United Natural Foods, Inc.

Q3 2021 Earnings Conference Call


spk_0: ladies and gentlemen thank you for standing by and welcome to the u n f i have fiscal twenty twenty one third quarter earnings conference call at this time all participants are gonna listen only mode after the speakers presentation they'll be a question answer session task a question during the session you'll need to press star one on your telephone if you require and he further assistance please press start zero and i like to hand the conference over can mr stephen bloomquist vice president and best relation to please go ahead
spk_1: good morning everyone in thank you for joining us a new a five third quarter of fiscal twenty twenty one earnings conference call by now you should have received a copy of the earnings release issued this morning the press release webcast and a supplemental slide deck are available under the investor section of the company's website at www dot u and fi dot com on the events tab joining me for today's call or steve spinner are chairman and chief executive officer john howard our chief financial officer chris testa president of unify and eric dorn our chief operating officer steve christened john will provide a business update after which will take your questions before we begin i like to remind everyone the comments made by management during today's call need to gain forward looking statements these forward looking statements include plans expectations estimates and projections that might involve significant risks and uncertainties these risks are disgusting the company's earnings release and sep file an actual results may differ materially from the results discussed nice for looking statements and last i'd like to point out the during today's call management will refer to certain nine get financial measures definition than reconciliations to the most comparable get financial measures are included in our press release i now turn the call over to steve
spk_2: thanks steve
spk_1: good morning everyone and thank you for joining us on our fiscal twenty twenty one third quarter earnings call as you saw in this morning press release we delivered another quarter of outstanding financial results third quarter sales were over six point six two billion dollars third quarter adjusted ebitda was a hundred and seventy nine million dollars and third quarter adjusted eg ass was ninety four cents
spk_3: all were in inline with our internal expectations and keep us on try to deliver our full year for school twenty twenty one guidance and record even die year following twenty twenty which was positively influence by the onset of it nineteen we also reduced our outstanding net debt by sixty two million dollars in the court
spk_1: from a year over year basis you'll recall that last spring was truly an unprecedented time in the food industry and we indicated on our last call we would not positively cycle last year third quarter in which our customers benefited tremendously from the stock up buying that took place as the kobe pandemic began to spread
spk_3: but we're very pleased with are strong performance this quarter which maintains the momentum building across our business
spk_1: first and foremost our team delivered or twenty eight thousand and associates across the us and canada adjusted learned grew and executed for our customers
spk_3: we care deeply about our role in ensuring their food continues to move and our results demonstrate a just that
spk_1: this quarter's result again validate the work we are doing to both make our customers stronger and to drive shareholder value
spk_3: we know it all begins with the simple yet powerful idea of what you want if i can do to make our customers more successful
spk_1: our data analytics and cross selling capabilities position our customers to quickly pivot to sell more of what today's consumer wants
spk_3: our private brands help them off or desirable differentiated products to their shoppers at great prices
spk_1: our services lower their expense structure and makes running their business easier and or innovation is continually looking forward and a asking the critical questions of what's next followed by what will unify do to bring it to our customers in the easiest possible way one of the larger industry dynamics is the return of cause inflation which up until now has been relatively benign as many of you know you and if i had historically benefited from inflation be found the structure of our business model in addition we expect a tailwind from the return of cpg promotional dollars which over the past twelve months have been considerably lower than historical levels during that time frame large manufacturers have been able to sell their products without the need for regular promotions which has begun to reverse that suppliers more aggressively promote their products to consumers with more choices as overall product availability improves another important topic has been a challenges around hiring and we gaining associates one of our most important core beliefs has always been to do the right thing which includes continuously and pro actively looking for ways to keep you want to fly as an employer of choice this includes looking at ways to create better work life balance our commitment to diversity and inclusion and are relentless focus on safety with june being national safety month we are launching a new framework and rally cry for workplace safety that will drive safe the culture even further the movers closer to our ultimate goal of zero injuries
spk_3: we will be flexible
