Food Trade News

Key Food Stores Co-op, the Matawan, NJ-based independent retailer co-operative, announced that it has signed a new 10-year supply agreement with UNFI to service its 318 stores, most of which are located in the metro New York market.

The estimated $10 billion deal becomes effective in late 2021 following the expiration of Key’s current contract with C&S Wholesale Grocers, and the opening of a new UNFI distribution center in Allentown, PA.

The switch in wholesalers surprised few in the trade, especially since Key Food CEO Dean Janeway and COO George Knobloch openly implored C&S to improve their level of service to the co-op’s member stores at Key’s 2019 vendor meeting which was attended by more than 700 suppliers, brokers and distributors.

“We certainly appreciate the efforts of C&S,” said Janeway, whose company’s stores have been supplied by the Keene, NH-based distributor for the past 20 years. “However, as we’ve publicly stated before, having our stores serviced from three separate distribution centers was not an efficient system for our members. With UNFI’s commitment to building a brand new facility, all segments of our business will become housed under one roof and provide great efficiency to our members. Additionally, I feel strongly that moving to UNFI will benefit our Florida members (UNFI has DCs in Ocala, Pompano Beach and Quincy, FL – all part of the 2018 Supervalu acquisition) where we will gain more flexibility in a market that we have targeted for growth.”

The new 1.3 million square foot UNFI distribution center in Allentown (Lehigh County) is currently under construction and is expected to open in the fall of 2021. It will serve UNFI’s existing and new customers in the greater Northeast and surrounding areas, including Key Food. UNFI also anticipates the new distribution center will create more than 500 local jobs. UNFI’s primary DC serving clients in the metro New York, Delaware Valley and Central PA areas is based in Harrisburg, PA.

In its role as primary grocery wholesaler, UNFI will supply Key Food stores with conventional, natural and organic grocery products, along with a wide variety of international items. All categories such as protein, produce, frozen bakery, deli, general merchandise/health and beauty, as well as Key Food’s Urban Meadow private brand and UNFI-owned brands such as Essential Everyday and Woodstock, will also be supplied.

“Key Food, whose members operate more than 315 stores, is a rapidly growing organization with a large market share in the New York market,” said UNFI’s chairman and CEO Steven Spinner. “We have recently begun to service their Florida stores and are excited to expand service to their Northeast stores toward the end of 2021. We believe our unmatched product variety and knowledge of today’s consumer will benefit Key Food and its retailers, and we look forward to driving value to their operations.”

Founded in Brooklyn in 1937, Key Food Stores are operated under multiple banner names that include Key Food, The Food Emporium, Food Universe, Food Dynasty, SuperFresh, and Gala Foods Supermarkets.

Fueled by increased sales experienced during the COVID-19 pandemic, Providence, RI-based UNFI capped what chief executive Steve Spinner said was a “monumental” year by posting a net profit increase of 173 percent to $52 million for the period ended August 1, a 207.1 percent increase on a comparable basis. For the full fiscal year, UNFI posted record sales of $26.5 billion, an 18.9 percent gain over fiscal 2019.

“Our financial results in the fourth quarter and for the year produced record sales and adjusted EBITDA, driven initially by the strength of our innovation work and consumer demand driven by COVID, as well as UNFI’s execution success,” Spinner told financial analysts at the company’s conference call on September 29. “Fiscal 2020 was a monumental year for UNFI as the demonstrated flexibility and strength of our supply chain network led to full year results that exceeded our expectations. At the same time, we’re focused on keeping our associates safe and maintaining the food supply chain for communities across North America through the unprecedented events of 2020, including the pandemic, civil unrest, and natural disasters. We’re continuing to execute with passion and purpose on our strategy and expect further growth in fiscal 2021.”

A day earlier, the veteran distribution executive said he would be retiring from the company he has led since 2008 after the conclusion of the term of his employment agreement on July 31, 2021, or earlier upon the appointment of a successor. Spinner has agreed to remain on the board to serve as executive chairman following his retirement as CEO. UNFI said that its board has already initiated a search to identify UNFI’s next chief executive and, consistent with good governance practices, has engaged a leading executive search firm to assist in the process. The CEO search will include both internal and external candidates.

Commenting about his upcoming retirement, Spinner, 60, said: “It has been my honor to lead UNFI over these past 12 years and a pleasure to have worked alongside our exceptional associates. We serve an important mission of delivering food to millions of people every single day. When reflecting on my tenure as CEO, I’m most proud of our people and our culture, where our shared beliefs drive everything we do. The future has never been stronger for UNFI as our integration work is nearing completion and we now look toward expansion of new services, technologies, brands and our vast supply chain network. In close collaboration with the board, I decided now is the right time for the company to transition to its next leader. As we enter the next chapter, I have great confidence in the strength of our team and the opportunities ahead and look forward to my continued service as executive chairman.”

