UNFI moves to further automate distribution centers with robots

Using an end-to-end software and artificial intelligence system, United Natural Foods Inc. will improve efficiency, accuracy, quality and supply chain speed at its distribution centers.

UNFI will add artificial-intelligence-powered robots to five or more distribution centers over the next four years through a partnership with Symbotic Inc. The program also will increase storage capacity within its facilities to facilitate planned future growth. UNFI currently has 56 distribution centers in the United States and Canada.

“We look forward to working with the company to help streamline and improve operations across strategic assets within our distribution network,” CEO Sandy Douglas said during the company's FY2022 earnings call last month. “We believe this will help us better serve our customers and enhance our long-term profitability.”

Providence, Rhode Island-based company is also expanding its retail footprint as it reacquires three former Shoppers Food Warehouse stores that had previously been sold, and remodeling two existing locations. Two of the new Shoppers stores have already opened while the third will open in November. All three are located in Maryland.

UNFI acquired approximately 3,000 retail stores when it purchased rival distributor Supervalu in 2018. While it divested most of them, it kept Cub Foods and Shoppers—located in Minnesota and the mid-Atlantic region, respectively—in part because of the COVID-19 pandemic.

Related:UNFI moves forward with Fuel the Future strategic plan

Fiscal year 2022 results

Acknowledging a challenging backdrop, Douglas said the grocery distributor “broadly exceeded its prior outlook expectations” and remains focused on driving operational improvement to optimize the value of its “scaled and diversified” platform.

“Our fourth quarter capped a year of improving operational performance driving strong financial results,” Douglas said. “Our commitment to delivering higher customer service levels amidst significant industry and economic uncertainty helped us achieve market share gains. We also generated meaningful growth across our key financial metrics, including mid-teens adjusted earnings growth, while we reduced net leverage to under 2.6x and increased liquidity to approximately $1.7 billion.”

With food-at-home inflation remaining in the double digits, consumers are buying fewer items. There’s continued pressure on fill rates—the percentage of customer demand that can be fulfilled without running out of inventory, Douglas said, as labor market tightness persists. 

As consumer preferences continue to evolve and macroeconomic change, UNFI is focusing via its “Fuel the Future” strategy on diversifying to “bring ever greater value to our customers and suppliers,” Douglas said. 

For the year, growth in the supernatural channel, which is entirely sales to Whole Foods Market, increased 13.2% to $5.7 billion, UNFI reported. Sales also increased across all channels:

Cross-selling, which Douglas said has more than doubled since 2020 and contributed over $1 billion of sales in fiscal 2022, will continue to play a major role as it develops a world-class sales force. Much will be financed by “streamlining and redeploying funds from lower return uses within our existing expense base” Douglas said, allowing UNFI to preserve and expand its margins while making these “elevated investments.” 

UNFI is also prioritizing its services platform, which includes its professional services, own brands and innovation, which now contribute to over 22% of UNFI’s adjusted EBITDA before corporate allocations. In July, UNFI announced it created a new internal organization solely focused on growing this platform.

UNFI reduced its net debt by $174 million and lowered leverage by 0.4x in fiscal 2022, the company reported, with these additional highlights:

For the fourth quarter, which ended July 30, the company highlighted these results from the fourth quarter:

UNFI finished the fourth quarter in fiscal 2022 with an adjusted EBITDA margin moderated slightly (2.93% margin, compared to a 3.06% margin in fiscal year 2021) mostly due to higher distribution center costs. Its adjusted EPS growth of 1.6% in Q4 was primarily driven by adjusted EBITDA growth coupled with lower net interest expense, primarily off-set by lower non-cash pension income and higher taxes.

Future outlook

“Despite the challenging operating environment that persists,” UNFI Chief Financial Officer John Howard said the company expects fiscal 2023 net sales to grow around 4% or approximately $1.2 billion at the midpoint of our outlook to around $30.1 billion.

“Our strong finish to 2022, operational momentum, investment initiatives and improved balance sheet set us up well to deliver another year of growth across our key financial metrics,” Howard said.

UNFI expects growth drivers to include the addition of new business from customers added in fiscal 2022. “We've yet to cycle the continued growth of selling more products to existing customers, new customer wins and strong growth within our services platform,” Howard said.

UNFI also expects a “modest contraction in overall industry volumes” related to changes in consumer behavior based on “broad based challenges” of elevated inflation but expects year fiscal 2023 adjusted EBITDA for the fiscal year 2023 to rise over 4% at the midpoint to around $865 million based on better selling, general and administrative expenses (SG&A) investments.

As part of its 2023 plan, UNFI will prioritize internal investments to accelerate growth and efficiency, which includes approximately $350 million in capital expenditures. In September, the company’s Board of Directors approved the purchase of up to $200 million of its shares over the next four years.