Dive Brief:

• United Natural Foods, Inc. (UNFI) announced Thursday it has extended its primary distribution deal with Whole Foods Market until Sept. 27, 2027. The agreement was set to end in October 2025.

• “This extension allows both companies to maintain focus on what is most important: continuing to meet the growing demand for healthy food at home as we navigate through the global pandemic,” Steven Spinner UNFI’s president and CEO, said in a statement.

• Extending its contract with Whole Foods, its largest customer, is widely viewed as a critical step for UNFI even as the distributor is trying to diversify beyond the “supernatural” retailer.

Dive Insight:

News of the distribution agreement extension sent UNFI’s stock up 6% in early trading Thursday, highlighting the importance of the deal to investors.

An extension of just two years, however, indicates the longtime marriage between the two companies may not be entirely amicable these days. In 2010, the two sides amended their primary agreement and extended it by seven years. In 2015, Whole Foods and UNFI set down a new agreement that extended their partnership by five years with September 2025 as the new end date.

Following its rocky integration of Supervalu, UNFI has sought to diversify its retailer client base, including reaching more conventional grocers and independents. Last fall, it inked a deal with Key Food in the Northeast that is expected to bring in $1 billion annually over the next 10 years. UNFI is also streamlining its distribution network, cutting costs and trying to cross-sell natural and conventional goods.

Whole Foods, meanwhile, has struggled to draw shoppers to its stores during the pandemic as it faces tougher competition from conventional grocers and evolving specialty competition from the likes of Sprouts Farmers Market. 

The latest extension of the arrangement between UNFI and Whole Foods follows the announcement in October that Whole Foods parent Amazon had agreed to invest in SpartanNash, a UNFI rival. Under that agreement, Amazon has the option to buy up to 15% of SpartanNash, which has been selling groceries to Amazon since 2016.

UNFI and Whole Foods had delayed negotiations during the pandemic. In December, Spinner said the two sides had been in talks and that he expected a deal would come together. Spinner, who announced plans to retire in September, also said at the time that UNFI would likely announce a new CEO early this year.

UNFI will report its earnings for the second quarter on March 10.