UNFI continued its recent run of strong sales in its recently completed first quarter, but perhaps more importantly, the wholesaler announced two important news items that will have a longer term effect on the Providence, RI distributor.
During his conference call with analysts after the company released its financials, CEO Steve “Spinmeister” Spinner, (who announced his retirement no later than July 31, 2021) said that his successor could be disclosed in early 2021 (Spinner would remain a chairman of the board). He added that the process has “identified exemplary talent both inside and outside of UNFI.”
Additionally, in what I consider a surprise, Spinner predicted that UNFI and its largest customer, Whole Foods Market, would sign a contract extension early next year. The current 10-year agreement between both parties is set to expire in October 2025 and trade observers (me included) believed that once amazon.com acquired the Austin, TX-based natural and organics merchant in 2018, that “Godzilla,” the king of all distributors, would look to self-supply its largest brick and mortar entity.
Spinner also addressed new business opportunities including the recently signed 10-year deal with Matawan, NJ-based Key Food Stores cooperative, one of the biggest players in the large and competitive metro New York market.
“Our new long-term contract with Key Food signed in October reflects the critical importance of scale, as well as the ease of doing business with UNFI. Key Food is a cooperative of more than 300 stores with a large market share in New York and the surrounding area. And we believe their decision to partner with UNFI is a clear and unambiguous endorsement of our business model and what only UNFI can do for them. As their primary grocery wholesaler, we’ll be supplying their stores with branded and private label conventional and natural products across a wide range of categories,” Spinner explained. “We expect our sales to Key Food to total approximately $10 billion over 10 years, or roughly $1 billion annually. To serve Key Food’s Northeast stores, we’ll open a new highly productive distribution center in Allentown, PA next fall. This facility will also serve as our enabler to significantly expand our conventional presence in the important New York City metro market. UNFI is well-prepared to grow in this market with general merchandise in an automated Carlisle, PA DC; large-scale natural DC in York, PA; large-scale conventional and fresh DC in Harrisburg, PA; and now our new DC in Allentown.”
Spinner also had an interesting take on a subject that I frequently write about – vendor related promotional spending and marketing strategy going forward. Addressing a question from analyst Ed Kelly of Wells Fargo, the 60-year old CEO said: “I think that the largest CPG companies have scaled back so heavily on SKUs just to produce the items that the retailers and the consumers need. Well, when they bring them back, the only way the retailers are going to take them is with a very heavy promotional spend. But I don’t think we’re going to get there until, let’s say, the fall of next year.”
I think Spinner is correct with one caveat – retailers are much more likely to reaccept quite a few items that were cycled out of the system due to COVID-19 at reasonable promotional spends/trade rates because they will simply need to offer a more diversified mix to remain competitive. And no doubt there will be new items or older recycled items that attempt to gain entry on to retailers’ shelves that will cost suppliers more. We’re seeing it already as manufacturers and retailers are currently negotiating how deep and costly the SKU rationalization will be. More expensive? Yes. Heavy promotional spending needed? Not in many cases.
As for UNFI’s numbers for Q1 which ended on October 31, net sales increased 6 percent to $6.67 billion. By business segment, here’s the breakout: chains (conventional retailers that operate more than 10 stores) – UNFI’s revenue increased 5 percent to $3.02 billion; independent retailers (UNFI customers with fewer than 10 stores) – sales grew 7.4 percent to $1.67 billion; and supernatural (Whole Foods) – sales were up 9.3 percent to $1.21 billion; UNFI’s e-commerce business rose 93 percent during the 13-week period and revenue from other business segments including international customers outside Canada, foodservice, e-commerce and conventional military declined by 1.5 percent to $581 million.