spk_1: we will compensate our team fairly and we will be creative and pro active as our workforce initiatives continue to evolve we'll have more to say about these topics in two weeks as part of our industry day in addition were always making sure or compensation levels are competitive and to that and we've adjusted wage scales in many of our markets over the past twelve months which has lead to greater stability in our workforce we're seeing improve productivity and decreased over time offsetting these wage increases which has allowed us to maintain a consistent operating expense rates in addition we continuously been investing in automation to improve through point and order accuracy walk easing the local challenges around available workforce over the past twelve months and through the balance of the year will continue to make meaningful investments in too soon to be three automated facilities and will continue to look for further opportunities to use technology or the business case makes sense will provide additional color around are updated growth strategy and longer term financial outlook in a couple of weeks at our june twenty fourth investor day as you read in the press release the event will be virtual and include a q and a session following commentary for many of our leaders were hoping you can join us fiscal twenty twenty was a record year for unify in terms of sales and adjusted ebitda and fiscal twenty twenty one is expected to be even stronger we believe the factors i just spoke to as well as the on boarding of key foods northeast stores and the pipeline business chris will address will contribute to fiscal twenty twenty two being another record here let me now turn to call over to chris to provide more context on our business performance chris thanks thieving good morning everyone on trade call i'll provide additional color on our fiscal two thousand and twenty one third quarter performance and discuss some of the key trends were currently seeing and our business as you saw in this morning's press release total sales for the quarter or six point six billion dollars as expected this was below last year's record setting third quarter finishing five point nine percent down but at six point seven percent on a two year stack basis we calculators by adding the year over year growth rate to the prior year over year growth rate and a leader to be an appropriate way to view sales this quarter given the unprecedented activity in last year's third quarter
spk_0: for additional perspective nielsen syndicated retail sales declined five point three percent for our fiscal third quarter which included an approximate hundred and ten bases point inflation tailwind compared to unify wholesale inflation
spk_1: after factoring this and we believe the change in our wholesale sales was about sixteen basis points favorable compared to nielsen's reported retail sales and nurses driven by our continued success with cross selling and wedding new business steve touched upon inflation and a quarter which overall was relatively benign for us however we have received notice for many suppliers indicating they will be taking price increases in the coming months expect inflation to have a larger impact on our business leading into fiscal twenty twenty two as many of you know inflation has historically been a positive kill and for a wholesale business as our contracts generally allow unified a path through manufacturer cost increases as well as higher outbound fuel expenses additionally mean to pay higher supplier promotional spending to coincide with price increases and we have already seen some indicators of this trend beginning let's turn to the performance of each of our sales channels i changed business was down five point six percent compared to last year's third quarter and up five point four percent on a to your stack basis within change we continue to be encouraged by a year over year increase has were seen from cross selling wins with several of our top ten chain customers including those with captive distribution networks
spk_4: are independent retailer channel with down eleven point four percent compared to last year's third quarter and up three point eight percent on a two year stack basis
spk_1: many of our independence about it ecommerce capability or reopening their food service programs and are using our professional service teams for stormy models as they look to differentiate and adapt to the shifting consumer shopping behavior the supernatural channel was up at zero point six percent compared to last year's third quarter and up nearly seventeen percent on a two year stack basis as we reported earlier in the quarter we signed a long term agreement with this important customer and continue to support them as they open new locations strive for operational efficiency is and look for new ways to improve their customer experience a retail stores continue to perform a sales declined nine point three percent compared to last year's third quarter an increase fourteen point nine percent on a two year stack bases following last year's record can't sales growth both carbon shoppers continue to do a great job adapting to various kinds humor changes in catering to the local consumer needs for example in the twin cities cubs my come my way philosophy allows customers to shop in store twenty four hours a day or place their online orders for delivery or clicking collect pick up all men can lead the customer where and how how they choose to purchase their grocery items
spk_0: and finally are utter channel with down three point two percent compared to last year's third quarter and down slightly on a two years databases and strong ecommerce gains have nearly offset all the softness involves food service and military channels fails to our top one hundred customers were down just three point four percent can
spk_1: pick the last year's third quarter about two hundred and forty basis points stronger than our total wholesale net sales despite lapping the unprecedented level of stock up buying that occurred in last year's third quarter nearly one third of these customers had double digit year over year sales increases with unify we believe this reflects the strength of their businesses and their confidence in rewarding us with a greater share of their purchases looking forward or business pipeline remains robust and we're optimistic will be able to add an incremental five hundred million dollars of annual new business that will phase and the route fiscal twenty twenty two this would be additional volume on top of the on boarding of key food which will have an estimated one bill yeah and dollar annual run rate which will also phase in throughout fiscal twenty twenty two are newly reorganize sales team remains committed executing against a large one hundred and forty billion dollar just bull market that we have described on previous calls and we'll discuss mordor upcoming investor day let's talk about the progress we're making on some of our growth platforms starting with own brands as we said previously we plan to focus on innovation and introduce new items to me be involving needs of today's consumer this year we've continued to drive against innovation launching over one hundred new products across fifteen categories on just our field day brand
