For a company whose earnings have been below sea level for the past 30 months, UNFI has taken two brutal hits over the past 30 days. On June 5, the Providence-based wholesaler was hit with a massive cyberattack, which semi-paralyzed the wholesaler, incensing many UNFI independent retailers who are serviced by the distributor.
A few days later, in an SEC filing, the company disclosed it was mutually terminating its supply agreement with Matawan, NJ-retail co-op Key Food on or about September 20.
C&S Wholesale Grocers then will once again service approximately 375 independent retailers who are a part of the Key Food co-op, most of whom operate stores in the five boroughs of New York City. Additionally, UNFI will discontinue operations at its Allentown, PA distribution center which it built specifically for Key Food in 2021. C&S was Key Food’s main distributor for many years prior to the change to UNFI. Also, as part of the breakup is a $53 million termination fee which UNFI will pay to Key Food, expected to be made in installment payments over a transition period ending in the first quarter of fiscal 2026.
UNFI said that the after the cyberattack was discovered, the company “promptly activated its incident response plan and implemented containment measures, including proactively taking certain systems offline, which has temporarily impacted the company’s ability to fulfill and distribute customer orders. The incident has caused, and is expected to continue to cause, temporary disruptions to the company’s business operations. The company is working actively to assess, mitigate, and remediate the incident with the assistance of third-party cybersecurity professionals and has notified law enforcement. Pursuant to its business continuity plans, the company has implemented workarounds for certain operations in order to continue servicing its customers where possible. The company is continuing to work to restore its systems to safely bring them back online. The investigation to assess the impact and scope of the incident remains ongoing and is in its early stages.”
However, several of UNFI’s Mid-Atlantic customers weren’t empathetic about how UNFI has handled the situation once the cyberattack was discovered.
“Absolutely awful,” said one regional Pennsylvania-based retail owner when he was contacted on June 10. “Cyberattacks are very random and very unfortunate, but a publicly-traded company that relies on service should have been better prepared. We were told it could be more than a week before full deliveries are restored. That’s totally unacceptable, but what’s almost as bad is the lack of communication from leadership. Their silence is deafening.”
A day later, CEO “Sandy” Douglas sent a video to UNFI’s retailers updating the situation. The update did not provide a solution.
In his video, Douglas said that he was “optimistically aiming to return to a state that resembles our previous operational capacity by Sunday June 15.” According to a survey of six Mid-Atlantic UNFI independent customers that didn’t occur. In fact, those retailers told us that service level normalcy wasn’t achieved until June 23, 17 days after UNFI first moved its systems offline.
The move also impacted UNFI’s largest customer – Whole Food Markets – whose 525 stores nationally also experienced similar levels of out-of-stocks.
Independent retailers have voiced their frustration about UNFI in the past two years over the outsourcing of certain administrative services, the thinning of its retail customer service and its inability to offer independent merchants a more competitive private label program.
As for the impending Key Food departure, here’s the statement in UNFI’s 8-K filing: “In May 2025, United Natural Foods, Inc. and Key Food Stores Co-Operative, Inc. mutually agreed to terminate the Amended and Restated Northeast Supply Agreement, dated June 3, 2021, as further amended pursuant to which the company served as the primary grocery wholesaler to Key Food locations in the Northeast. The agreement will terminate on or around September 20, 2025, and Key Food’s conventional products business in the Northeast will transition to another wholesaler. The company believes this is a positive outcome for both parties. The agreement allows the company to exit an unprofitable relationship and further strengthens the company’s progress toward its longer-term strategic and three-year financial objectives. In conjunction with the termination, the company intends to discontinue operations at its Allentown, PA distribution center, consistent with efforts to optimize its distribution network and improve service to local customers and suppliers. Other customers currently serviced out of Allentown will be serviced from nearby facilities that the company believes can continue to service them efficiently and effectively.”
The relationship between UNFI and Key Food began with great optimism when it was announced in late 2020. Key Food would be receiving groceries from a new 1.3 million square foot dedicated warehouse which was specifically built by UNFI to serve the co-op’s independent customers. And UNFI would supply one of the largest retail groups in the country’s biggest market, a 10-year deal valued at $10 billion.
However, there was a bit of encouraging news for the beleaguered wholesaler. In its recently completed Q3 on May 3, UNFI saw its net sales increase 7.5 percent, most of it from its natural food portal (led by Whole Foods). Additionally, it’s adjusted EBITDA for Q3 was $157 million compared with $130 million in the corresponding period last year. However, although it reduced its loss from $21 million to $7 million in this period, the company continued to post bottom line red ink.
And due to the expected loss of revenue from the Key Food account and the closure of its Allentown DC, UNFI has lowered its full-year earnings outlook (extending into 2026) to between negative $55 million to negative $80 million.
Moreover, the distributor said that due to the ongoing assessment of the impact of the unauthorized activity on certain of its information technology systems, UNFI is not updating its outlook at this time for all other metrics in spite of its what it termed its underlying business momentum and third quarter performance.
