The following is excerpted from the question-and-answer section of the transcript.
(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)
Question: Bill Kirk - MKM Partners - Analyst
: So let's start with Sandy and then let's do some long-term, a little bit more philosophical questions. And Sandy, by way of background, when you
were running Coca-Cola North America, you integrated the independent bottler assets, optimized them, before ultimately refranchising. I guess
how would you compare that experience with the task ahead for optimizing UNFI's facilities and assets?
Question: Bill Kirk - MKM Partners - Analyst
: And there's been both a legacy SUPERVALU. And UNFI, there's been a robust history of M&A to fill out categories. And from your vantage point,
it's a new fresh set of eyes. Are there any more products or large category holes that you want to fill? Or how complete is your store offering at this
point?
Question: Bill Kirk - MKM Partners - Analyst
: Yes, so I mean, John, maybe this is for you. But there's been a lot of cash generation over the last two years. That balance sheet is rather rapidly
deleveraged. So assuming the right large assets are largely in place, maybe how do the cash priority shift now that the balance sheet is probably
close to where you want it?
Question: Bill Kirk - MKM Partners - Analyst
: Perfect. That's perfect. And maybe Chris, this is shifting a bit back toward what you're seeing in the current marketplace. But I guess obviously the
topic and why we are virtual is the increased case count related to Omicron. So I guess how has that impact the business maybe from two angles?
First, your ability and maybe your peers' ability to supply, just to keep things moving and running with labor. And second, how much has demand
shifted back at the channel's favor?
Question: Bill Kirk - MKM Partners - Analyst
: With some of that supply chain volatility, have the -- retailers are traditionally captive and owned their own distribution. Have they been leaning
on UNFI and third parties more because of their own supply-chain difficulties?
Question: Bill Kirk - MKM Partners - Analyst
: Okay. And then going back a little broader, and this would probably be for Sandy, but recently you've added more categories at your largest
customer. I think back in 2017 or 2018, a category was added. Some vitamins and supplements were added at that customer. So I guess how many
more categories can you add at that account? Not necessarily how many will you add, but how much more of the store could you do?
Question: Bill Kirk - MKM Partners - Analyst
: And that segue is where I wanted to go. You are growing via cross-selling but also new customers, right? In particular, in the Northeast. So maybe
a little update on how that's going with the new DC, obviously you have the anchor customer in there. But are you filling the space around that
anchor customer now? And then maybe broadly, who's an easier sell, a new customer or a cross-selling opportunity?
Question: Bill Kirk - MKM Partners - Analyst
: Yes, okay. Another long-term opportunity is on the efficiency side, so that's the winning business side. But on the efficiency side, and maybe this
is for John, because sometimes I have trouble articulating some of the math behind it. But I guess on efficiency, how many more regions will see
kind of the realignment of facilities like we saw in the Pacific Northwest? And what is the benefit math for those changes? Or maybe miles go up
but there's got to be a lot of things to offset that on the benefit side.
Question: Bill Kirk - MKM Partners - Analyst
: Has the calculus changed a little bit on that as -- that extra capacity probably came in very handy during all this volatility, right? So has the calculus
changed on what kind of capacity cushion you want to run with or should run with?
Question: Bill Kirk - MKM Partners - Analyst
: Another topic I wanted to hit, topic du jour, would be manufacturer promotional activity. So it's been a bit lighter than normal. But what about like
the other services you offer retailers? How do those fluctuate as channel demand changes?
Question: Bill Kirk - MKM Partners - Analyst
: Very good, okay. The other topic du jour is inflation. So I guess how do you expect inflation to progress in calendar 2022? And I guess if inflation
returns to more normal levels and promotional activity were to come back -- so right, inflation, more normal, promotional activity comes back,
what's that net impact in that scenario to say it's a gross profit?
Question: Bill Kirk - MKM Partners - Analyst
: Got it. And we're running close here. We have a couple of minutes, but maybe one for Sandy to bring it home. In that manufacturer, distributor,
retailer vertical, generally the highest margin sits at manufacturer. And then maybe second is retailer, then third is distributor. So the question
would be how does that verticals margin profile change over time? How do wholesalers like UNFI become a more valued tier? Maybe it's some of
the volatility that gets it. But how does that margin profile of the vertical on a relative basis kind of change over time?
Question: Bill Kirk - MKM Partners - Analyst
: I think that's perfect. I'm showing that we are up on time. So, Sandy, thank you. Chris, thank you. John and Bob, thank you, everybody at UNFI.
Appreciate everybody tuning in.
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