to a significant portion of the Whole Foods Markets nationwide (three regions totaling 110 stores)."
Induced? Or were dollars dancing in the head of the owner?
"AtlantaFresh was induced to move forward with Whole Foods Market in an agreement whereby Whole Foods Market loaned the creamery $500,000 for expansion and signed a 7-year purchasing contract committing to purchase 30,000 gallons of milk per week."
Perhaps an attorney could have built-in better contractual protections like rejecting a non-binding purchasing contract for one with debt forgiveness and a liquidated damages schedule in the event of a contract cancelation.
"AtlantaFresh took on an additional $2 million in debt to build out their facility sufficiently in order to fulfill the contract (doubling the size of their facility)."
While it is likely that the owner may have had to sign a personal guarantee for the loan, perhaps collateralizing the loan with the purchase contract and using Whole Foods as a co-signer may have been enough to avoid any personal guarantee.
"AtlantaFresh began fulfilling the contract in July of 2016."
"Fourteen months later Whole Foods canceled the 7-year agreement without cause in September of 2017, shortly after Whole Foods Market agreed to be acquired by Amazon for $13.4 billion."
It is not uncommon to see major changes in vendor relationships when companies are merged or are acquired. The fact that the company's primary retailer was acquired by a known disrupter of retail logistics and pricing is also troublesome.
"After having had AtlantaFresh products on their shelves for 8 years, Whole Foods Market removed all AtlantaFresh products entirely from their system, despite being made fully aware that it would very likely put AtlantaFresh out of business."
“'Whole Foods became our largest customer fairly early on. We were ecstatic about the relationship because they were very strong supporters of the local food movement and of AtlantaFresh,' stated AtlantaFresh CEO Ron Marks".
"Prior to the milk agreement, AtlantaFresh Greek Yogurt was distributed in 180 Whole Foods stores in 20 states."
Perhaps it was a mistake to move beyond the company's core competency in yogurt into the packaging and distribution of milk.
The Ripple effect on vendors ...
"Hart Agriculture, the dairy farmer contracted to supply milk to AtlantaFresh, has also suffered severe financial hardship as a result of the contract cancellation. They have closed down Waynesboro, GA-based Newberry Farm, certified as a Non-GMO 100% grass-fed dairy farm."
"Whole Foods senior management spoke of providing a settlement in order to keep AtlantaFresh afloat but never followed through. Having been profitably in business for 9 years until this last fall, AtlantaFresh was recently forced to lay off 32 employees and will be closing their doors in mid- March."
Whole Foods responds ...
"In an email to Atlanta Business Chronicle, a Whole Foods Market spokesperson said, 'Local products are fundamental to Whole Foods Market, and we work closely with each of our suppliers to try to create successful relationships. We are always excited to bring new local products to our stores and customers, but, unfortunately, not all products meet sales expectations. When that occurs, we have ongoing conversations with the supplier to try to improve sales. In this case, we also made significant efforts across the business to increase sales, including in-store marketing, paid advertising, special promotions and expanded distribution. Despite our efforts, we are not always able to raise demand and we must occasionally make the difficult decision to discontinue products.'”
Essentially, if the demand changes the retailer is forced to take action.
Seeing any business close is troubling. However, the primary lesson to be learned is that you do not place the majority of your eggs in a single basket or a significant part of your business with a single customer. And, upon contract signing, you immediately start looking for additional customers or contract business to use surplus capacity to reduce the impact of a large customer.
This is not a new situation. One of the largest mailorder companies in the nation used to custom-design products and provide plastic injection molds. Talking up more and more of a vendor's production capacity until they could dictate prices under the implied threat of switching vendors. Many vendors entered into these deals gleefully and enjoyed the additional cash flow until the day of reckoning.
A personal observation. Whole Foods, used to be known locally as "Whole Paycheck" due to their high prices and upscale customers and was little more than an upscale version of Trader Joe's. And, susceptible to any local economic downt
If you work for a company that has a single large customer, consider the effects of a contract cancellation on your job. Another reason we recommend developing multiple independent sources of income.
Are you asking yourself, Am I Next?