spk_0: top selling scuse include functional beverages personal care items and pantry supplies
spk_1: at the same time are essential every day brand has record sales and a quarter with international customers as our brands plus team is aggressively expanding distribution in central and south america and finally last week we announced a new line of bold no sugar added hot sauces the compliment woodstock strange and a condom and category and in keeping with our woodstock brand dna these products are non gml project verified in our produce from a carbon neutral facility will continue to lean into high growth consumers
spk_0: segments and high margin categories for future own brands expansion we are also aggressively marketing are more than one hundred and fifty services that bring the following benefits to our customers first customer say time allowing them to focus on running their business
spk_1: second customer save money allowing them to reallocate savings to other drivers in their operations and third customers reheat help and driving revenue by bringing new offerings or insights
spk_0: a great example is our payments offering that generates significant savings in credit card fees for our customers
spk_1: we've completed a hundred and forty eight installs over the past six months and in one instance save and multi store customer over five hundred thousand dollars annually from justice single service who have more to say about both are brands and services businesses at our investor day later this month within the important ecommerce space or recently launched commute in the marketplace continues to build as more scuse get added to this innovative platform although it's still in it's infancy we remain optimistic about the long term prospects of this extension of our unify eighty options be to be business as for economists capability that we provide to our brick and mortar customers we've now added two hundred and fifteen stores to our platform in the past year with another hundred and twenty in the process of being on board these customers can now offer online ordering clicking collect and delivery to their shoppers
spk_4: moving to retail or retail banners continue to perform well under mike's tigers leadership were specially pleased with attraction ecommerce is getting a cab or third quarter year over year econ sales increase twenty seven percent we recently expanded online ordering delivery to include all cub liquor as well as one in skirts
spk_1: locations reflecting the great work the team is doing to make sure we're meeting the needs of our customers we're also proud of the efforts in the community as exemplified by a recent partnership with the minnesota twins were when administered coded actions at select hungarians in support of minnesota's roll up your sleeves minnesota fans campaign finally are proud to have reopened our second cup store damage during last year civil unrest local leadership has built both a friendship and business relationship with the community group we push for peace who's employees now greek customers and during the store this progress of new model has not only strengthen our ties with the local community but simply make good business sense
spk_0: on a trailing for quarter basis retail has contributed nearly one hundred million dollars and adjusted ebitda reflecting the strength of our operations and a brand loyalty quicken their markets
spk_4: lastly let me make a couple comments on the operation side of our business
spk_1: in addition to the comments he made earlier about our approach to compensation and workforce stability we also continue to move forward with optimizing our supply chain and expanding our distribution center network to better service our customers and deliver operating efficiencies for the first time this year or outbound fill rate improved year over year as we continue to work with suppliers on a journey back to pre cold and service law
spk_0: apple's are one point three million square foot allentown campus remains on track to begin shipping early next fiscal year am i looking to add additional volume to new customer wins in a new york metro area
spk_1: in addition to third quarter sauce begins the boy several emerging technology initiatives including new material handling technology to improve both the efficiency and work environment for our socialists who provide additional detail on a distribution network initially and that investor day including some visuals that will help bring some of these amazing locations to lie for you despite all the change with the industry and macro environment unify has remained committed to our plan to leverage are scale and help our customers when we have executed as planned route fiscal twenty one and we're all very excited an optimistic for the future our associates have done an amazing job through this pandemic getting product to our customers on time and in a safe professional manner for operating at a high level and we have every reason to believe i momentum will continue into next fiscal year and beyond but that i turn the call over john thank you chris good morning everyone on today's call i will provide additional context on a quarterly financial performance balance sheet capital structure and full your outlook for fiscal two thousand and twenty one hi stephen chris said we're very pleased with their operating performances cooler we delivered strong result as we cycled last year's unprecedented startup serves as coated driven demand began sales for the third quarter totaled six point six two billion dollars adjusted even that was one hundred seventy nine million dollars and adjusted dps with ninety four cents per share third quarter gross margin rape was thirty four basis points lower than last year's third