Other key UNFI metrics in assessing fiscal 2020 include: a net loss of $274.1 million, compared with a net loss of $284.7 million in fiscal 2019 (a 53-week fiscal year); gross profit of $3.87 billion, compared with $3.2 billion in 2019; and adjusted EBITDA increase to $673 million, from $563 million a year ago.

UNFI also said it has paid $388 million of its long-term debt, now totaling $2.44 billion at the end of fiscal 2020.

In its 13-week Q4, the national wholesaler said sales from continuing operations in the fourth quarter of fiscal 2020 were $6.75 billion compared to $6.26 billion last year when excluding the additional week in fiscal 2019, which accounted for $475 million in net sales last year. Retail identical store sales at its Shoppers Food and Cub Food units for the fourth quarter of fiscal 2020 increased 21.0 percent compared to the fourth quarter of fiscal 2019.

Operating expenses in the fourth quarter of fiscal 2020 were $884.1 million, or 13.09 percent of net sales, compared to $894.3 million, or 13.29 percent of net sales in the fourth quarter of fiscal 2019. The decrease in operating expenses as a percent of net sales was driven by leveraging fixed operating and administrative expenses over higher revenues as well as the benefit of synergy and integration efforts, partially offset by $31 million, or 45 basis points of net sales, of incremental costs related to COVID-19.

Operating income in the fourth quarter of fiscal 2020 was $79.0 million and included $20.6 million of restructuring, acquisition, and integration related expenses and $16.3 million of loss on sale of assets. Operating income in the fourth quarter of fiscal 2019 was $95.7 million and included a benefit from a goodwill and asset impairment adjustment of $39.8 million and a gain on sale of assets, partially offset by restructuring, acquisition, and integration related expenses of $19.4 million.

During the analysts’ conference call, UNFI CFO John Howard detailed an earlier reported realignment of its sales channels. Having put the sales of retailer Cub Foods and Shoppers Food on temporary hold, UNFI has shifted those assets in continuing operations.

In the new structure, the company’s “chain” sales now include all retailers with 10 or more stores (excluding Whole Foods). Independent retailers are classified as having fewer than 10 stores. Its supernatural channel includes Whole Foods.

During the fourth quarter, “Chain” sales increased 21 percent to $10.7 billion for fiscal 2020 (when viewed on an annualized basis) and increased 6.9 percent in Q4. Revenue from “Independent Retailers” grew by 21 percent to $6.7 billion for 2020 (when viewed on an annualized basis) and increased 11.4 percent in Q4. In its “Supernatural” channel, sales jumped 7.4 percent to $4.7 billion for 2020 (when viewed on an annualized basis) and increased 3.6 percent in Q4.

UNFI president Christopher Testa said the “Chain” channel accounts for about 40 percent of UNFI’s sales and stated that three customers filed bankruptcy in the second quarter of fiscal 2020 (Earth Fare, Lucky’s and Fairway), which caused a negative 270 basis points impact.

Looking forward, UNFI said it expects 2021 sales to reach $27 billion to $27.8 billion with net income in the $154 million to $183 million range.

“While we expect continued demand and strong results in the back half of the fiscal year, it’s important to keep in mind that year-over-year comparisons will moderate as we lap the pantry building that occurred at the outset of COVID during March and April of 2020. And while we still expect elevated demand in the third quarter, sales in that quarter are expected to be lower than the third quarter of fiscal 2020 due to the unprecedented stock-up surge as COVID began to spread,” Howard noted.

Perhaps it was the announcement of Spinner’s pending retirement, perhaps it was concern about the company’s predicted growth flattening in the second half of fiscal 2021,or maybe it was lingering concern about UNFI’s still significant net loss, but shares of the company’s stock tumbled from $19.35 per share to $15.60 per share in the 48 hours after the company released its earnings and the announcement of Spinner’s pending departure.

Mercato, the San Diego-based e-commerce provider, has been selected by the City of New York to become the e-commerce marketplace that will connect underserved NYC communities to local grocery stores. Through this partnership, select stores in all five boroughs will begin offering their inventory online and via local delivery – capabilities that these stores weren’t previously equipped with.

