S7 – Chapter 03: UNFI - How to Start a CPG Business

07: Distributors

UNFI

UNFI (United Natural Foods, Inc.) is a leading distributor of natural, organic, and specialty foods and the primary distributor for Whole Foods Market. For food and beverage brands, partnering with UNFI can significantly expand your market reach, placing your products in front of a vast network of retailers. However, working with a large distributor like UNFI comes with its own set of challenges, including navigating deductions and chargebacks. This chapter will guide you through the essentials of working with UNFI, ensuring a successful partnership and minimizing financial surprises.

Getting Started with UNFI

Research and Preparation:

Understand Their Requirements: Before approaching UNFI, ensure your product meets their standards for natural and organic foods. Review their vendor guidelines and ensure your packaging, labeling, and product quality align with their expectations.
Market Readiness: Ensure your brand is market-ready with established demand, solid marketing support, and the capacity to scale production.

Application Process:

Getting In: To get into UNFI they want to know that you have retailers who are committed to taking in your product, so often you have to sell into the retailer first before getting connected to UNFI.
Vendor Packet: Complete the vendor packet, which includes forms detailing your product specifications, pricing, promotional plans, and logistics. Accuracy and completeness are crucial to avoid delays.

Initial Meeting:

Presentation: Prepare a professional presentation highlighting your product’s unique selling points, market potential, and how it fits within UNFI’s portfolio. Include sales data, consumer feedback, and your marketing strategy.

Key Retailers that UNFI Works With

UNFI distributes products to a wide array of key retailers, including:

Whole Foods Market: A major retailer specializing in natural and organic foods. As of 2018, Whole Foods accounted for nearly 30% of UNFI’s distribution activity, a figure that was significant during the pandemic and continues to shape their relationship.
Sprouts Farmers Market: Known for its fresh and natural food products.
Natural Grocers: A retailer focused on organic and natural groceries.
Earth Fare: Specializes in healthy food options.
Wegmans: A regional supermarket chain known for its high-quality products.
Hy-Vee: A large supermarket chain in the Midwest.
Albertsons: One of the largest food and drug retailers in the United States.
Kroger: Another large grocery chain that emphasizes natural and organic products.
Ahold Delhaize USA: Owner of Stop & Shop and Giant Food, leveraging their vast network for distribution.

Managing the Relationship

Inventory Management:

Forecasting: Provide accurate sales forecasts to ensure UNFI maintains optimal inventory levels. Overestimating can lead to excess stock and potential chargebacks; underestimating can result in stockouts and lost sales. Sometimes their buyers will overorder products because they don’t know how you’ll actually perform, and it’s ok to push back.
Replenishment: Work closely with UNFI to monitor inventory levels and adjust orders based on sales trends and seasonal demands.

Communication:

Regular Updates: Maintain open communication with your UNFI account manager. Provide updates on new product launches, marketing initiatives, and any changes in your production capabilities.
Problem Resolution: Address any issues promptly, whether they involve product quality, delivery delays, or invoice discrepancies. Timely resolution helps maintain a positive relationship and avoids disruptions.

Continuous Follow-Up: Ensure constant follow-up with purchasing managers at each distribution center (DC) and salespeople to keep your products in stock. Persistence is key to maintaining visibility and availability.

Financial Management

Monitor Financial Statements: Regularly review your financial statements and reconciliation reports from UNFI. Ensure all deductions and chargebacks are accurately reflected and justified.

Dispute Resolution:

Documentation: Keep detailed records of all transactions, communications, and agreements with UNFI. This documentation is crucial if you need to dispute a deduction or chargeback.
Process: Follow UNFI’s dispute resolution process to address any discrepancies. Provide supporting evidence and communicate clearly and professionally.

Real-World Examples

Halo Top: The ice cream brand targeted health-conscious consumers and leveraged UNFI to reach major retailers like Whole Foods. This partnership helped them grow significantly by offering low-sugar, vegan, and gluten-free options.

Swoon: A beverage brand that experienced significant expansion after signing on with UNFI in 2016. Their partnership allowed them to enter retailers like Meijer, Stop & Shop, and Kroger, significantly boosting their market presence.

Kosterina: This olive oil brand launched in Whole Foods at the end of 2020 through a line review invitation. Working with UNFI facilitated their national distribution to over 350 Whole Foods locations.

Haven’s Kitchen: A sauce and marinades brand that transitioned from a DTC model to working with UNFI. This partnership allowed them to navigate the complexities of grocery distribution and scale effectively.

Strategies for Successful Partnership with UNFI

Start Small with Regional Distributors: Grow using regional distributors first. Chargebacks are almost non-existent for good regional distributors, and they do a great job. All the grocers that work with big distributors also work with regional ones. Once you reach a scale of $1 million-$10 million, you’ll have the team and negotiating power to properly enter into a deal with KeHE or UNFI.

Selective Launches: If you choose to launch with UNFI early, only launch with one Distribution Center (DC) at a time. Ensure you have a guaranteed YES from the anchor retailer for that DC and a plan to move volume quickly. Account for added fees and underpayments in your margin.

Effective Communication: Keep in constant contact with UNFI’s purchasing managers and salespeople. Regular follow-up is essential to ensure your product stays in stock and receives the necessary support.

Off Invoice (OI) Periods: Navigate OI periods wisely. UNFI buys for six weeks but only passes discounts to customers for four. Use OIs strategically to drive demand, ideally not during periods of already strong demand.

UNFI’s UpNext Program

UNFI’s UpNext program is designed to support emerging brands, offering mentorship, tailored marketing opportunities, and timeline expansion planning. This program helps small brands navigate the complexities of distribution and scale their operations. Brands in the UpNext program often receive more hands-on support compared to long-established partnerships, making it a valuable resource for startups.