“Sales to our top 100 customers, representing nearly 70 percent of total net sales, were up approximately 10.5 percent. We believe our strong sales performance is being driven in large part by our long-term strategies we have discussed during previous calls, as well as favorable consumer trends and specific channels,” said UNFI president Chris Testa, who is believed to be a top candidate to succeed Spinner. “Namely, cross-selling efforts yielded an additional $60 million in incremental sales in the quarter. As we’ve discussed, previous cross-selling efforts consisted largely of many small wins with new-item introductions. In fiscal 2021, we’re beginning to realize larger wins as customers begin to aggregate more purchases with UNFI.”
On the earnings side of the ledger UNFI lost slightly more than $1 million, compared with a net loss of $383.9 million in the corresponding quarter last year.
While UNFI’s stock price has markedly improved over the past year, vaulting from a low of $5 per share in March to a high of $23.38 in May, its financial release and subsequent conference call comments actually created a dip in stock price to $16.10 per share on December 16. Eight days earlier, a day before the announcement, UNFI closed at $18.80 per share.
Four analysts I spoke with told me they attributed UNFI’s stock price decline to the uncertainty of Spinner’s replacement and the company’s ability to meet its forecasts when the COVID-19 salles spikes abate.
‘Round The Trade
November was another huge month for online grocery sales. According to a Brick Meets Click/Mercatus Shopping survey, grocery e-commerce revenue topped the $8 billion mark for the seventh consecutive month. Further positive data indicated that households placed an average of 2.8 orders during November and 83 percent of those surveyed said they were repeat customers. Of that $8.1 billion sales total, $5.8 billion came via grocery delivery and pickup orders. Trade analysts also expect strong online sales to continue this month as trends indicate that orders will continue to increase as customers look more and more to stockpile items as the number of COVID-19 cases continues to surge.
And while we’re on the subject of big sales increases, let’s not forget Costco which just completed a monster fiscal 2021 first quarter. For the 12 weeks ended November 22, the Issaquah, WA-based club merchant posted a net revenue increase of 16.9 percent to $42.4 billion with comp sales rising 14.6 percent. Profit gain was also huge, up from $844 million in fiscal ’20 to $1.17 billion in this year’s Q1. And part of Costco’s “secret sauce,” its membership fees, also posted a 7.1 percent increase which created $860.9 million in a revenue column that is generally reserved only for club operators, Amazon and on a very limited basis Walmart with its new Walmart+ subscription delivery service.
Over in Bentonville, AR, the planet’s largest retailer announced that it will give its 1.5 million U.S. employees special bonuses totaling $700 million. “As we come to a close on this historic year, I’m filled with gratitude for how our associates have led through one of the most trying periods for our company and country. Our associates have stepped up to serve our customers, communities and each other when it was truly needed most,” said Walmart U.S. CEO John Furner.
Kudos to Jeff Rumachik who will become president and CEO of the National Frozen & Refrigerated Foods Association (NFRA) effective January 1 following the retirement of “Skip” Shaw, who did a stellar job of growing the Harrisburg, PA-based trade group for the past 36 years. Rumachik is plenty ready for the new challenge – he’s spent more than 45 years in the grocery biz including the last 29 working for trade associations, first with FMI (1991-2009) before joining NFRA as senior VP. He was promoted to executive VP three years later.
Earlier this month, Amazon Fresh opened its first store outside of California with the debut of its Naperville, IL unit. The 35,000 square foot store is one of four planned by “Godzilla” for the Chicagoland market. Expect to see 10 Mid-Atlantic “Fresh” units open next year in: Woodland Park and Paramus, NJ (both former Fairway Markets); Havertown, PA; Bensalem, PA; Warrington, PA; Chevy Chase, MD; Gaithersburg, MD; Franconia, VA; and Fairfax, VA. You can also expect to see SpartanNash’s newest distribution center in Severn, MD to open next year as well. That depot is expected to serve as prime supplier to the Amazon Fresh stores and several others in the region where we hear leases are expected to be signed very soon.