“As a native New Yorker and the son of an independent grocer in Brooklyn, I am excited to work with the city to support these neighborhood grocers and to announce Mercato’s commitment to improving access to quality food for residents of areas that were impacted by the COVID crisis while also providing these local retailers with a new sales channel,” said Bobby Brannigan, CEO and founder of Mercato. “It’s really great to be able to support grocers who would not have otherwise had the resources to get on our platform if it weren’t for the support of City Hall and the NYCEDC (New York City Economic Development Corporation).”

Brannigan, whose father Bob Brannigan Sr. still owns the B&A Pork Store in Dyker Heights, founded Mercato in Brooklyn in 2015 and the company currently operates in 45 states nationwide. Mercato facilitates online ordering and delivery for more than 225 independent grocery and specialty food stores across New York City’s five boroughs. While Mercato has long been partnered with such independent grocers as Sahadi’s in Brooklyn, Patel Brothers in Queens and the various stores located in Chelsea Market, this partnership is designed to empower stores in more marginalized neighborhoods. All told, Mercato currently services approximately 350 retailers in the Northeast and Mid-Atlantic including independents carrying the Adam’s Hometown Markets, C-Town, IGA, Garden of Eden and City Fresh banners.

“Putting equity at the center of the city’s recovery means ensuring New Yorkers have access to quality food that is healthy and affordable,” said James Patchett, president and CEO of NYCEDC. “The partnership with Mercato gives seniors and other groups at a higher-risk for COVID-19 a safer means to access food. At the same time, independent grocery stores and participating vendors at our public markets, which are serving hard-hit communities, can grow their business by building their digital presence. This effort, which invests in both people and local businesses, will create a stronger New York for all.”

“Communities across New York City – and communities of color in particular – deserve access to fresh, healthy, and affordable food, and need it now more than ever,” said Anusha Venkataraman, co-chair of the taskforce subcommittee on food access and insecurity and NYC chief service officer. “I am proud of the taskforce’s work to expand and improve these important initiatives and support local businesses in the process. Moreover, these options will help expand choice, including to culturally appropriate foods, so that New Yorkers can choose which foods they want to eat and feed their families.”

The city’s arrangement with Mercato will allow customers to order from several stores at once within each neighborhood, replicating the experience of shopping in person from store to store. The pilot program, which is now under way, includes independent grocery stores located in neighborhoods, identified by the mayor’s taskforce on racial inclusion and equity, across the city including Harlem (Manhattan), Mott Haven (the Bronx), Brownsville (Brooklyn), Hollis (Queens), Richmond Hill, Stapleton (Staten Island) and others. A number of participating stores are members of both the NYCEDC FRESH (Food Retail Expansion to Support Health) program and its public markets network. The City of New York is waiving the set-up fee for these stores, typically valued at $1,500, to get them up and running faster and more cost-effectively.

Built upon a mission of supporting independent stores, Mercato has been actively onboarding grocers during the COVID-19 crisis. The company, which equips stores with clean and seamless online ordering and delivery functionality, is committed to onboarding independent grocers in areas that need improved access to food.

According to Mercato, once retailers join its platform, these newly added independent grocers will benefit from the company’s ongoing consumer marketing campaigns which include digital advertising, email and more. The average Mercato store sees a 100 percent increase in online sales within a few months of launch, the company stated.

ESM Ferolie announced on September 1 the integration of LBM Sales, LLC into its sales and marketing agency.

LBM Sales, LLC was founded in 1972 to represent confection, snack, beverage and grocery manufacturers to supermarkets, convenience stores, drug stores and distributors in the Upstate New York Market. Kevin Weiner and Paul Weiler have led LBM’s ownership team since 2004.

“Kevin and Paul have an immense amount of industry, agency and leadership experience, working with prominent branded and private label consumer products clients. We’re greatly looking forward to having them on our team,” said Tony Ferolie, president and CEO of ESM Ferolie.In their new roles, Weiner and Weiler will be responsible for sales and marketing strategies as well as providing growth plans for confection, snack and beverage clients in the market. They will also assist Tony Lubrano, EVP of confection, GM and HBC as he continues to build the agency’s corporate portfolio in these categories.

“I’m thrilled to be joining the ESM Ferolie team and am more than ready to utilize my skillset at a company that is at the forefront of regional excellence in our industry,” said Weiner.

“Coming together with ESM Ferolie will allow us to focus on clients and customers while business insights, merchandising and strategic development is handled by a team of seasoned veterans with a very clear vision of how to develop winning solutions for our clients and customers,” said Weiler.