quarter driven predominantly by lower levels of supply related income and are wholesale business last year's third quarter with a largely normal promotional environment which didn't begin to change until well into our fiscal fourth quarter and has yet to return to the pre pandemic levels the gross margin rate in a retail business was approximately flat the last year third quarter operating expense rate increase thirteen basis points to thirteen point zero nine percent of sales this included the leveraging impact of lower sales and nearly three million dollars and start up costs related to our newest a dc and allentown partially offset by lower coven nineteen related costs as well as the benefits from i value that program this quarter strong performance with the result of the themed on a great job managing expenses in light of a changing environment demonstrating our ability to run the business more efficiently over time were pleased with the third quarter just have you been down margin rate of two point seven one percent on a japanese as we reported eighty cents per share which included fourteen cents per share after tax charges primarily related to advisory fees for our transformational value had initiated our to just leave as total ninety four cents per share turning to the balance sheet or total outstanding net debt finish the quarter at two point four three billion dollars setting another quarter ending record low following the supervalu acquisition we generated one hundred twenty nine million dollars in net cash from operating activities in the quarter which led to a reduction in to little outstanding net debt of sixty two million dollars
spk_3: or year to date net cash from operating activities and asset sale proceeds net of capital expenditures have allowed us to reduce our net debt by approximately two hundred million dollars on a face value basis which keeps us on track to achieve our full year debt reduction target
spk_1: our net debt to adjusted ebitda leverage to the quarter at three point three times up a tenth of a turn from the second quarter due to the expected year over year decline in a just leave it up as we cycle last year's third quarter partially offset by lower that levels isn't the full time lower than where we were at the end of last year's third quarter as you read in our press release were reaffirming the commons we provided on our last call towards the guidance ranges we originally provided on last year's fourth quarter call as for net sales were anticipating several new business ones to take longer than originally anticipated the onboard which will call or to finish at the low end of our sales guy it's this includes some of the business chris reference regarding our pipeline as for just it either die in a dusty dps are strong cause controls and the benefits from the value that initiative we introduced earlier this year will allow us to finish at the upper end of the guidance ranges we provided for each metric both of which include approximately thirteen million dollars in allentown startup costs
spk_5: we're maintaining our previous games of two hundred fifty to three hundred million dollars for capital expenditures and approximately two hundred fifty million dollars of net debt reduction on a face value basis
spk_1: both of which include this year's embezzling and i'm new allentown distribution center to support key food we continue to expect our net debt to adjust that even that leverage ratio to finish the fiscal year at approximately three point three times increasing value for our shareholders remains a priority and focus of you and i thought with are differentiated business model enlarge large addressable market we remain confident in our ability to grow our business and generate meaningful free cash flow we look forward to providing more details on our future growth plans including the metrics we will use to measure our success at investor day in two weeks
spk_6: thank you for your time this morning and for your interest in unify with that let me turn to call back to steve
spk_1: thanks john as john discussed we remain laser focused on driving our business forward and are committed to increase in shareholder value were pleased with our year today performance and remain confident that will deliver on a full year outlook fiscal twenty twenty was a record year for you want to fight in terms of sales and adjusted you cut off and fiscal twenty twenty one is expected to be even stronger we believe the factors i just spoke to as well as the on boarding of key food snorting stores and the pipeline business chris address will contribute to fiscal twenty twenty two being another record year or also in the midst of active succession planning for you i knew to yell lol we don't have any incremental updates to gay and don't plan to announce anything prior to our at our june twenty fourth investor of them the process continues with the support of our top tier search firm and our board of directors
spk_3: to reiterate my comment on the last call our businesses strong our future is bright and i'm confident you want if i will have a new and exciting leader later this year
spk_1: in conclusion
spk_3: i am thrilled with our performance this quarter we have a great deal of momentum and i continue to believe that you want to fight that gave lie ahead
spk_0: with that for ready to take your questions
spk_7: if you like ask a question at this time to stress star than a number one on your telephone keypad if you're like which i a question as about he first question cancer and edward kelly with wells fargo
spk_1: i guys good morning i felt that first birthday or that you just about in on the cells guidance and and being a delorean cells got it's talked about bomb some of that isn't so i'm thinking a little bit longer natural as could you just provided a bit more color are on that and and and on what's happening there and then
spk_0: in addition to that the father nine i've new business lanes and you're talking about for twenty two are just additional color and what's what's what's driving bad as well hey this is chris thanks to the question so i'm yeah so is john mentioned reaffirming the sales guidance at the low end of the rage the year we feel very good about where we're coming in and sales for que three and where will finish and que for
