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

And with UNFI, we always had a certain power over them in the relationship, which I’m ashamed to say but will admit that we took advantage of that in the earlier days because we were such a big part of their business. We were a third of their business, and as a public company, if there was any rumor that Whole Foods Market might be self-distributing, then that would be devastating to their company and their stock price. So we never actually threatened them, but it was always in the air. So we realized, we don’t have a healthy relationship here, this is our most important supplier, and they’re scared that we’re going to harm them. So we basically just transformed the relationship.

We asked the question: How do we create a win-win? How do both of the organizations prosper? Whole Foods seems to get really good prices, but they need the security of not [having the] risk of losing the relationship and that we’ll work with them when we have problems instead of trying to bully them in some way. So what we did was, besides changing our attitude, we always enter into a 10-year contract. So there’s a 10-year agreement, but every five years, we go back into negotiations. So there’s always going to be a minimum of a five-year lag time, and if we decided that we couldn’t do business for any longer, that we couldn’t work out our problems, it would be basically like a five-year notice. It would give them plenty of time to adapt. It would also give us plenty of time to find alternatives as distribution or do it ourselves.

So that’s been a really smart thing. We’ve had a great partnership with them. I think they’re a really good company. And, in terms of the future, Whole Foods has no particular expertise in distribution, at least for dry grocery. We do our own distribution for produce, meat, seafood. Those are kind of our bread and butter, and we don’t think UNFI has any special expertise in that area. So we’re real happy with the relationship, and I hope they work out their stuff with the Teamsters and it doesn’t spill over any further into Whole Foods.

The article How Whole Foods Transformed Its Relationship With United Natural Foods originally appeared on Fool.com and is written by Brian Richards.

Fool.com managing editor Brian Richards owns shares of Whole Foods Market, as does The Motley Fool. The Motley Fool recommends General Motors and Whole Foods Market and has a disclosure policy.

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