As we do each year, Food Trade News asked some local retailers to discuss the way they address Hispanic Heritage Month in their stores. This year we are focusing on the impact of COVID-19 on these retailers’ operations. Our panelists are Jim Bottino, president of Bottino’s ShopRites, and Ivan Bueno, director of marketing for Marketplace of Bushwick, a Key Food member.

Our questions:

1. How has COVID-19 impacted the availability of products for your store, especially Hispanic and Latino products? Have you had to utilize different suppliers to get the products you need? Will this impact your normal Hispanic Heritage month offerings?
2. How have you adapted your stores, and/or product offerings, during the crisis to address the needs of your customers and workers?
3. How do you communicate with your customers about the situation the pandemic has caused – i.e., product shortages, price increases, safety procedures and protocols?
4. Have you seen changes in your online ordering and home delivery service during the past few months? Please explain.

Jim Bottino- Bottino’s ShopRites

1. As was typical with many of our product categories, COVID-19 had an impact on the availability of our Hispanic offerings, especially at the start of the pandemic earlier this year. As a result of the crisis, consumer demand across this category has increased and demand for some products has more than doubled. We are continually working with our vendors and sourcing new suppliers to best meet the needs of our consumers and intend to preserve our Hispanic Heritage month program as it is important to many of those who shop in our stores. All of our work over the last six months has helped prepare us for the future. There have been numerous changes to how we operate and how people shop, but our goal is always to provide the best possible shopping experience for our customers.
2. When the pandemic began earlier this year, we worked quickly to adapt and make changes during an unprecedented moment for retail. We hired more staff, expanded our warehouse capabilities, implemented many safety measures across all our stores and worked closely with suppliers to keep our stores stocked. We experienced increased demand across many product categories during the height of the pandemic, when people were staying home and cooking more at home. Items such as paper and cleaning supplies, fresh meat, and poultry were in great demand and we worked closely with our partners to make sure we had those products and became as innovative as possible. For example, we were able to purchase meat from our suppliers that was originally packaged for restaurant use. Our skilled ShopRite butchers were then able to cut and package that meat for retail sale at our stores. We also put temporary limits on some products to make sure all our shoppers could get what they needed. Today the supply chain has adapted and the pressure on categories for these critical supplies has eased greatly and there are very few limits left on product. All of our work and planning over the last six months has helped prepare us for the future, and we continue to be hyper-focused on safety, sanitation and social distancing measures in our stores.

3. We pride ourselves on our transparency efforts and have used all our platforms to communicate with our shoppers including our website, digital, social media, and both traditional and online advertising and marketing.
4. The consumer is definitely relying more on online offerings and our digital platforms such as ShopRite From Home to get the items they need. We have seen a dramatic increase in the use of these services especially when most businesses were closed and stay-at-home orders in place. Demand remains high and we continue to work on new and innovative ways to build capacity.

Ivan Bueno – Marketplace of Bushwick

1. COVID-19 has affected the whole food industry in regards to supply. We experienced a lot of shortages initially when the pandemic first struck, but our stock has been pretty consistent now. Similarly, our Hispanic and Latino suppliers were struggling with supply issues in the beginning of this outbreak, but have also been able to rebound with a steady supply of product. The shortages that we encountered forced us to look for alternate supply sources, which were very helpful for us in keeping product on our shelves. We have kept several of them engaged with our business.
2. Any adaption that we had mostly came in the form of product quantity limitations. Even when we were able to keep a good amount of inventory on hand, we still enforced a purchase limit on certain items, (toilet paper, paper goods, etc.) to ensure all of our customers had an opportunity to get what they needed.
3. We are more like a Pom & Pop store than a conventional large supermarket. Nonetheless, we have been in business for 20 years and our customers understood what the pandemic was and were very patient and understanding with us. They were able to see us constantly cleaning and sanitizing all areas of our store. We utilized store signage and floor decals to help educate and inform our shoppers while they were in the store. We would explain to our customers about product shortages, and would steer them to alternate choices and substitutions for some of their regular and favorite brands. We were fortunate that being a “neighborhood store,” everyone understood what was happening and it actually afforded us the opportunity to become even closer with our community.
4. As a small neighborhood store, we do not offer online ordering. However, we noticed an unusual result of the pandemic. We have seen and gained more new customers than ever before. Being in a densely populated urban area, the majority of our customers all come from foot traffic in our local area. We found that our regular customers wanted to come into the store, especially to see what products were available and be able to bring them back to their homes. But additionally, there have been a significant amount of new faces coming in and returning to our store for repeat shopping trips which we believe will translate into long term customers.