Dive Brief:

• United Natural Foods, Inc., (UNFI) plans to launch a local products marketplace for retailers using its e-commerce services, Chairman and CEO Steve Spinner said Wednesday during the company's second quarter earnings call.

• UNFI has also launched a bitcoin partnership that places kiosks inside grocery stores where shoppers can buy, sell and trade digital currency with cash. 

• UNFI reported adjusted earnings of $206 million in fiscal Q2, up 57% over the previous year and ahead of Wall Street estimates. Net sales totaled $6.89 billion, up 7.1% over last year, while earnings per share rose to $1.

Dive Insight:

Along with its growth in product distribution, UNFI is also capitalizing on growing demand from retailers, particularly independents, for additional services like e-commerce ordering, store design and bookkeeping. The company offers 150 services in total and is looking to continue increasing that amount.

Community Marketplace, UNFI’s online marketplace, will offer a way for retailers to directly order small and emerging brands that aren’t housed inside the distributor’s warehouses. Executives did not specify when the marketplace will come available during Wednesday’s call and said more details are forthcoming. The move comes as UNFI’s e-commerce sales rose 97% in Q2, and as other companies like Kroger and Ahold Delhaize have embraced marketplace strategies that offer direct shipments of a wide assortment of products.   

UNFI’s bitcoin kiosk service, meanwhile, could show up in as many as 4,000 locations, President Chris Testa said during the earnings call. UNFI along with its kiosk partner, Coin Cloud, has signed 80 contracts with retailers so far to offer the service. 

UNFI’s private brands sales increased 7.3% in Q2, with its conventional Essential Everyday label seeing double-digit growth while its natural brand, Field Day, has seen 30% sales growth during the fiscal year to date. UNFI plans to launch 200 new private label items in fiscal 2021.

Company executives said Q2 sales and earnings were particularly strong, noting the results validate its focus on a wider range of retail customers and products coupled with an optimized distribution network. Growth in Q2 was driven by at-home consumption habits as well as the ability to win new retailer business through cross-selling its assortment of natural and conventional products. Cross-selling contributed $90 million in incremental sales in Q2, and will generate $500 million in additional sales by the end of fiscal 2022, said Testa.

Spinner said he expects to see inflation increase “dramatically” this year as suppliers ramp up prices and promotional activity coming out of the pandemic. This follows an extended period when retailers and manufacturers tamped down promotions as they focused on keeping top-selling items in stock and keeping the supply chain flowing.

"In the pipeline, I think, one could make the assumption that inflation will start to ramp up pretty dramatically in our fiscal ‘22," he said. "And what will also happen at the same time is a pretty significant increase in the promotional rates as the CPGs really work hard to get the products back on the shelf."

Looking ahead, Spinner said UNFI will continue to benefit from prolonged at-home eating trends, pointing to employers extending work-from-home policies long-term. "Companies continue to push office return dates further into the future as they evaluate return to work strategies in light of increased productivity and work flexibility that come with working from home."

UNFI’s retail store sales continued to grow as the company holds onto those assets longer than it initially anticipated following its acquisition of Supervalu in 2018. Cub Foods’ comparable sales increased 15% and e-commerce sales at the chain grew 190%.

Spinner, who announced his retirement last year, said he has extended his time with UNFI as the company continues its search for a successor. He previously said UNFI planned to name a new CEO early this year, but noted on Wednesday that the pandemic has made the search effort "a bit more complicated."

Last week, UNFI announced it had extended its supply contract with Whole Foods until 2027. Although the extension added just two years to the existing contract, Spinner said the company is happy with the arrangement.

"For those who follow Amazon, you know that those kinds of contracts are really unusual and so we feel really fortunate to be able to get that done," he said.