Local Notes
Not shockingly, the Federal Trade Commission (FTC), is taking longer than many thought it would to rule on the proposed Kings/Acme deal for 27 Kings and Balducci’s stores in New Jersey, New York, Connecticut, Maryland and Virginia. On a related note, Kings parent firm, bankrupt KB Holdings (part of Qatar-owned GSSG Capital), has asked the court to reject leases at New Jersey Kings stores in Bernardsville, Hoboken (River Street); Maplewood, Ridgewood and Warren, NJ. Those five stores, along with previously rejected leases for Balducci’s units in Reston, VA and in the Hearst Building on W. 57th Street in Manhattan, are the stores that Acme/Albertsons said it will not be purchasing from the original batch of 34 units. Both retailers are still hoping for approval by the end of the year.
Food Lion has completed a $212.5 million store upgrade investment for its 112 stores in Delaware, Maryland, Virginia and West Virginia. Store improvements include greater variety in multiple departments, the addition of more local items, expanded craft beers and limited reserve wines, greater availability of grab-and-go items and pre-sliced deli meats and cheese, a more efficient checkout process and additional safety equipment and protocols to provide a safe and clean environment.
Kroger has also vaulted into the “top 10” for all U.S. e-commerce retailers according to eMarketer. The research firm posted its 2020 survey and Kroger is now the ninth largest online retail firm in the country with $11.3 billion in annual revenue. That’s far behind perennial leader Amazon ($309.6 billion in annual sales). Other merchants who sell groceries on the list include number two Walmart ($46.2 billion sales); number seven Target ($13.8 billion in annual revenue); and number 10 Costco ($11.2 in annual e-commerce volume).
In ShopRite news, one of its best operators, ShopRite of Hunterdon County led by Joe Colalillo (who also happens to serve as chairman and CEO of parent firm Wakefern Food Corp.), has opened its first micro-fulfillment center adjacent to the retailer’s high-volume unit in Flemington, NJ. The new facility is expected to increase capacity for “ShopRite from Home” orders and enhance the online shopping experience for customers. The new micro-fulfillment center will assemble a portion of each online order before the order is completed at the store. The technology is expected to ease pressure on in-store teams by increasing online shopping capacity and allowing store associates to focus on personally shopping fresh foods such as meat and produce for online orders. “Interest in online shopping and our ShopRite from Home service has grown extraordinarily over the past several months,” said Colalillo. “This micro-fulfillment center represents an important investment in our stores and the ShopRite from Home service. It allows us to continue to provide our customers with the outstanding quality and service they expect from ShopRite, whether shopping us in-store or online.” Customers can pick up their ShopRite from Home orders curbside and in-store or have them home delivered. This is the third micro-fulfillment center developed by Takeoff Technologies for Wakefern in the ShopRite system. The other two opened earlier this year in Egg Harbor, NJ (Village) and Clifton, NJ (Inserra).
Another new Target is slated to open in Manhattan perhaps as early as late next year. After reporting last month that a 28,000 square foot “urban Target” would open on 8th Avenue in Chelsea, Tar-Jay will debut a similar city store in Soho, a 27,000 SF unit on Broadway. The big “mass merchant from Minny” already has 17 stores open in the five boroughs with another 15 more planned over the next four years. And that number doesn’t include the large 130,000 square footer planned for adjacent Yonkers.
Also broadening its presence in the Metro New York market is CVS, not with conventional drug/food stores, but with its Hispanic-focused CVS Pharmacy y mas (and more) units. The country’s largest drug chain has begun converting a dozen stores in the region to its new model which features 1,500 Hispanic items and a staff that’s bilingual. The concept debuted in 2015 and CVS currently operates more than 200 such units in more than 90 cities in California, Florida, Texas, Nevada, Oklahoma and Puerto Rico. The CVS y mas stores locally will be located in Fairview, NJ; North Plainfield, NJ; Trenton, NJ; North Bergen, NJ; Newark, NJ; Union City, NJ (two locations- Bergenline Avenue and Summit Avenue); Central Islip, NY; Bronx, NY (two locations – Allerton Avenue and Westchester Avenue); Jackson Heights, NY; Ridgewood, NY.
