UNFI's split with Key Food will cost billions in potential sales and hundreds of jobs
Speaking to investors during an earnings call on Tuesday, UNFI CEO Sandy Douglas said the details of the agreement it signed with Key Food in 2021 "were very difficult," leading it to conclude that its best course of action would be to sever the contract. The company made the decision as part of a three-year project to identify opportunities to optimize its network, in part by adjusting its portfolio of distribution centers, Douglas said.
"[A]ll our customers deserve that we don't have agreements where we're losing money because that hurts everybody," said Douglas, adding that the COVID-19 pandemic had an impact on transportation-related aspects of its deal with Key Food that made the arrangement unmanageable.
"The decisions we made [were] based on a very factual analysis of the current situation, and at the end of exploration of all options that we might have been able to pursue to turn that agreement into a positive one," Douglas said. "And following all that, we chose to exit because it was the best decision for our shareholders, and I believe that Key Food made the same decision for the same reason."
Taylor Ricketts, assistant vice president of RetailStat, said the fact that many of the locations under the Key Food umbrella are in densely populated areas was likely a key factor in UNFI's calculation.
"The concept of chasing volume is very real … but I think with Key Foods, [UNFI] easily could have underestimated how expensive it would be to service stores in the inner city environment of New York City," Ricketts said.
UNFI plans to wind down its contract with Key Food - which it had expected would bring in about $10 billion in sales over its 10-year term - in late September, according to a regulatory filing. The company expects to incur a $53 million contract termination fee, which will impact its free cash flow, UNFI President and CFO Matteo Tarditi said during the earnings call.
UNFI is closing a 1.3 million-square-foot distribution center it opened in Allentown, Pennsylvania, in 2021 to serve Key Foods and other customers. The company intends to lay off more than 700 workers at the facility during a two-month period set to begin in mid-August, according to a notice the company filed with the Pennsylvania Department of Labor and Industry.
UNFI also recorded a $24 million non-cash asset impairment charge during the third quarter of fiscal 2025 because of the closure.
Ricketts said UNFI would have needed only a relatively small portion of the space in the distribution center to serve Key Food. "I think they thought they were going to get more growth in the market," he said. "It just didn't happen."
Douglas said UNFI believes it has a $90 billion addressable market that spans natural, organic and other retailers that "are predominantly focused on a differentiation strategy." The company has looked at its business through the lens of its distribution centers as part of its efforts to identify avenues for growth, he said.
The deal with Key Food posed a unique challenge for UNFI, because the customer and the distribution center "are inextricably linked," which is why the company concluded that it had to let go of the facility and the distribution deal, according to Douglas.
Tarditi noted that closing the distribution facility will ultimately help the company save money by reducing expenses and releasing working capital. UNFI projects that the "payback period" will be a year or less, he said.
"Our first goal when we see low performing distribution centers is to be able to find win-win solutions with our customers. And then if not, we need to take different actions," Tarditi said.
UNFI is absorbing the impact of its decision to end its relationship with Key Food and shutter the Allentown facility as it contends with the fallout of a cyberattack that has severely impacted its ability to serve customers. Those customers include Whole Foods Market, which accounts for a significant share of UNFI's wholesale business.
Copyright 2025 Industry Dive. All rights reserved.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
3 hours ago
- Yahoo
Must-have item sparks Aussie shopping spree
Bargain-hunting Australians and the arrival of the new Nintendo Switch unexpectedly bumped retail sales in June. Retail sales surged 1.2 per cent in June, according to the Australian Bureau of Statistics, the biggest monthly jump since November 2021 when Aussies flocked to stores post Covid lockdowns. This smashed expectations that retail sales would grow by 0.4 per cent in June. ABS head of business statistics Robert Ewing said the spike in retail sales was largely driven by end-of-financial year sales and the launch of the latest Nintendo video game console. 'Consumers are targeting sales events with a focus on value for big-ticket items like household furniture, bedding, electronic devices and TVs,' Mr Ewing said. 'Turnover for electrical and gaming retailers was lifted further by the much-anticipated launch of the Nintendo Switch 2, which delivered record sales.' Spending for the month was driven by non-food related purchasing, led by household goods retailing (up 2.3 per cent) and other retailing (up 1.9 per cent). There was also a strong bump in department store sales (up 1.9 per cent), and clothing, footwear and personal accessory retailing, which jumped 1.5 per cent. The ABS says this jump was due to end-of-financial-year sales of winter clothing items. Food-related spending also rose after a fall last month. While food retailing bounced back 0.9 per cent, spending in cafes, restaurants and takeaway food services fell 0.4 per cent. Oxford Economics Australia head of economic research and global trade Harry Murphy Cruise said retail trade data created the perfect trifecta for an August rate cut. 'Just as the RBA looked through the noise in monthly measures of consumer prices, the board will do the same for June's higher-than-expected retail sales print,' he said. 'It's the trend that matters, and on that front, the trend of soft retail sales, labour market weakness and easing inflation make a perfect trifecta for an August rate cut.' KPMG chief economist Brendan Rynne said the surge in spending showed Australians were still under financial pressure. 'As cost-of-living pressures continue, households are very much vying for bargains wherever they can, with sale items now consuming a far larger portion of our spending compared to just a few years ago,' Dr Rynne said. 'This month's results show despite a lift in household savings in the first quarter of the year, families have sought to tighten their belts further to ensure they're getting the biggest bang for their buck and only buying items they absolutely need, unless it's a one-off purchase.' Despite the welcome bump for Australian businesses, consumer spending overall remains week. KPMG points out that on a per capita basis, retail volumes fell 0.1 per cent in the June quarter after falling 0.4 per cent in the previous quarter, reflecting ongoing restraint in consumer spending. Compared with the same time last year, retail volumes per capita are down 0.1 per cent and are now 6.0 per cent below the June 2022 quarter peak. But zooming out, KMPG says this is still 3.2 per cent higher than the pre-pandemic level recorded in the December 2019 quarter.