spk_1: the you that we had some commitments from new customers they're they're rather large large that new delhi think a little bit more time than a smaller ones that were winning new business every day every week for multiple sources for multiple competitors and it just gonna take time to onboard it that said we have the commitments is why we feel comfortable given the five hundred million dollar number and just to reiterate that's on top of the on boarding of key food what will happen in phase and starting in fiscal twenty two as well
spk_8: okay and then just they are a fall off a lot to ask you about that thought the cost side is specifically related said drivers and driver k and retention on disability a lot of in a pressure and the marketplace today we are hearing about some food service guys paying bonuses to hire drivers are scared
spk_1: trying to rant this is back again
spk_4: discouraged curious said the extent that that's impacting you are and then what's your outlook for shriver pay inflation from here do you think that that's a line item that will take up ah or media thanks out a business as usual
spk_1: yeah all started and then eric may want to away and as we think about the rest of the sharing and next year ah i would say that there are a couple different points of look at life so fuel costs a garage labor those are the primary influence that are that are changing the fuel is somewhat neutral to us because the vast majority of people increases we passed through increasing cost a good is of benefit to us because as a wholesaler or the vast majority of this this is of cost cloth that will turn out to be of benefit to ask because the as we increase cost of goods we pass through what we typically by your to rising market inflation which there is very very little obviously we we expect to have some more inflation come on way round the down to this year certainly to twenty two that's also a better have on because we passed that through on the labour side we've done a ton of work throughout the year the making sure that are false drivers included ah are being paid a competitive wage and as you hurry swiftly
spk_3: increased wages throughout the year and that's obviously reflected in our numbers but more importantly than wages is having a really good environment at a really good work life balance managing overtime managing productivity managing turnover and as all
spk_1: result of doing that we've seen an increase in front of productivity we've seen more stability not on over so i think we're optimistic ah but again ah the labor market for drivers and and warehouse is shifting and we've done a really good job shifting with in a new facility opening in allentown pennsylvania what are some lifestyle center how really sophisticated technology when a flexible our work hours shift sharing so
spk_3: we we feel pretty good about where we are anything you want to add yeah thanks pete and thanks said my would your dad my optimism is well given all the can we associate focused program that we've introduced oh gonna last twelve months and just to reinforce he mentioned earlier we've adjusted a good deal of markets across the country to maintain pace on wages on premiums and were going to continue to to modify as we go here but the big headline here is around associate focus programs around flexible work around shift sharing and you know we're we're expanding rosters were at his sorry to help mitigate job how do you work life balance situation and manage over time as well as reducing trooper
spk_8: or per turn over excuse me so that i'll i'll add
spk_0: great thanks as
spk_4: next question comes from john hind a whole with anime
spk_5: some he start with cross sell
spk_4: when you think about thirty thousand twenty one living with where will the cross sell revenue contribution can it
spk_3: do you think it added compared to what you expected and then when you think about twenty two did order of magnitude for the cross sell contribution day
spk_1: it be as much as double twenty water or that optimistic
spk_0: yeah a genius craft so on to stats on cross selling one is the incremental cross our rights are those are the when that we gained over the year and then to is the rolling cross out so ones that we gave in the prior year prior quarters that we continue to maintain some for fiscal twenty one we think the incremental will be somewhere around two hundred and fifty million dollars so that's new revenue gain that we didn't have enough prior year the vast majority that coming from conventional customers that were that we sell natural to and that we are augmenting their captain distribution with are now on a broader portfolio conventional products so that's where fiscal twenty one's gonna come and i think stressful twenty two you know we're not getting fit looks plenty guidance but i think you could expect to see fiscal twenty two incremental cross selling to again be in that range around two hundred and fifty
spk_3: to three hundred but also realizing the games of the to fifty we got this year
spk_1: yeah we only ask an add that a child if you think about kind of that if you think about what we said during the split why he was a lacquer heavenly driven by code twenty one is gonna be a record heavily driven by for selling for
spk_9: losses as the twenty two is gonna be a record driven primarily by his fails envoy
spk_1: best as schedule
spk_10: most of the most of those cells with and most of the pipeline
spk_3: our of by selling more two
spk_11: yeah maybe secondarily when you think about two topics right so he been hurt by supplier vipers player promo income being doubter or negligent
spk_3: deal with that would that be a drag of as much as forty or fifty million this past year
spk_11: over twenty one you're just what order of magnitude that should come back and then secondly when you think about ducky food in allentown
spk_5: right so it a drag thirty million this year
spk_1: he also to ramp up next year is it a neutral do you think to have to the kid allen twenty two are still a drag yeah i so you know i don't know exactly what the frowned on
