UNFI FY 2Q16 Earnings Call Notes

United Natural Foods’ (UNFI) CEO Steve Spinner on Q2 2016

Over indexed to natural channel, where growth has moderated

“we are caught in this uneasy position, temporary uneasy position where we are over-indexed in the natural channel or under-indexed in conventional. We’re unbelievably excited about getting into this new channel of gourmet and ethnic. There are many gourmet and ethnic or specialty chains that have never been a channel at all for UNFI, so this is brand new. And another way to think about that is, while growth has moderated in the natural channel because the products have been around for so long, when you think about the gourmet and ethnic channel, the fastest-growing category within those stores is natural and organic.”

Under indexed in mass and drug channels

“we are way under-indexed in mass and there are tremendous opportunities for UNFI in mass and drug that we are taking a serious look at that three or four years ago we would’ve never looked at. And so because our distribution system is so robust, there are incredible opportunities for UNFI from a logistics perspective, from a redistribution perspective, from satisfying other conventional mass and drug distribution requirements that we are pretty excited about.”

We’re in a bit of a lull in the natural channel, but optimistic we’ll come out of that

And I would also tell you that being somewhat of an optimist, we’re at a little bit of a lull, as you know, within our natural channel but I feel fairly optimistic that we will also come out of that. It may take a couple years, but we will come out of that, too.”

What UNFI will look like in a couple of years

“it’s highly unlikely that we will ever carry Coke and Pepsi and Fritos, that’s just not what we do, we do want to build out the customer store. And so when you think about what UNFI will look like in a couple of years, it’s certainly conventional produce, organic produce. It’s every natural protein known. It’s rack deli, food-service, prepared foods. It’s center store, it’s frozen, it’s dairy, it’s gourmet and ethnic, it’s specialty, et cetera, et cetera. So what we want to be in a position to do is to solve a customer’s needs across all or some of their store.”

In a squeeze between capacity and volume for the moment

“the challenge for us right now is we are just in that squeeze between having the capacity and not having enough volume to push through it. But I think our building out the store is not only appropriate, but it’s going to get us to where we need to be.”

Suppliers promote where they’re getting growth

“this is a gross generalization, but suppliers generally promote where they are getting the growth. And so when you take the growth out of the channel you see a significant reduction in the amount of promotional activity. Promotional activity is a significant source of margin from UNFI, so if the suppliers divert the promotional activity to other channels, we’re going to feel the pain.”

Using price to attract new business is a recipe for disaster

” look, we’re not going to use price to attract new business because that’s a recipe for disaster, but we are going to be competitive where we have to. ”