United Natural Foods (NYSE:UNFI) is executing what CFO Matteo Tarditi described as a disciplined strategy focused on serving a narrower, “differentiated” portion of the U.S. food market while simultaneously improving operational efficiency. Speaking at a conference alongside Roth analyst Bill Kirk, Tarditi pointed to second-quarter performance as evidence of progress, highlighting 23% EBITDA growth and a $50 million increase in free cash flow.
Tarditi said the company’s strategy, outlined at a December Investor Day, is built on two pillars: adding value to customers and suppliers and building a more effective and efficient business model. He emphasized that UNFI is advancing multiple initiatives at the same time rather than sequencing them, noting improvements in fill rates and on-time delivery occurring alongside product launches in its private brands business.
Updated financial expectations and free cash flow priorities
On cash generation, Tarditi said UNFI plans to deliver an additional $140 million of free cash flow in the second half, while also stepping up capital expenditures as part of its operating plans. He also pointed to what he described as a “strong new business pipeline,” which he said is important as UNFI laps the effects of its network optimization actions and aims to return to growth in 2027 and support its longer-term algorithm into 2028.
Seven capabilities being built in parallel
Tarditi reiterated a set of seven capabilities UNFI is developing across both strategic pillars. On the value-added side, he named:
- Customer stewardship
- Merchandising and supplier management
- Professional services
- Digital services and brands
On the efficiency side, he cited:
- Technology investments
- A “next generation supply chain” vision
- Productivity plans
He characterized the work as an “ongoing journey,” with certain actions—such as introducing lean practices and cost reductions—moving quickly, while other areas require deeper collaboration with customers and suppliers to identify shared growth opportunities.
Network optimization: expansion and consolidation decisions
Discussing network optimization, Tarditi said the company treats it as a revenue management tool rather than solely a consolidation program. He described investments made to support customer growth needs, citing expansions or investments in Manchester, Pennsylvania, Joliet, Illinois, and Sarasota. He also acknowledged that UNFI will consolidate in cases where distribution centers are “cash burning” and do not fit the company’s targeted $90 billion market segment.
Tarditi said the company has broadly completed the first phase of communicating network optimization plans with customers and is at different stages of implementation depending on the facility. He described ongoing analysis of distribution center performance as part of a continuing process.
Why UNFI is focusing on a $90 billion market
Tarditi framed UNFI’s narrower focus within the context of a roughly $1 trillion U.S. food market. He said UNFI has defined a $90 billion segment that aligns with its capabilities and supports retailers aiming to provide a differentiated in-store experience with broader assortments, including products aligned with health and wellness trends.
He pointed to long-term shifts in the market, including natural players tripling share over a 20-year period and differentiated independent and regional retailers more than doubling share, as reasons UNFI is concentrating on this segment rather than “going after a larger market.”
On consumer behavior, Tarditi said the health and wellness trend has continued. He noted that while UNFI’s second-quarter reported sales declined 2.5%, the company faced an estimated 500 basis points of headwind from its accretive network optimization strategy. On a normalized basis, he said the underlying business grew low single digits, consistent with expectations for the targeted market segment.
Lean management results, services growth, and capital allocation
Tarditi said UNFI has rolled out Lean Daily Management in about 75% of its distribution centers and described the approach as voluntary rather than top-down. He cited tangible operational improvements, measured in the order of safety, quality, delivery, and cost. Among the metrics he shared:
- Injury rates declined
- Shrink decreased by about 11%
- Fill rates and on-time delivery increased by 7%
- Productivity improved by about 6%
He said UNFI completed 12 continuous improvement processes in the second quarter, including work to improve visibility and speed for seasonal items and to reduce supplier onboarding cycle time. Asked which metric has improved the most, Tarditi pointed to shrink as an area of notable progress, while saying there are still significant opportunities across all metrics.
On value-added services, Tarditi said UNFI is focused on helping customers optimize cost structures, build shopper loyalty, and find new revenue streams. Examples he cited ranged from credit card platforms and store equipment/layout services to coupons and shelf services. He also discussed the company’s early-stage efforts to develop a media network intended to connect suppliers and shoppers through data and analytics.
Tarditi also addressed supplier promotional dynamics, saying UNFI saw some seasonal promotional increases in November and December followed by a typical step-down in January. He described supplier behavior as rational and said UNFI’s outlook toward its longer-term goals does not assume an increase in promotional levels.
On capital allocation, Tarditi said the company’s focus remains on deleveraging. He noted a prior target of 2.5x or less leverage in 2027 had been moved into 2026 earlier in the fiscal year, and that UNFI has now updated its expectation to 2.3x or less, with “visibility” to 2x or less by the end of 2027. Within that framework, he said UNFI has flexibility for opportunistic share buybacks—citing activity in January—as well as organic investments, including an automated facility in Joliet expected to open in the summer.
About United Natural Foods (NYSE:UNFI)
United Natural Foods, Inc (NYSE: UNFI) is a leading distributor of natural, organic and specialty foods in North America. Founded in 1976 and headquartered in Providence, Rhode Island, the company has grown through strategic acquisitions and organic expansion to become one of the largest food distributors serving retail, foodservice and e-commerce customers.
UNFI’s core business centers on the procurement, warehousing and distribution of a broad portfolio of products, including fresh produce, groceries, frozen foods, dairy, bakery items, beverages, supplements and household essentials.