spk_3: a supplier romo is it's it's material ah
spk_1: but i don't know what the exact number isn't he'll talk at a comeback or and once it'll start to come back over time
spk_4: ah and yacht
spk_1: as you know ah in the heat of kobe suppliers discontinue a lot of scuse to focus on the ones that they could manufacture and the ones that consumers and obviously an order to get the scuse place back into retail the teaser are going to have to pay for that
spk_3: and so we're going to start to see that turn around i think so
spk_1: or to back out for this year it is that quarter the sheer and throw a twenty two on two it's far as he added expenses in our town
spk_4: i think that the majority and only john or erica like me young say the majority of the start startup costs will be taken
spk_5: fiscal year i think they'll be a bit of a drag next year as the business starts to alaska
spk_12: sex right john
spk_4: yeah do that is greg the we get to thirty million that the john mentioned that we talked about in my script and and now we're expecting someone in the neighborhood of maybe another five to ten million in at like twenty two
spk_1: that then little be part of that numbers well
spk_4: john it because it isn't is this is an aging facility and in it is
spk_1: a telephone i think it's one point three million square feet between two buildings it's a campus
spk_3: it's really the first building one opening as as i said earlier a lifestyle building or that's gonna be really associate friendly ah it's in the be a fun place to work or really excited to see that will allow and one other common i want to make back to it
spk_1: question earlier on drivers is one of the one of the significant benefits we have it is unlike food service or drivers are not touching every case
spk_0: and far trailers have hydraulic lift gates and electric palette jobs and their bumping a dot for the most part and they're moving the full pallets off the truck and into the retail store where's the food service drivers have to touch every single case for it on a trump
spk_3: and so that's one of the reasons why we had so much success in hiring driver specifically had a foods as while they were down
spk_4: thank you
spk_3: x question comes from erica or similar seaport global partners yeah thanks everyone i think the question saw on t v like a drill down little bit more
spk_13: on kind of the underlying inflation rate and obviously what we're seeing from the ppg company that kind of you know hi single digit input cost inflation i said as he could fight and ten twelve years since we've actually seen a gap i know is that is that would you it is
spk_1: yeah sort of underlying cost straight what you think that ppg companies will price and you're starting to see that now level be a mafia two thousand twenty two event
spk_0: if that seems hi to me eric ah well look i think there's gonna be material inflation that makes it's way through the system on what we're going to have to wait and see and near right we haven't seen inflation is a very long time critic john you want to get something for that yeah this dad in a we really have a process for cpg increases our suppliers increases where we get notifications sixty ninety days in advance
spk_1: ah into your point eric they are higher than normal
spk_0: take a lot of he d g's held off during cold it
spk_4: in in the meantime labor's increase transportation's increase in this band raw material inputs than of increase so they are coming in they haven't quite had yet
spk_14: but what we've seen and the notifications they are higher than normal i would put a more and the are single digits in the high single digits by you know we we serve had so many suppliers that it's hard to say in aggregate where they come in i i agree with see that the high end scenes hi
spk_1: i think it's gonna be more and media lead single digits which again is significant significantly higher than the ones you would two percent that we typically say we get to we did see some erickson inflation
spk_15: ah you know from team and now was almost exclusively driven by
spk_0: is there the the the meat producers inability gosh and make the part what i would call short term way
spk_3: oh yeah that that you know that sort of be refrigerated kind of the perimeter of the store stuff the net and to be sort of path through your the that those kind of you sort of cast new products but your center of the store items tend to be more when when ppg take those prices up the whole them and hour and then they if they they tend to promote it back you and you rarely see those prices you'll go back down again so when you when you look at you would you look at what you might be what what we call transitory inflation or not and what are your viewpoints on that the wifi
spk_1: and i mean can we see of your more volatility like that the in years to school twenty two or twenty three or maybe late twenty to come back down which if you know so more volatility and that or would you expect feel was higher prices a higher rate of sustainable promotion yeah you're exactly right there are so what's gonna happen is those costs are not going to come down
spk_3: stay inflated in in order to move the product the product will be held healthily promoted and it either way that's a big tailwind for us because of the cost of goods go out and buy into liking inventory and faster the price
spk_0: ah the too heavily promote the product we manage the promotion
spk_1: and that that turns into gross margin for us
spk_8: okay perfect take your everybody
spk_1: expression of some cancellara with north coast research
spk_0: nice i i'm so looking at the top one hundred customers
spk_1: ah the he does perform better on the sales i don't understand it but the business in general
spk_0: what's driving the discrepancy between those top one hundred customers just a new have a broader so much and the portfolio the shelling of them as better cross selling the some of the service platform which are adding that the better on those compared to business as old
spk_4: hey this is chris i'll take that one is it truly a couple things one were talking about really sophisticated longstanding customers that at quickly adopted be calm have quickly adopted pricing strategies had quickly adopted to are offering food service and
