How Whole Foods Market, Inc. (WFM) Transformed Its Relationship With United Natural Foods, Inc. (UNFI)

Two weeks ago, I interviewed Whole Foods Market, Inc. (NASDAQ:WFM) co-founder and co-CEO John Mackey in front of a live studio audience at Motley Fool headquarters. Mackey had just published Conscious Capitalism: Liberating the Heroic Spirit of Business with co-author Raj Sisodia and stopped by our Alexandria, Va., offices on his book tour.

I recommend Conscious Capitalism. It’s part philosophy, part memoir, and part management theory, and it includes Mackey’s own anecdotes of turning Whole Foods into a $16 billion business with more than 70,000 employees (called “team members” at Whole Foods).

The aim of business, argue Mackey and Sisodia, is not merely to profit; it is to serve all key stakeholders, including customers, employees, suppliers, local communities, the world, and, yes, shareholders.

One candid section (pp. 116-117) in the book comes when Mackey recounts his experience with one of Whole Foods’ key suppliers, United Natural Foods, Inc. (NASDAQ:UNFI) . In the following video clip, someone from our live studio audience asks Mackey about the evolution of the Whole Foods-United Natural relationship. (Run time: 3:49; there’s also a lightly edited transcript following the video.)

Audience question: I know you talk in your book about United Natural Foods and your relationship — it seems to have progressively gotten better as time goes on, which is interesting to me because they hold such a market-leading position in the distribution of most of what you sell. So I wondered, first, could you talk a little bit about that relationship, maybe shed some light into managing your relationship with management there? And then from a long-term perspective, where do you see your relationship with United Natural Foods going in the long term?

John Mackey: Well, I’ll talk a little bit about it but I’m not completely comfortable talking about it too much, for lots of reasons. …

UNFI, for a long time we had a typical relationship with them which is not unusual, which is somewhat of a mistrustful, adversarial relationship, which — think about, say, the Wal-Mart Stores, Inc. (NYSE:WMT) model, which is, let’s grind our suppliers down and get, extract every last possible dollar we can out of them and then that’ll help lower our prices and we’ll be more competitive again in the marketplace. And so you had that kind of adversarial relationship with the suppliers; you’re trying to do exact same thing.

We criticize that in the book — we don’t pick on Wal-Mart per se, I think we use General Motors Company (NYSE:GM) as an example in the book, about how they’ve they grinded down all their suppliers when they got into financial trouble, and some of those suppliers failed and most of them — and it worked for them in the short term, because in the short term the suppliers are captive. They don’t have alternatives. But in the long term, they begin to move their business away from you to the alternative customers. They may still do business with you, but you may not be getting their highest quality, their best service, their best prices — because they’re not so vulnerable anymore.