NEW YORK (Fortune) — In 1994, Walter Robb, then a regional president at a fast growing natural foods chain called Whole Foods, chose a new primary distributor to handle the bulk of the deliveries to his stores in Northern California.
The firm he chose was called Mountain People’s, a tiny outfit based in the hills northeast of Sacramento and run by a ponytailed former garbage man who started the business out of the back of his Volkswagen van way back in 1976, before there was even a legal definition of what “organic” meant. “They were hippies from the mountains,” recalls Robb, now president and COO of Whole Foods (WFMI, Fortune 500), which, as you probably know, has grown to dominate the burgeoning, $57 billion market for hormone-free beef and organic tomatoes on the vine.
What you probably didn’t know is that those mountain hippies have acquired a good deal of clout of their own. Now called United Natural Foods (UNFI), the Dayville, Conn.-based company will generate $3.3 billion in sales this fiscal year by supplying over 40,000 products to more than 17,000 retailers coast to coast – from feisty mom-and-pop outlets like Debra’s Gourmet in Concord, Mass., to small chains like Earth Fare of Asheville, NC, all the way up to giants like Whole Foods and Kroger (KR, Fortune 500).
As a distributor – essentially the middleman between manufacturers and retailers – United Natural, despite its $1 billion market cap, is unknown among the growing ranks of consumers who buy natural and organic products. But its size and scope place United Natural in the proverbial catbird’s seat, wielding an enormous amount of power in the hottest sector of an otherwise moribund food industry.
Organic food sales increased 21% to $16.7 billion in 2006 (the most recent figures available), according to the Organic Trade Association. (Traditional supermarket distributors like Supervalu (SVU, Fortune 500) and C&S largely eschew organic and natural products as they don’t move as fast as well-known staples like Corn Flakes and Coca-Cola.)
With five times the sales of its only national competitor, a company called Tree of Life, United Natural has few peers. “Like Whole Foods is to retail, United Natural is to wholesale,” says Barney Feinblum, the former CEO of Celestial Seasonings and organic dairy Horizon who’s now an investor in this space. Some manufacturers sell as much as 40% of their products through United Natural. “They can make or break you,” says RBC Capital Markets analyst Ed Aaron.
And by pushing a hot new item through its vast distribution network – 8% of sales every year come from new products – United Natural can ensure it gains a wide audience. A recent example is Kombucha, a fermented beverage from Asia that first appeared in Seattle stores but has now gone national, growing at a triple-digit clip. “These guys are in a very dominant position,” says Feinblum.
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My local food co-op club, based in Leicester, runs through United. I love that they’ll make small monthly deliveries to local food clubs, despite being a large distributor.