spk_1: prepared foods in there still are so their just really good at strategy and execution
spk_0: the second part is is is cross selling you know we we have armed
spk_4: a a huge benefit to offer large customers that want to use us
spk_3: and to offset some of their on either capacity constraints are they are transportation constraints and use our system to offset that on distribution that day which epic we cherry and so the other thing is now that we have this brought portfolio by bringing these two companies together yeah
spk_8: really unique offering to sell natural unconventional nationally which really no one else can do and the benefits of that are really being seen with our top one hundred customers because we're selling down a broader portfolio products that we didn't have two and a half years ago
spk_0: great and i just winning the looking at that overall incremental costs a lot which in the especially on the server side of not percentage of that would you say comes from the stop with the customers birthdays the rest of the beach coppola
spk_1: it's hard to say you know the one cup one hundred customers are bigger ones we were getting smaller cross selling wins at every level of you think about just are you know an independent conventional store that wants the top two hundred five hundred natural items you know those are those are really helpful to them and their customers but it's not really moving the total needle the i don't have that top one hundred customers that i would say the vast majority over seventy five percent of those ones are happening with the top one hundred
spk_3: okay great is it
spk_1: sure next question comes from greg betty shenyang with full of research the morning knitted censor henderson for greg just a quick follow up on on inflation discussion what is your outlook for return wholesale inflation in twenty twenty one and are you hearing anything from your retail partners about concerned about passing through all the to cost increases and and then how should expect the cadence of
spk_4: benefits from high inflation flowing through to your business
spk_1: so i don't have any additional collar on the actual numbers related to inflation other than we know inflation is going up
spk_0: i swear it goes off at how much it goes up ah
spk_4: you know what i'm not sure that i certainly believe that it's going to be in the mid single digit
spk_0: earlier is far as pastoral as christian earlier we from the policy perspective or depending upon the product category we typically get between sixty and ninety eight advance notice or which gives us the ability to walk to to buy into rising markets which is a source of gross margin for us which is a little will be a tailwind ah the we pass through on your percent are pretty damn close to one hundred percent the cost of goods that get pushed to us the guy that's helpful and then you give us a quick update on until rate and then any sense of one vendor promos get back to pre coded levels and then are there any category that are sitting out as being a laggard the and getting back to those historical go rates
spk_1: faith answer this is chris yet so phil rates were seen the highest oh right we had all year we have over six hundred that improvement from the start of the year albeit we are still well below where we were pre coded levels it's a tailwind for us
spk_16: because if steve mentions
spk_0: the re going up means a lot more new products are starting to come into the marketplace you products is a good thing for us it's good thing for our customers
spk_17: with slotting fees and from most promotional dollars or as far as the categories it's in philly next on you know some of those categories that we're really far behind our are still lagging as you'd expect them talking about air disinfectants and and cleaners are there still are far behind precluded levels but they're gaining right now what suppliers are are really dealing with his transportation which is a new challenge that didn't exist that in labor and so that's what kind of causing the the right to get even higher but were optimistic we had six hundred deaths improvement from the start of the area two hundred bits improvement from que to and you know we're talking to our suppliers every day about how we can get ah
spk_4: our fair share of those high demand products
spk_1: great thank you
spk_3: expression comes from peter salad with th
spk_1: great thanks thanks for taking the question on trying to come back to the conversation around labor inflation and or shortages and warehouse personnel and drivers hum how much of this the issue the ongoing issue right now he feels related to ah
spk_3: our size or high unemployment benefits
spk_1: which is behind us more transitory the and in september or how much of this do you think is kind of a more permanent change in the industry structure
spk_3: yeah you know this is personal opinion i don't think much of it is really associated with ah
spk_1: unemployment benefits on the driver side our drivers or sophisticated ah their knowledgeable and work and i think we're in a temporary period where the demand for rate is outpacing the ability of the industry to move the for it
spk_17: what i do feel like it's temporary ah once we get back to stability economically are people are backing work and the pandemic is predominantly behind us i think this is all going to stabilize
spk_18: and like we said earlier the other pockets for we have some struggles around finding drivers but generally speaking
spk_19: well worn really good shape for the reasons
spk_0: so if a long way of say i think we're just in a temporary period where demand for for drivers and fleet is just outpacing the ability for the industry to cover it but it's it's near term it will pass
spk_4: understood very helpful and just lazily on the am
spk_20: on the inflation know each other and has spitting on the castigate
spk_11: is it is the past noon die delay in the past new of the of the cost to to them to your customers or them fairly media
spk_3: if the media know the way great thank you very much
