Dive Brief:
- United Natural Foods, Inc. (UNFI) is facing a class action lawsuit that accuses the grocery distributor of factoring in “prompt-payment” discounts when paying invoices late.
- The suit, filed on behalf of natural foods producer NYSM Organics LLC, claims that UNFI delays paying invoices from food makers who wind up owing UNFI money because of deductions the distributor takes, financially harming the suppliers.
- UNFI’s practices are particularly problematic for natural food brands because UNFI “is the only option for distributing their products to key retailers” such as Whole Foods Market, the suit says.
Dive Insight:
The suit centers on the prominent role the grocery distributor plays in connecting food suppliers with retailers, claiming that smaller natural food makers like NYSM Organics have little choice but to work with UNFI if they want to reach Whole Foods’ shoppers because the wholesaler has a multi-year primary supplier relationship with the retailer.
While other retailers, such as Sprouts Farmers Market, also carry natural products, those companies “are not nearly as significant as Whole Foods for smaller natural food brands seeking a foothold in this competitive industry,” according to the complaint filed Nov. 3 in Bristol County Superior Court in Rhode Island, UNFI’s home state.
In its suit, NYSM Organics, a maker of products including chocolate and plant-based cheese headquartered in Vineyard Haven, Massachusetts, alleges that UNFI squeezes suppliers by imposing a litany of “opaque and constant deductions” in order to compensate for its low margins. These costs, which the suit says include charges for breaking down cases of goods or if a product is out of stock, “are often crippling for new and smaller natural food brands” and can result in suppliers owing UNFI money, according to the complaint.
If a supplier winds up with a negative balance with UNFI, the distributor does not pay any of the supplier's invoices until it brings its account back into positive territory, the lawsuit claims.
UNFI factors in a contractual discount for paying within a set period when paying suppliers for products even if it sends payment outside the prompt-payment window, the suit says. UNFI does this “based on the fiction” that it would have paid on time if the supplier’s account was not in the red, according to the complaint.
“UNFI knows that even if this practice decimates startups and other small natural food companies, there will always be new businesses entering the market that need UNFI way more than UNFI needs them,” according to the complaint, which adds that the deductions “eviscerate any profits these brands may realize from sales to UNFI.”
The suit also says that UNFI’s actions run afoul of the Massachusetts Consumer Protection Act when they involve suppliers based in that state.
“At UNFI, we value all our supplier relationships and take any concerns seriously. We are currently reviewing the details of the complaint filed by NYSM Organics LLC and will work through the legal process on next steps,” a UNFI spokesperson said in an emailed statement.
While the suit includes details about the prompt-payment discount, including its size and how quickly UNFI is required to pay in order to claim it, that information is redacted in the version of the complaint available to the public. The suit claims the discounts are big enough that they stress suppliers’ finances and notes that trying to push back on deductions UNFI takes “is so difficult and time-consuming that it is cost prohibitive for all but the very largest suppliers.”
Suppliers also risk repercussions such as being placed on a list of “non-preferred vendors” by UNFI if they try to challenge UNFI’s deductions, according to the complaint.
Editor's note: This story has been updated with a statement from UNFI.