Business Wire
6 hours ago
- Business Wire
Australian Firms Unify Cybersecurity as Threats Increase
SYDNEY--(BUSINESS WIRE)--A growing number of enterprises in Australia are taking a centralized, cloud-based approach to cybersecurity amid rising threats, many of which involve AI, according to a new research report published today by Information Services Group (ISG) (Nasdaq: III), a global AI-centered technology research and advisory firm. While AI is starting to significantly change the way Australian companies operate, in the wrong hands, it can also cause serious harm. Fortunately, service and solution providers are using AI to help enterprises detect and prevent attacks. Share The 2025 ISG Provider Lens ® Cybersecurity — Services and Solutions report for Australia finds that Australian organizations face increasingly sophisticated, AI-powered attacks but are hobbled in defending against them by overlapping cybersecurity solutions that fail to share information with each other. Many companies are simplifying their defenses while adopting AI tools for more effective, efficient security. 'While AI is starting to significantly change the way Australian companies operate, in the wrong hands, it can also cause serious harm,' said Michael Gale, partner and regional leader, ISG Asia Pacific. 'Fortunately, service and solution providers are using AI to help enterprises detect and prevent attacks.' Use of AI can expose organizations to malicious interference in the training of AI models, which can make models less reliable or cause them to produce biased or inaccurate predictions, ISG says. Organizations in Australia are also increasingly concerned about a growing category of threats enabled by generative AI, especially through voice cloning and the creation of deepfake images, videos and audio clips. These can be used to steal money, extract sensitive information and damage reputations. Narrative attacks use these methods to create false or misleading narratives, including spreading misinformation about vaccines or elections. In response, Australian companies are strengthening identity protection and integrating AI into security operations, the report says. GenAI and agentic AI are increasing the efficiency and productivity of security teams and helping enterprises address the shortage of cybersecurity skills. Cloud security has emerged as a top priority for cybersecurity leaders in Australia after companies rapidly migrated to the cloud to enable remote work during the COVID-19 pandemic, ISG says. Security was often a secondary consideration in these transitions, so organizations kept traditional perimeter-based cybersecurity architectures in place. Now, many are taking a more distributed approach, focusing on endpoints and preventing cloud misconfigurations and vulnerabilities. Enterprises in Australia have often ended up with multiple tools for endpoint detection and response (EDR) and identity and access management (IAM), along with many dashboards that lack integration, the report says. Increasingly, cybersecurity leaders in these companies are narrowing down their defensive systems to one or a few cloud-based platforms. 'Australian companies are trying to do more with less in cybersecurity,' said Andrew Milroy, lead author of the report. 'Reducing complexity, minimizing overlaps and engaging with a core set of qualified partners helps to mitigate risk.' The report also examines other cybersecurity trends in Australia, including rising expectations for data retention and the recent extension of national cybersecurity requirements to more industries. For more insights into the cybersecurity challenges facing Australian enterprises, along with ISG's advice for addressing them, see the ISG Provider Lens ® Focal Points briefing here. The 2025 ISG Provider Lens ® Cybersecurity — Services and Solutions report for Australia evaluates the capabilities of 97 providers across six quadrants: Identity and Access Management (Global), Extended Detection and Response (Global), Security Service Edge (Global), Technical Security Services, Strategic Security Services and Next-Gen SOC/MDR Services. The report names IBM as a Leader in five quadrants. It names Accenture, CyberCX, Deloitte, DXC Technology, Fujitsu, HCLTech, NTT DATA, PwC, Thales and Wipro as Leaders in three quadrants each. Broadcom, EY, Fortinet, Infosys, Kyndryl, Microsoft and Palo Alto Networks are named as Leaders in two quadrants each. Cato Networks, Check Point Software, Cisco, CrowdStrike, CyberArk, Forcepoint, KPMG, ManageEngine, Netskope, Okta, One Identity (OneLogin), Ping Identity, SailPoint, Saviynt, SentinelOne, TCS, Tech Mahindra, Telstra, Trellix, Trend Micro, Versa Networks and Zscaler are named as Leaders in one quadrant each. In addition, TCS is named as a Rising Star — a company with a 'promising portfolio' and 'high future potential' by ISG's definition — in two quadrants. AC3, BeyondTrust, HPE (Aruba) and Sophos are named as Rising Stars in one quadrant each. In the area of customer experience, PwC is named the global ISG CX Star Performer for 2025 among cybersecurity service and solution providers. PwC earned the