Jesse Newman

consumers want to be sure that what they're putting in their bodies is, you know, is good for themselves and their children. And there's a sort of an increasing sense that, you know, food companies, in fact, are putting profit above public health.

especially packaged food and, you know, how nutritious it is and whether it's actually hurting us. And in fact, you know, it sort of has amplified concerns among U.S. consumers that federal regulators like those at FDA and USDA really aren't doing enough to protect consumers.

He's also talked about SNAP, which is the Supplemental Nutrition Assistance Program, a.k.a. food stamps. And he has talked about how he thinks that SNAP beneficiaries really shouldn't be using their food stamps to buy things like soda or processed food.

He's concerned with conflicts of interest in how these dietary guidelines are drafted.

That's all for today, Monday, November 18th. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.

But the relationship with distributors is complicated and full of all kinds of obscure costs. Kyle says these charges erode his profits. And to stay afloat, he says he has to pass those costs onto consumers in the form of higher prices.

Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh. It's Monday, November 18th. Coming up on the show, the hidden costs inflating your grocery bill. There's something that people have been feeling a lot recently.

So Kyle tried to solve this problem in his own kitchen.

That's our colleague, Jessie Newman, who covers food. Jessie's been looking into why her bills have been racking up. One big reason is higher costs for things like raw materials, transportation, and labor. But Jesse says there's another factor that's behind the scenes and is tied to distributors, those companies that bring food products from manufacturers to grocery stores.

This makes sense to me. Like you can't have like a conga line of, you know, bread makers and yogurt makers and crazen makers outside a grocery store delivering their bags. Those go to distributors.

These distributors are national companies. Their names are like alphabet soup. There's UNFI, CNS, and KEHE, or KEHE. Small brands say these companies are like gatekeepers to the grocery store, and they hold a lot of power.

This snack became life-changing for Kyle. He moved to San Antonio, Texas and started a food company. He named it Wild Way Foods and began selling his granola at farmer's markets. And after sales went well, Kyle thought about going bigger. So he headed to the biggest health food store he could think of.

Kyle Kaler, who owns the granola company, has felt that tension and conflict. His company, Wildway Foods, now sells its products to over a thousand grocery stores around the country. And that means Kyle is working with distributors a lot. What is that relationship like?

Where is the complexity?

Kyle says that sometimes when he's supposed to get his payment from a distributor, there have been so many deductions that he's the one who owes the distributor money.

Oh.

That seems risky and potentially costly.

More than a decade ago, Kyle Kaler was working in finance in New York City and trying to live healthier.

Kyle says when there are other problems, he can get charged fees upon fees.

So you just have to have a big accounting department?

And is there any way around this system?

It seems like an imperfect system.

Jesse reached out to the major distribution companies to hear from them. Only Kayhee spoke with her. An executive there said food distribution is costly and complex, especially when it involves smaller brands, and that three-quarters of the fees originate from grocery stores, not from distributors. Coming up, how the food distribution system got to this point.

Many grocery stores are in long-term contracts with a primary distributor. Like, UNFI is the main go-to for Whole Foods, and Kahey is the go-to for Albertson's. But over the years, the landscape of this industry has changed significantly.

So for many small food brands, working with these distributors is pretty much the only way to get into grocery aisles.

Wow. Wow.

It sounds like the distributors are pointing the finger that don't look at me, look at them.

For Kyle at Wildway Foods, he's not sure the distribution system is working. Are the charges that you face ever so onerous that it's not economic for you?

Ever.

Why do you continue?

If you could change something in the system, what would it be?

Kyle's granola was going to be on Whole Foods shelves. But to make that happen, Kyle had to start working with a distributor. Distributors are companies that buy, store, and transport millions of products to grocery stores.

How does this make you feel about your choice to be a national granola brand?

These dyes are pretty ubiquitous in American grocery stores. There's products that you sort of expect to see them in like candies and cake frosting, but then they're in tons of other categories and products. So this is a pretty huge deal for food companies and for consumers who are used to seeing a lot of products look a certain way.

If dyes are in fact going to come out, then our food is going to start to look different.

The biggest thing that they show us is that consumers are pulling back on their snack purchases. And this isn't the first time we've seen it. Big food companies have been saying for a while now that they are seeing a slowdown in snacks. And General Mills really reiterated this today.

And they talked a lot about consumers and how consumer sentiment just really hasn't improved the way they thought it would at the beginning of their fiscal year. So at the beginning of the fiscal year, they thought, you know, consumer sentiment was going to get a lot better. They said that hasn't happened. And in fact, shoppers are still very, very focused on value.

And so it's up to them to create that value for consumers.

Food companies in general are, just like all businesses across the U.S., really just trying to ride the wave of this uncertainty. It's hard to plan when you don't know exactly what the future is going to bring. So they don't know enough to price anything in at this point, but there's just a lot of uncertainty out there when it comes to the broader economic conditions.

Thank you.

Consumers are definitely buying fewer snacks. That's a trend that we've been seeing for a little while. And some people will tell you it's the economy, stupid. Folks are just really guarding their purse strings very carefully. Food prices have been going up for years now. And obviously, we all know this is a lot of what convenience stores sell.

And so when shoppers start pulling back at convenience stores, that can be a big challenge for food companies.

In some cases, it's really important. You think about Hostess, which makes Twinkies. And convenience stores are really, really important for them. Convenience stores make up about 40% of Hostess's sales. And when you've got people passing up the snack aisle and passing up the Twinkie aisle, that's a really big deal for your brand.

Now, I will say that for Hostess in particular, convenience stores really aren't their only problem. But when you're that heavily dependent on convenience stores for sales, any downturn in convenience stores is going to really hit you.

They're all trying to figure out how to appeal to convenience store customers. One of the big things that we see a number of companies doing is new product launches. So PepsiCo, they're developing these sort of mini meals, which are Doritos loaded with a warm nacho cheese sauce. Smucker, which owns Hostess, last summer, they launched a limited edition version cherry-flavored Twinkie with Slurpee.

And you've even got the tobacco companies who are rolling out new, more affordable cigarettes. So they're really trying to appeal to consumers with new products and better prices.