More Consolidation to Come?
Describing the acquisition as “a powerhouse of a deal,” Jeremy Diamond, director of the Baltimore-based Diamond Marketing Group, noted that “UNFI has been doing well as grocery shoppers, specifically Millennials, are focused on products from companies that are natural, help the world in some way and make them feel good. We’ll probably see more consolidation between mainstream wholesalers and natural/organic grocery wholesalers. UNFI recently gained the Shoppers supply account, formerly supplied by KeHE, which increases UNFI’s volume tremendously.”
The Union of Specialty Distributor and Broadline Wholesaler
Beyond the fate of Supervalu’s stores, Flickinger noted that as a result of the acquisition, “UNFI becomes the first truly national food wholesaler, which also gives UNFI much more leverage in the Amazon-Whole Foods relationship, and No. 1 procurement power to lower cost of goods sold, increase net margins –some at CPGs’ expense – and make Supervalu retail more competitive.”
Additionally, he pointed out, UNFI gains a “ubiquitous distribution center system across America with Supervalu,” helping both Amazon-Whole Foods and the “proverbial Davids” of grocery – small-town independent retailers – realize far better buying power through the combination of companies.
Further, Flickinger continued, “the combination of UNFI-Supervalu catalyzes new customer relationships that the prior Supervalu officers failed to develop with Target, Walgreens and many [other] readily apparent opportunities.”
Wisner referred to the union of the two companies as the “really intriguing piece” of the deal, as UNFI and Supervalu combine with the aim of becoming “more of a full-store wholesaler than anyone else,” able to serve all grocery segments.
How that integration will occur, however, is the challenging part, he acknowledged, since the business of a specialty and natural/organic distributor – UNFI’s bailiwick – is entirely different from that of a broadline wholesaler such as Supervalu. Cautioning that that the process will be “a real learning curve for UNFI,” which is only about a third of the size of Supervalu, Wisner counseled the smaller company, whose CEO and COO will head the combined entity, to retain enough Supervalu leadership to oversee those elements it has little experience with as yet, including real estate services and perishables like meat.
Characterizing the situation as “a little like if Walmart bought Whole Foods,” in terms of vastly divergent business models and go-to-market strategies, he emphasized that “UNFI has to be a learning organization,” adding that how well the two companies integrate will determine the combined entity’s ultimate success.