highest customer satisfaction scores in ISG's Voice of the Customer survey, part of the ISG Star of Excellence™ program, the premier quality recognition for the technology and business services industry. The 2025 ISG Provider Lens ® Cybersecurity — Services and Solutions report for Australia is available to subscribers or for one-time purchase on this webpage. About ISG Provider Lens ® Research The ISG Provider Lens ® Quadrant research series is the only service provider evaluation of its kind to combine empirical, data-driven research and market analysis with the real-world experience and observations of ISG's global advisory team. Enterprises will find a wealth of detailed data and market analysis to help guide their selection of appropriate sourcing partners, while ISG advisors use the reports to validate their own market knowledge and make recommendations to ISG's enterprise clients. The research currently covers providers offering their services globally, across Europe, as well as in the U.S., Canada, Mexico, Brazil, the U.K., France, Benelux, Germany, Switzerland, the Nordics, Australia and Singapore/Malaysia, with additional markets to be added in the future. For more information about ISG Provider Lens research, please visit this webpage. About ISG ISG (Nasdaq: III) is a global AI-centered technology research and advisory firm. A trusted partner to more than 900 clients, including 75 of the world's top 100 enterprises, ISG is a long-time leader in technology and business services that is now at the forefront of leveraging AI to help organizations achieve operational excellence and faster growth. The firm, founded in 2006, is known for its proprietary market data, in-depth knowledge of provider ecosystems, and the expertise of its 1,600 professionals worldwide working together to help clients maximize the value of their technology investments.
USA Today
6 hours ago
- USA Today
Did the Fed cut interest rates Wednesday? No, but here's when they might
The Federal Reserve held interest rates steady Wednesday between 4.25% and 4.5% – exactly as interest-rate traders' bets had predicted after the policy-making body's meeting in June. Traders now see the Fed's Oct. 29 meeting as the most likely chance for an interest rate cut. That means short-term interest rates – which are heavily influenced by the Fed's decisions – could remain elevated for several more weeks. Ahead of the Fed's announcement on Wednesday, two-thirds of interest-rate traders bet the Fed would cut its interest rate in September, according to the CME FedWatch tool. In the two hours after the decision, which included a Jerome Powell press conference, many rate-cut bets shifted to October. The CME FedWatch tool tracks the likelihood that the Fed will change the federal funds rate based on futures prices. Will the Fed lower interest rates? The Fed's policymaking committee hasn't reduced its short-term interest rate since the 0.25% cut at its December meeting. Unable to view our graphics? Click here to see them. During his comments following Wednesday's meeting, Fed chief Powell told reporters that neither he nor others on the policy making committee have predetermined plans for interest rates following their Sept. 17 meeting. 'We have made no decisions about September. We don't do that in advance," Powell said, adding that the Fed will receive two rounds of employment and inflation data to inform its assessment ahead of its next meeting. Will interest rates drop in 2025? President Donald Trump's tariff proposals have put the Fed in a difficult position: Inflation stemming from the COVID-19 pandemic has moderated, but consumer prices may be on the rise again. Inflation ticked up slightly in May and June – when it rose to a 2.7% annual rate. Analysts suggest lower energy prices are helping to minimize the impact of tariffs. How much tariffs will raise prices in the coming months remains uncertain, as many details remain unresolved. If the Federal Reserve lowers interest rates before it's clear how tariffs are affecting the prices we pay, it could unintentionally trigger inflation − by encouraging more borrowing to pay for goods made more expensive by those tariffs. The Fed tries to hold inflation steady at about 2% each year while keeping as many Americans employed as possible. The June jobs report showed unemployment ticked down slightly to 4.1% and the economy added 147,000 jobs. The Bureau of Labor Statistic will give us the next look at U.S. employment on Friday morning. Current unemployment rate Though other indicators also suggest the economy remains relatively strong, Powell cautioned after the May meeting that recent inflation and employment data could be indicators of early signs of concern. But he said the uncertainty surrounding tariffs and their impact on the economy has led them to keep interest rates unchanged. "I think there's a great deal of uncertainty about, for example, where tariff policies are going to settle out," Powell said. "When they do settle out, what will be the implications for the economy for growth and for employment? I think it's too early to know that." Contributing: Bailey Schulz
