UNFI - KeHE -
UNFI - KeHE -
National Distributors 101:
UNFI & KeHE at a Glance
From the outside, it’s easy to think that national distributors like UNFI and KeHE act like an extension of your team—handling quality control, inventory, or even sales. They don’t. They’re distributors, full stop. They move product from point A to point B. Yes, they offer professional services, data insights, and extra programs, but at their core they’re a logistics partner that must make money like any other business.
That said, they fill an immense market gap. If you’re a small grocer wanting to expand assortment without juggling hundreds of vendor relationships, or a brand dreaming of national shelf space, these big distributors can be game-changers. But they also bring added complexity, fees, and the need to manage your own supply chain, marketing, and quality controls.
Read on to learn why UNFI and KeHE dominate the natural and specialty grocery world, and what that means for you—whether you’re a local retailer or an emerging CPG brand.
The Market Gap They Fill: How UNFI & KeHE Became Indispensable
They Simplify the Supply Chain—Sort Of
On paper, a national distributor consolidates countless brands under one roof, shipping them together to retailers. This means a single invoice, single delivery schedule, and easier reorder flow for grocery chains. For smaller manufacturers, it’s a shortcut into store networks you’d never reach alone.
Yet “simplify” might be an overstatement. While they do reduce direct relationships, you still own your marketing, brand awareness, and velocity. The distributor just handles the logistical pieces—warehousing, trucking, invoicing. If you’re expecting them to push your product on retailers or manage your quality standards, you’ll be disappointed.
They Are the Two Big Dawgs
Yes, there are regional distributors (DSDs, specialty players, etc.) and even a few other national competitors, but UNFI and KeHE remain the dominant forces in natural, organic, and specialty grocery. They serve the retailers that brands most want to land (think Sprouts, Whole Foods, co-ops, independents, etc.). That coverage can be a huge advantage: one deal with UNFI or KeHE can unlock hundreds—if not thousands—of potential retail doors.
They Do Much More (for a Fee)
Beyond pure distribution, they’ve layered on services: category management, professional services for small grocers, data reporting for brands, marketing programs, new brand “acceleration,” and more. You don’t have to buy into these extras. Some cost more than they’re worth (particularly for early-stage brands). Others can be transformative if timed right (like access to real-time velocity data). It all depends on your specific situation and margin structure.
The Cost-Plus Model (and Inside Income)
Both UNFI and KeHE rely on a cost-plus arrangement with their biggest retail customers. Essentially, they mark up the brand’s cost by a set percentage to sell to those retailers. But that markup alone doesn’t always cover all operational expenses, so they add layers of inside income—like data fees, spoilage allowances, promotional programs, and compliance charges.
For small grocers, the upside is consolidated billing and delivery. The downside is that cost-plus can lead to higher shelf prices, especially if you’re in a tight margin market. For brands, you need to account for these fees in your pricing. Otherwise, by the time your product hits the shelf, it may be too expensive or yield minimal profit.
Downsides with a Big Upside: Why They’re Still Attractive
Grocers Benefit From:
Consolidated Shipping & Invoicing: Fewer POs, fewer deliveries.
Access to “In-Demand” Brands: Shoppers want hot natural/specialty items, which UNFI/KeHE can provide.
Optional Services: If you need category resets or inventory help, you can pay for it—but you can also skip it.
Brands Benefit From:
Broad Retail Reach: A single distributor relationship can open hundreds of stores.
Logistics Off Your Plate: You don’t have to coordinate trucking and multi-warehouse shipping.
Selective Program Participation: If a data or marketing program doesn’t suit you (or your budget), you can usually opt out and still remain distributed.
Yes, distributors come with challenges: margin hits, complex fee structures, partial control over how your product is allocated to retailers. But the potential upside—especially for a brand that’s ready to scale or a grocer that needs to compete with bigger chains—makes them hard to ignore.
Emerging Alternatives (and Why UNFI & KeHE Still Dominate)
In recent years, new models have tried to disrupt the big distributors:
DSD (Direct Store Delivery) Groups: Offer local merchandising, but typically charge higher margins.
Pod Foods and Similar Startups: Provide transparent fees and more brand-data visibility, but have smaller retailer footprints.
Direct Ship Solutions: Some retailers buy direct from brands for certain SKUs, but that scales poorly if you have dozens or hundreds of brands.
Despite these options, UNFI and KeHE remain leaders. Their massive infrastructure, retailer relationships, and “one-stop shop” appeal keep them front and center—even if some smaller players are gaining traction in niche markets.
At Some Point, You’ll Need Them—It’s Not If, But When
For small grocers, as you grow, you’ll need an expanded product mix to stay competitive. Handling 50–100 vendor relationships is doable; 500 or 1,000? Not so much.
For emerging brands, you can sell regionally, DTC, or at local markets for a while. But eventually, if national or multi-regional distribution is your goal, you’ll want into those bigger retail accounts—and UNFI/KeHE is how you get there.
The key is timing. Jumping in too early can mean wasted fees, unsold inventory in warehouses, or a distribution contract that drains your margin. Waiting too long can stall your growth. That’s why planning your cost structure and ensuring real consumer demand are crucial steps before signing on.
How These Companies Actually Work (Behind the Scenes)
It’s not as simple as “You sign a contract, they place your product everywhere.” Here’s the basic flow:
Category Managers & Buyers:
At UNFI/KeHE, category managers decide which products to bring on. They analyze trends, potential velocity, and brand readiness.
Brokers (representing your brand) often pitch to these category managers. But that doesn’t guarantee any store-level ordering.
Regional Warehouses:
Once approved, your product typically starts in 1–2 warehouses (based on your geography).
You need to ship product to the distributor’s dock, at your cost, meeting their guidelines and schedules.
Sales Teams & Merchandising:
Distributors have sales teams that present broad category solutions to retailers, but they’re not actively “selling” your specific SKU unless it’s part of a special program or a retailer specifically requests it.
This is where brokers or internal brand teams need to follow through—promoting your product to retail buyers, ensuring they actually place orders from the warehouse.
Multi-Year Growth Trajectory:
You might spend a year or more proving velocity in a single region before the distributor (and retailers) let you expand to other warehouses. It’s rarely an instant national rollout.
Consumer Demand & Price Point Rule All:
Even if a distributor lists your product, retailers only keep reordering if customers buy. If your margin is too slim, you can’t afford promotions—leading to slow velocity and potential delisting.
A Distribution Partner, Not a Turnkey Solution
National distributors fill an essential gap in the grocery ecosystem—but they’re not your sales or brand manager, nor are they a guarantee of success. They’re simply a logistics and warehousing partner with optional upsells like professional services and data reporting. If you play your cards right, they can help you scale faster and access wider markets. If you assume they’ll do the heavy lifting of marketing and quality oversight, you’ll be sorely disappointed.
Ready for more detail? Explore the rest of our UNFI & KeHE series:
Grocer’s Guide to Professional Services & Cost-Plus Models
Understanding UNFI’s Restructuring & SSA Policy
Cost-Plus & Inside Income: The Hidden Economics of Distribution