Graphic from UNFI investor presentation
United Natural Foods Inc. provided more details Sept. 20 about how it plans to recognize $175 million in cost synergies from its pending acquisition of Supervalu.
Steve Spinner, CEO and chairman of UNFI, described how the deal benefits UNFI in the company’s fourth-quarter earnings call.
“The retail world is shifting and changing, and there has to be consolidation, and my view is I wanted to be at the front end of it as opposed to the back end of it, number one,” Spinner said on the call. “Number two, scale is what drives the day in distribution. Scale drives the day. Having big distribution centers where you run a lot of volume through them gives us the ability to lower costs, be more efficient, (deliver) higher service to the customer, closer to the customer ... ”
The two companies have more than 60 leased or owned distribution centers between them, and there will be some consolidation in markets where both companies have a presence, Spinner said.
In other areas, the additional locations represent a major asset.
“We spend a lot of money in offsite storage,” Spinner said. “In other words, we don’t have the capacity in the DCs and so we’re forced to either store product in trailers that are really inefficient or we have to rent space at public warehouses and transport it back to our DCs on a daily basis — really inefficient, really expensive. So right out of the gate we’re going to get out of public storage wherever we can and we’re going to get out of the trailers wherever we can, and that’s a huge win.”
The additional capacity will also allow UNFI to provide additional services for customers looking for them, whereas before the company was constrained by its capacity.
“With the addition of the new DCs, we no longer have that issue,” Spinner said.
UNFI plans to recognize 25% of its projected cost synergies in the first year, 65% in the second year and 95% in the third year, according to the company’s investor presentation.