Omaha Industries, a pet food and ingredient supplier, has initiated legal action against United Natural Foods Inc. (UNFI), one of the largest grocery distributors in the United States. The lawsuit, filed last week, alleges fraudulent conduct by UNFI and accuses the distributor of shifting the risk of loss to Omaha Industries.
The core of the dispute revolves around significant chargebacks that Omaha Industries claims UNFI deducted from their payments. These chargebacks, which are contractually permissible in instances of “unacceptable” products, are linked to pet food shipments sold by UNFI to Giant Food. Omaha Industries states in its complaint that since October 2022, chargebacks have accumulated to $268,816.94 on product sales worth over $326,780.
The supplier asserts that UNFI has charged back approximately 82% of the value of the products provided, relating to sales to Giant Food. Furthermore, Omaha alleges that the total chargebacks, calculated at wholesale cost, exceed the total amount invoiced to UNFI. When approached for a comment regarding the allegations, a UNFI spokesperson stated that the company does not comment on ongoing litigation.
Omaha Industries also claims that UNFI neither returned nor disposed of the products in question according to the terms of their contract. The exact location of the charged-back products remains unknown to Omaha, as UNFI allegedly has not provided a full accounting despite requests.
In an effort to clarify the situation, Omaha Industries reportedly contacted a category manager at Giant last August, who indicated no knowledge of any quality issues with the Tender & True pet foods sold at Giant stores. However, Omaha was informed by UNFI staff that the chargebacks were based on Giant’s assessment of the products as unacceptable.
Chargebacks are a commonplace mechanism in supplier relationships, often serving as penalties for shipments that fail to meet specified standards. However, a 2020 academic study highlighted that chargebacks often do not accurately reflect the cost of quality errors and are inefficient in coordinating supply chains.
Omaha Industries contends that the chargebacks imposed by UNFI were unlawful and financially detrimental, effectively resulting in losses on the goods sold to UNFI. The supplier also discovered, allegedly from a UNFI employee, that under the distributor’s contract with Giant, UNFI had agreed to credit the value of all unsold products at the retailer, a detail that Omaha claims was never disclosed to them. Omaha Industries argues that had it been aware of this contractual arrangement, it would have not allowed its products to be supplied to Giant through UNFI due to the substantial financial risks involved. The company is now seeking legal recourse to recover damages exceeding $250,000, in addition to attorney fees and other related costs.
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