spk_11: next question comes from dell kirk with and can partners
spk_3: everybody thank you for taking the question just just one for me and what what does capacity utilization look like at the at a new new york facility once you have the the billion annual from key food on and once have the incremental or five hundred million up and running as i guess the question is how how much more room physically our
spk_1: all that or that location have for future went on top
spk_3: yeah bill that america a bad
spk_21: this is a reminder you know that it's ability is one point three million square footage multiple buildings
spk_0: yes we are on boarding three hundred huge so keep food stores but we do have a good show capacity their post the opening are doing and on the metro new york got marketplace for future customer growth so we're pretty excited about what that building offers us and marketplace and looking forward to seeing and ca
spk_22: to live here and less than eight weeks
spk_1: and keep in mind we have good facilities in york pennsylvania harrisburg pennsylvania carlisle pennsylvania hudson valley your york we have them working really well covered thank you that that it to me that you get
spk_3: expression comes a million greater with bank of america
spk_1: good morning
spk_3: earlier when you are disgusting the challenges with drivers he noted that it wasn't that thirty that wage inflation but it was more about offering greater flexibility to them
spk_1: the will be a factor of offering greater flexibility or tear drivers to attract them have the same impact in terms of the labour hours you'll be using an inflation wide and other sunlight to put some sort of numbers around that
spk_13: i'm not sure i understand the question ah
spk_1: i think what you're saying is
spk_3: inflation you tell you that wage inflation
spk_1: yeah so earlier now is that about whether you are seeing wage inflation of your drivers and the answer was kind of know it's not necessarily about wage inflation it's about trying to attract additional drivers by offering greater work life balance flexibility cetera i lose guy would expect it offering that flexibility is gonna require more hours so effectively your total cost of labor increases in that incorrect so we have with we have already increased wages for our drivers in some markets around the country and that's reflected in our in our financial performance a hand in our expectations for the year of when i when i believe is happening is the workforce is changing ah lot of associates they want less overtime
spk_23: they won't work life balance they want to be able to leave in the morning of come home at night they don't want to go on multi day runs
spk_1: on and so that's very different than the way it was ah even three four years ago where the opposite was true and so our routes and our route planning and i did he management or predicated on what the worker of today really want to head of a job
spk_15: and as long as we can give them what they want and we're going to keep our turnover down and our productivity hi the other thing that
spk_1: really important to us is safety and having a really robust safety program and demonstrates to our workforce and drivers in particular that we care and we do the and all those things combined into a different type of workforce today that was here for four years ago and companies just have to change and be cognizant of you know what the work of today really financing all of that is reflected in our numbers they seen so far this year
spk_3: sure how we're committing to the numbers from the rest of your and what we see happening in twenty twenty two which by the way to he said is that a year
spk_1: okay that's helpful and then just as a follow up of you see the retail businesses performed very well the last year
spk_24: the trying to figure out what if a thing of all level there may be challenging but as your perspective changed on your interest in keeping that asset
spk_25: given that you had to explore different options you know in the past where is your guys that plan with that currently thanks yeah me i can tell you that is a leadership team we are so incredibly proud of what on television has done
spk_0: i
spk_8: they've been there at a old been a been supporting the communities and so many different ways and yes or financial results of been just incredible throughout the pandemic and they continue to be incredible
spk_1: i think as you know we took them off the market it during colder in feel like i'm was an appropriate time you try to sell retail business and are they are not back on the market today and that will talk a lot more about that that the faster data today are we on it love it and dabbled in a continue to run it and just an example an exemplary we have over the last couple years thank you for the insight the last question consumption still error which north coast research hey guys just a follow up question on our drivers obliged he did mention that isn't the demand for fleet is really outpacing the supply right now given dissipate then the way to dental bounce itself out you'll see more people more drivers entering the market others to be greater labor supply or fill rachel improvements that okay miles off the road or are made a joke he more dc you had less mouth to travel he kind of good put simply i agree i think that what's what's really happened is or spain just so much pent up demand for product that gets shipped by truck ah over the last year or so and we're seeing that demand them in in all of them all of the primary statistics that you would look at
spk_26: but i would say that it's that get it will come off and so i've got to man falls off the labor market for freight will stabilize
spk_1: naturally did what i was trying to get off were hiring drivers i think there will be drivers more drivers coming into the marketplace
spk_18: we know how to do it we've got him big fleet of own vehicles
spk_1: or and drivers has represented every single day so yeah i think we're just in a temporary long and if you certainly look back in the history afraid we've seen this before
spk_0: the and demand will come off more drivers larger the marketplace

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