Taking Stock

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Six Months Later, Retailers Upset By UNFI’s Poor Execution, Communication 

“It gets late early here” – Yogi Berra

Six months is usually not a long time when measuring a business cycle, but in the case of United Natural Foods, Inc. (UNFI), that span seems like an eternity, especially to many of the wholesaler’s independent retailers and its own associates who have witnessed what one independent retail customer called a “meltdown” in the period following UNFI’s acquisition of  Supervalu for $2.9 billion last October.

Some of challenges are obvious: poor earnings results; a share price that has plummeted from $45.14 per share on July 24 (the day before the Supervalu acquisition was announced) to its current trading price of $13.32 per share; its $4 billion debt load (most of which it inherited from SVU); and a major executional breakdown at its new Harrisburg, PA DC when it opened in October that created low service levels throughout the holiday season adversely impacting many retailer’s sales during their most important operating period.

And when measuring the intangible parts of its newly blended business, the situation is equally as bad, perhaps worse. We talked to about a half dozen independent retailers who are UNFI Eastern region customers and who are serviced from two UNFI warehouses in (problematic) Harrisburg and in Mechanicsville, VA.

All were highly critical of the way UNFI has handled the transition. All were also skeptical as to whether UNFI can successfully convert from a NOSE (Natural/Organic/Specialty/Ethnic) distributor to a full-service wholesaler.

“We saw problems with the way they integrated Haddon House,” said one retailer who wasn’t surprised that the Providence, RI-based distributor was having difficulty transitioning into a full-service wholesaler. “Within six months, UNFI pretty much abandoned the customer service mantra that had been Haddon House’s calling card and customers started leaving. Now that they’re playing in the big leagues, it’s actually worse. Communications are almost non-existent, and we’re forced to deal with former Supervalu employees who don’t even know if they’ll have a job by the end of the year. The deal was announced in July and we’ve still yet to meet with any of UNFI’s senior management.”

Another multiple store owner stated: “We’re hugely frustrated by the lack of communications from UNFI. To think that it’s been nearly nine months since the deal was first announced and almost six months since it was consummated and no one from UNFI legacy leadership has bothered to put together a town hall meeting with all customers. Even if those initial meetings were just with UNFI’s larger customers, it’s vital to understand where the company is going and how they will address important issues such as cost of goods. At this point, what we’ve experienced is increased fees which have cost us tens of thousands of dollars. I’m also concerned from what I’ve read – which is all I can go by at this point – which is that UNFI wants to offer more ‘better for you’ products. That’s fine, but what about its many independent customers who operate inner city stores or supermarkets in economically challenged areas? The fact is that those customers still drink soda, eat sugared cereals and other processed foods – they need to pay attention to those items as well. One of our long-standing criticisms of Supervalu was that they hadn’t been very good at serving the perimeter of the store. Several of their current customers don’t buy an industry proportional amount of meat or produce from them for that reason. What we’ve also witnessed in the past six months is an unacceptable increase in out-of-stocks and no direction regarding private label strategy. I can attest that several of our competitors including ShopRite, Aldi and Giant have retails lower than our wholesale cost. This isn’t a good way to start a relationship that was going to be complex from the outset. I know that some of our SVU peers have reviewed our supply agreements to understand when we can become free agents.”

And one more comment from another multiple-store owner: “I think these guys are in way over their skis. Are Steve Spinner (UNFI CEO), Sean Griffin (Supervalu CEO) and Chris Testa (UNFI president) hiding from us? I thought our relationship with Supervalu had improved tremendously over the past five years because of the skills of (past CEOs) Sam Duncan and Mark Gross. Those men understood our needs and challenges and were excellent listeners. Now I feel like we’re back in the dark days of the Jeff Noddle and Craig Herkert era. Show me some leadership.”

Beyond its issues with earnings, stock price, service levels and criticisms from their own independent customers, UNFI has created another mess with the sale process of its Shoppers Food & Pharmacy stores. UNFI was candid from the outset – they would be divesting themselves of all corporately-owned retail.

The process to sell Shoppers started months before the UNFI/Supervalu deal was announced. Several retailers told us that final bids were due last November, but to this point, except for a handful of stores that have been sold (others have been closed), the process lingers. During UNFI’s recent second quarter conference call (it posted a $341 million loss), Spinner said he was confident that the sale will be completed in the coming months.

Coming months? Seriously, why is the process taking so long? It’s unfair to the thousands of associates who still work for Shoppers, who have been told nothing directly about their future.

It’s gotten to the point where Mark Federici, president of UFCW Local 400, which represents Shoppers’ clerks and meatcutters in the Washington market (and is the largest UFCW Local in the country), has threatened action against UNFI if they aren’t more forthcoming about the status of the retailer’s employees.

“Our members have been the backbone of Shoppers’ stores far longer than UNFI has had an interest in those stores and they deserve more respect than UNFI has shown in this process,” Federici wrote in a letter to Spinner. “They deserve to know what the future holds.”

And to his members, Federici penned this: “In the coming weeks, we expect UNFI to provide us with the information we have requested. If they do not, we will take appropriate action, including actions we will be asking you to participate in, both in your stores and in the communities you serve.”

I believe it was the great educator and civil rights leader Benjamin Mays who said, “Honest communication is built on truth and integrity and upon the respect of one for the other.”

For UNFI, it’s time to step up to the plate or it will be getting later much earlier than they think.