Executive Interview: Q&A with Michael Funk

A pioneer in the natural foods industry, Michael Funk started the distributor Mountain People’s Warehouse in 1976. As President of MPW, he built the company into the leading natural food wholesaler in the west. In 1996, he co-founded United Natural Foods, to form the largest natural food distributor in the country. As President and CEO of UNFI, Michael has led the company to sales of over $ 2.5 billion US. He is active in many industry groups, and working to keep the integrity in the organic sector while addressing the needs of a small, idealistic industry that has now become big business.

1) Your building Mountain People’s Warehouse into UNFI is considered one of the great industry business success stories. What would you say were the most successful aspects of this experience?

With no money or education, a dedicated core group built a business on passion and commitment. We were a pretty rag tag group that no competitors took seriously, at least in the early days. Banks wouldn't consider any financing of our business at all. I guess they didn’t like my tie-dyed T-shirt and the length of my hair. We just made it work without them, turning our inventory and collecting our receivables as fast as possible. Years later I knew we had arrived when a large national bank came to visit to beg for our business and one of the guys came wearing a tie dyed T-shirt to impress me.

We got started with produce, bulk foods, perishables and groceries. It was a big deal to try to gain distribution and it took a lot of effort. After we got established in that area we tried to get into the supplements sector of the industry – this was probably the late 80’s. In those days the food people were different from the supplements people, who were dressing differently – more of them were in suits. I think there was a cultural disconnect, maybe the people in suits felt threatened by the guys in T-shirts, and the values were not as aligned. It really was a struggle, but in 1990 we became Whole Foods primary supplier on the west coast and so the supplement companies had to work with us.

2) In those early years, what critical lessons did you learn and how tough were they? What would you do differently?

Two critical lessons are that you’re as good as your last delivery, and that loyalty only goes so far, you have to perform at a high level or the competition gets the business.

We never planned for the growth to continue the way it did. We were always out of space in the warehouses and in the offices. Our people were stretched way too thin. If I could have been less conservative and forecasted the growth, it would have been much easier.

3) Which people influenced you both in and out of the industry?

My Mom and Dad instilled a major work ethic in me. I started with a paper route when I was 11 and never stopped working.

Lots of people in the industry influenced me, too many to list them all, but a few are Arran Stephens, John Mackey, Gary Hirschberg, and Gary Erickson.

4) What are the characteristics of the manufacturers whose products you do best with? What characteristics do their leaders have?

Since a vast majority of our business is with the core natural products shopper, we do well with companies that have integrity, authenticity, organic ingredients, and a commitment to social responsibility. Examples would be Clif Bar, Nature's Path, and Traditional Medicinals. These companies have leadership that represents these core values, and have products that speak to the core natural customer who is UNFI’s key sales driver.

5) How have things changed in natural products retailing over the past 30 years? Does the industry value chain work? What, if anything, would make it work better?

The big changes I see are the increased availability of our products and the improved quality, both in taste and in packaging. The products are much more competitive on pricing and availability. Our retailers are set apart by their commitment to customer service and education and their overall shopping experience.

With recent attacks on product integrity somewhat related to e-coli in spinach and the more recent salmonella poisoning, produce is having bad autumn. Spinach and lettuce sales have not come back, and we are wondering what the issue is. If the consumer doesn’t see the value in buying organic then they will save money and buy conventional. The key point is the integrity of the products we sell; we have to maintain that.

The Organic Center www.organic-center.org, a non-profit organization started by Walter Robb, Mark Retzloff, myself and other industry pioneers, is funding scientific research to prove the integrity of organic. Research verifying nutritional and other benefits is part of the value chain for consumers to see the reason to pay the premium.

6) What is your assessment of the current state of the industry? What would you like to see change?

There is excitement about widespread acceptance of organic, and at the same time paranoia about scale and fear of forgetting the original mission.

The real buzz is about organic products in chains like Wal-Mart and Trader Joe’s, and now Kellog’s is doing commercials for organic cereal. People in the organic industry have been looking for, and trying to create, change on a world wide level, and now it is happening.

The down side is all this paranoia about scale creating a lowering of standards and doing harm to industry. I don’t share those concerns. Some of those people talking about ‘let’s change the world and clean up the planet’ are now saying ‘Wal-Mart shouldn’t sell organic’ instead of looking at the positives.

7) What do you like best about our industry? What do you like least?

I like the product innovation, Cause marketing and contributions to the planet.

I don’t like the ‘private club’ mentality.

8) As the industry matures, what do you see as the biggest threats or challenges (or opportunities) that the industry MUST address to prosper? And how do we as an industry best tackle them?

As the industry becomes larger it is hard to have one voice. There is a fractioning of the organic industry, and it is having a hard time agreeing on certain standards. As any industry gains success and traction, there are more detractors and factions being divisive.

As we have seen in the organic milk industry consumer confidence is the # 1 asset and we need to come together to deal with issues. In milk we did need to raise the bar and define the standards better. All milk producers are generally supportive of doing that, so we didn’t need to go outside the industry and create negative press. That just undermines confidence in the whole category. Issues should be resolved within the industry.

Some people and groups are worried about the bar being lowered but the truth is that everyone really wants the bar higher. The myth that big is bad comes to play here, but the reality is that the big companies don’t want the bar lowered so any one can jump in with minimum investment. It’s an economic issue.

We do have to raise the bar on standards. We need to take steps to retain consumer confidence in organic, we need to increase GMO testing, and we need to have stronger responses to the media for the industry.

9) In your mind, what emerging issues will likely lead to business success?

I see more and more people looking beyond organic at total impact on environment, including local sourcing, miles to shelf, packaging choices, making sure the whole component is a sustainable model. It is not enough just to be organic, people are going to want to see total impact.

I am hoping that we will be the distributor that delivers these organically grown products, locally sourced in as many cases as possible, and in fully biodegradable packaging, using 100% bio diesel to take them to the store. The idea is to keep raising the bar. It is about health and the environment. Hopefully consumers will demand it. Wal-Mart will educate basic consumer, but it is our customer stores that will raise standards.

10) If you had a stage at an industry trade show, what message would you deliver and to whom?

If we work in this industry, let’s walk our talk.

We need to practice sustainable employment, balance in our lives, healthy food, and healthy lifestyles. We need to be treating people in business like we want to treated in our personal lives

I would like to see us create a different mode of interpersonal relationships in our business dealings.
We should have relationships with all the players that run the different segments of the industry that are as alternative as the products we sell, which means focused on a kinder, gentler way of doing business. Kindness, integrity, the sort of values we want in our personal lives, we should bring into our business lives.

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