UNFI executes against its growth strategy, ramps up warehouse automation investment

By Mary Ellen Shoup contact

- Last updated on GMT

Photo Credit: UNFI
Photo Credit: UNFI

Related tags: UNFI, Supply chain, Inflation

Ending its fiscal year on a strong note, grocery wholesaler UNFI is ramping up investment in warehouse automation and robotics as part of its long-term growth plan to enhance efficiencies and long-term profitability for its customers.

The company posted $28.9bn in net sales in FY22 (the year ended July 30, 2022), an increase of 7.8% from FY21. Sales for Q4 2022 specifically grew 8% compared to Q4 2021 to $7.3bn driven primarily by inflation, with a volume decline of less than 1%.

The results "broadly exceeded"​ UNFI's expectations, said CEO Sandy Douglas on the company's Q4 and FY22 earnings call.

"We achieved these results despite a challenging industry backdrop. Food at home inflation remains in the double digits, driving consumers to buy fewer items, fill rates continue to be pressured and labor market tightness persists. Delivering these results in the face of such a complex environment is a testament to the agility of our team and the strategic value of our business​. 

"Our scale remains a significant competitive advantage."

UNFI currently distributes approximately 260,000 unique SKUs from roughly 12,000 suppliers to over 30,000 customer locations from its 56 strategically located distribution centers across the US and Canada.

"As we enter the second year of our Fuel the Future strategy, we remain focused on driving operational improvement to optimize the value of our scaled and diversified platform across to $140bn addressable market that we're pursuing in our core business. Notably, this market also continues to grow,"​ Douglas said. 

According to McKinsey research, US grocery sales are expected to grow at an average annual growth rate of 4% from 2021 to 2026 with independent grocers growing alongside the overall market. 

"For our customers and suppliers, we are creating a one-stop shop for procurement, distribution and services. This in turn will help us expand the opportunities we can offer to our associates as our business grows and evolves, while also enabling us to better support our communities and plan it through our ambitious ESG agenda,"​ he said. 

Automation investment

After ending FY2022 and entering FY23 in a strong position, UNFI said it would continue to improve its supply chain systems with a strong focus on implementing enhanced automation systems.

UNFI recently entered into an agreement with AI-powered robotics company Symbotic Inc. to implement the company's end-to-end robotics and software automation system at five of its US distribution centers over the next four years.

The implementation of Symbotic's systems will help take UNFI's automation capabilities to a new level by increasing storage capacity within its facilities, improving order accuracy, and fulfilling customer-specific orders more efficiently. 

"As our network plan meets the demand from the market, we'll be using automation to help propel our growth going forward on a geographic basis,"​ said Douglas.

"We believe this will help us better serve our customers and enhance our long-term profitability."

Looking ahead: 'It's an exciting time to be at UNFI'

As UNFI enters FY23, CFO John Howard said he sees several growth opportunities on the horizon including a $200m share repurchase authorization that the company will use over the next four years to fuel the business.

"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, despite the challenging operating environment that persists,"​ said Howard, adding that the company expects to grow net sales by 4% or approximately $1.2bn in FY23. 

"Some of the drivers of this growth 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. It's an exciting time to be at UNFI."

Inflation response

Asked about inflation, Howard said, "Full-year inflation is anticipated to be in the low to mid-single digits and we're again expecting modest contraction in overall industry volumes, which is related to changes in consumer behavior resulting from the broad-based challenges of elevated inflation."

In response to inflation, UNFI has created more value and promotional programs for its customers and will be developing more as the year goes on.

"Broadly speaking, we expect at some point for inflation to start to level off, and we expect suppliers then to want and need to drive margin through incremental sales,"​ added Douglas.

"But as the situation normalizes in the supply chain, the labor environment and inflation starts to recede, then we'll be dealing with a growth environment where there won't be an accelerating headwind on the value of products."

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