Pet food and ingredient supplier Omaha Industries sued United Natural Foods Inc. last week over allegations of fraudulent conduct and what the supplier described as an effort “to offload the risk of loss from itself to Omaha Industries.”
At issue are hundreds of thousands of dollars in chargebacks that Omaha said UNFI, one of the largest grocery distributors in the country, deducted from its payments on invoices to Omaha.
The chargebacks — allowed for under the two firms’ contract in cases where product is deemed “unacceptable” — were tied to pet food shipments that UNFI sold to the grocer Giant Food. Omaha said in its complaint that the chargebacks began in October 2022 and would pile up to $268,816.94 on more than $326,780 worth of products Omaha sold UNFI by the time it filed the lawsuit.
“In other words, to date, UNFI has charged back roughly 82% of the value of the Product provided by Omaha Industries to UNFI relating to the Product sold to GIANT,” the company said. Further chargebacks assessed by UNFI at wholesale cost — above what the distributor charged Giant — put the total amount at more than what Omaha has invoiced UNFI, the company alleged.
Asked about the allegations, a spokesperson for UNFI said that the company does not comment on litigation.
The supplier also alleged that UNFI never returned any of that product or disposed of it under terms spelled out in their contract. “Omaha Industries does not know the exact whereabouts of the chargeback products because UNFI has refused to provide a full accounting to Omaha Industries despite Omaha Industries’ requests for the same,” the company alleged.
Omaha said it contacted a Giant category manager in August last year, who, according to the complaint, “confirmed that there were no quality issues with Tender & True pet foods being sold at GIANT stores that he was aware of.” Meanwhile, UNFI staff told the supplier that the chargebacks were based on Giant’s determination that the product was unacceptable, according to Omaha.
Chargebacks are a common fact of life in the supplier world, typically acting as fines for shipments that don’t meet certain standards. They can raise hackles and reduce supplier revenue. A 2020 academic analysis found that “chargebacks do not accurately reflect the cost of execution quality errors” and often “do a poor job coordinating supply chains around execution quality.”
Omaha claims that UNFI’s chargebacks were unlawful and damaging to the company — essentially putting it under water on the goods it sold UNFI.
Additionally, the supplier said it came to learn in July from a UNFI employee that Giant was a “guaranteed retailer” for the distributor, meaning that under UNFI’s contract with Giant the distributor agrees to credit the value of all unsold products at the retailer.
Omaha claimed that UNFI never informed it of the distributor’s relationship with Giant and that, had the supplier known, Omaha would “never have permitted its Product to be provided by UNFI to GIANT given the huge financial risks to which such an arrangement would expose Omaha Industries.”
Specifically, the company alleged UNFI “could fall back on broad language in the Supply Agreement to chargeback any unsold product to Omaha Industries” while at the same time “getting more product to GIANT for sale in GIANT stores further solidified the GIANT-UNFI relationship.”
Omaha is looking to recoup in court the damages it claims it suffered, which the company said amounts to over $250,000, as well as attorney fees and other amounts.