United Natural Foods, Inc., plans to continue aggressive investments in infrastructure for the next two years, after which it expects capital spending to level off to more normal levels, company executives told investors Wednesday during a conference call to discuss financial results for the fiscal year ended Aug. 2.
Capital expenditures in fiscal 2015 will fall within the range of $ 130 million to $ 140 million, or 1.6% to 1.7% of sales — to open three new distribution centers — compared with $ 147.3 million, or 2.2% of sales, in the fiscal year just ended, Mark E. Shamber, senior vice president and CFO, said.
The new facilities will be located in Hudson Valley, N.Y.; Prescott, Wis. (near Minneapolis); and Gilroy, Calif.
According to Steven L. Spinner, president and CEO of the Providence, R.I.-based natural foods distributor, “We’re building these buildings so we can be as close to the customer, with the most efficient distribution network, as anybody in the country. And with the [facilities] almost completed, we’re going to be in an enviable position of being able to win business, retain business and help our customers build their business in a really efficient manner.”
Fiscal 2015 and fiscal 2016 “are going to be our primary investment years,” he added, “and once we get into 2016 and 2017, we’ll be a much larger company and go back to more historical spending levels of less than 1% of revenue for cap-ex.”
With an increased number of distribution locations, UNFI believes it can get retailers who are buying direct to consider it as an outsource supplier Spinner said. “That’s certainly part of our hope, given our access to data, our in-store merchandising, our retail category management and the way in which we move product around the country,” he explained.
“Though the industry has gotten a lot bigger, it still relies very much on what a typical, conventional retailer would refer to as slow-moving product, and it’s very hard for them to make that work, [whereas] we’ve got a very efficient model for distributing these types of products.
“And there’s some historical data that would point to the fact we can have a great deal of success in convincing retailers we can handle those types of products more efficiently than they can.”
Asked for an example, Spinner said there might be a conventional retailer who carries 30 soups, of which three become faster-moving, “and that retailer might decide it’s cheaper to move those three SKU’s into its captive warehouse. But what the data points to is, because of the way they have to buy that product, they’re often out of stock, and whatever savings they have on the distribution side, they lose because they don’t have the product to sell to the consumers
“So even if they have to pay a little bit more by having us handle the distribution, they know their fill rate at the shelf could be 500, 600 or 700 basis points higher than if they’re trying to buy it direct, and I think the more sophisticated retailers have seen that and have gradually migrated those three soups, in this example, back to UNFI.”
In other remarks during the conference call:
• Spinner said UNFI is testing a program that allows customers to access real-time delivery information for their specific location. The company hopes eventually to roll out the program, called UNFI Arrive, nationwide, he noted.
• The company’s national systems for transportation management, procurement and warehouse management have been fully implemented in the west and are expected to be completely available in the east by the end of the second quarter of fiscal 2015, Spinner said. The procurement system boosted service levels by approximately 4% in the west while reducing overall inventory 4%, Spinner added.
• The company said sales to supernatural customers, representing 34% of total revenues, increased 10% during the fourth quarter; sales to supermarkets, representing 27% of the total, was up 23.4%; sales to independents, accounting for 33% of sales, rose 13.4%; and food service sales, representing 3% of the total, grew by 25.4%.