NEW YORK - United Natural Foods is hopeful its relationship with its largest customer will be a long one.
The Dayville, Conn.-based distributor is in talks with Whole Foods Market on "something much longer term" than its current three-year supply agreement, Michael Funk, United Natural's chief executive officer, said at the Piper Jaffray Consumer Conference here last week.
United has supplied Whole Foods, Austin, Texas, for more than 10 years, and is midway through a three-year deal reached as a result of frenzied negotiations as their prior supply agreement expired in December 2004.
Some analysts speculated that anxiety over the relationship between United Natural and Whole Foods was behind Funk being reinstalled as United's CEO last year - speculation the company has not acknowledged. Funk, a co-founder of the business in the 1970s, stepped down as chief executive in 2002 and had since served on the distributor's board of directors.
"We're optimistic about a long-term strategic relationship with Whole Foods. Both sides feel the need with their ramping growth plans to have something much longer term in place," Funk told attendees at the conference. "I feel like both sides have been negotiating at a good pace. We really believe we can service them at a level that's superior and at a cost that they can't duplicate themselves.
"We are the only real choice for them other than to self-distribute," Funk added. "So we are continuing positive conversations with them, and are working toward completing a new supply agreement, hopefully sometime in the near future."
Whole Foods accounted for 26.5% of United Natural's business as of the end of its fiscal third quarter on April 29.
Funk said he was optimistic for growth in all of United's customer segments. The "supernatural" segment, consisting of national natural food chains Whole Foods and Wild Oats Markets, combines for 36% of the wholesaler's business; conventional supermarkets account for 14%; independent retailers 47%; with food service and other business accounting for 4%.
"The supermarket industry is dying to capitalize on this [natural and organic food] trend, and new opportunities are opening up on a regular basis," Funk said.
He said it was unlikely the company would get any distribution business out of Wal-Mart's recently announced plans to sell more natural and organic items, but said it was possible that the Bentonville, Ark.-based retailer could buy some of United's manufactured products. Private label currently accounts for 3% of United sales, but is growing at a 50% annual rate. Funk said the company's goal is to grow private label to 5% of all sales by fiscal 2008.
Mark Shamber, United Natural's chief financial officer, said capital spending for the fiscal year ending next month will likely be lower than the $30 million to $35 million originally forecast, due mainly to issues of timing. A "large portion" of the amount below estimates will be spent in fiscal 2007, he said.
Funk said the company would look to add warehouses in Texas, Florida and the mid-Atlantic states over the next two to three years. These new facilities will reduce transportation and fuel costs and help the distributor serve more areas of the country, he said.