We have a few obits to report. The great spy novelist John le Carre has left us at the age of 89. Drawing from his experience with British espionage agencies MI5 and MI6, le Carre wrote gripping, complex novels about the world of spying. All told, he published more than two dozen books in a career that spanned six decades, the most famous of which were “Tinker Tailor Soldier Spy” (1974) and the great “The Spy Who Came In From The Cold” (1963). His literary admirers included fellow novelists Philip Roth, Anthony Burgess and Graham Greene, the latter, who called him “the most significant novelist of the second half of the 20th century in Britain.”
One of the toughest and most decorated military leaders of the past 60 years, Chuck Yeager, has also passed on. Yeager, 97, was a World War II fighter ace and an Air Force general best known for being the first pilot to break the sound barrier in 1947. On that memorable day, Yeager flew his experimental Bell aircraft F-1 over the Mojave Desert in California. When he reached 43,000 feet, history’s first sonic boom was recorded when he topped a speed of 700 miles per hour. Tom Wolfe’s 1979 book “The Right Stuff” about Yeager, followed by an excellent film of the same name four years later (Sam Shephard portrayed the ornery West Virginian) which only elevated Yeager’s fabled status.
Charley Pride, the great country music singer, is also gone at the age of 86, a victim of COVID-19 related complications. Pride was literally the Jackie Robinson of country music, a Black musician working countless gigs on the “Chitlin’ Circuit” of clubs in the Jim Crow south in the late 50s and early 60s. In the late 1960s, Pride finally broke through, launching a recording career that would produce 52 hits in the country top 10 over a 21-year period – 29 of those songs reached number one on the country chart. There’s no doubt that Pride’s great dignity and appreciation of his audiences helped his career, but his voice, a melodic, rich baritone, set him apart from many other country artists. Pride was the son of a Mississippi sharecropper who played semi-pro baseball before entering the music business.
And, I’m sad to report the death of a professional baseball player who also fought discrimination throughout his career. Dick Allen, the way, way underrated seven-time All-Star baseball player who began his career with the Phillies in 1964 (56 years later, that’s still a bad season to talk to Phillies fans about). Allen, who grew up in Wampum, PA, was one of the most feared hitters in the game who unfortunately was subjected to some of the most maligned and denigrating treatment from racially antagonistic fans and several teammates who were also flat-out racists. Despite his inability to curry favor with Philly fans or media, Allen put up some prodigious numbers for the Phillies in his first six years with the team, including winning the National League Rookie of the Year award (Ironically, in 1975 when he returned to the Phillies for a second stint, he was treated warmly by the fans). In 1972, while playing for the White Sox, Allen was named American League MVP and in a career that lasted 15 years, he batted .292 with 351 home runs and 1,119 RBI. Allen, who I watched play many times, was also among the strongest MLB players ever. At only 5’11’ inches and weighing about 185 pounds he used a “Ruthian” 40-ounce bat (most big league players’ bats weigh between 32 and 34 ounces), to swat many tape-measure homers including one I personally witnessed at Shea Stadium against the Mets in 1968. During that game, facing arguably the best pitcher of his era – Nolan Ryan – Allen hit two “taters” off the 21-year-old Ryan including one that went off the light tower in left-center field. And this was long before the era of “juiced” balls and players jacked up on steroids. As it turned out, Allen was indeed a good guy, admired by his teammates and one who definitely merits a plaque in Cooperstown.
Finally, as 2020 comes to an end, I want to wish all our readers and advertisers a happy holiday season. Frankly, it’s been a helluva year – one that most of us want to move on from. But not before recognition is given to the thousands of people who work in our industry. Your courage and strength haven’t gone unnoticed and all of you should be proud of your remarkable contributions achieved during the most challenging of circumstances. Better times are coming soon – in the meantime stay healthy and safe!