1/ @UNFI – a the largest natural foods distributor- reported earnings. Spoiler- they were horrible. zacks.com/stock/news/324…
2/ Let’s be clear. By horrible I mean that GM% was worse than expected as WholeFoods/Amazon (>30% of their business) puts pressure. EPS missed estimates and guidance implied that margin pressure will intensify next yr. Stock hit 5 yr low.
So I guess I call that horrible.
So I guess I call that horrible.
3/ To quote @karenhowland2 : “The company has razor thin margins (2% operating margin) and is buying another low margin, even less differentiated business in @supervalu and saddling the combined company with a lot of debt. Not a good combination.”
4/ Ok this sounds super boring to everyone in Silicon Valley that is looking to start a scooter company, cryptofund of whatever else is presenting at some YC demo day or Disrupt conference. Yeah maybe it’s inside baseball but here is why it matters.
5/ [Btw- I don’t really know what “inside baseball” actually means]
6/ First they serve a very important role in the ecosystem of an industry (consumer) that is 3x the size of tech. While their management/approach may not have worked, there is a very big problem to be solved in terms of getting innovation to retailers.
7/ Retailers- all retailers- are hungry for innovation. They know that competing on price alone is a quick way to die because Amazon/Walmart will keep pushing you to 0 margin.
8/ But how do they find innovation when all the retailers are forced to use the same commoditized data sources?
9/ So distributors -especially UNFI were trying to play this role of identifying innovation. It is super clunky and doesn’t work well (entrepreneurs tend to really hate UNFI) but it was the best option available to retailers to find innovation.
10/ Because again- they all use the same data so how do they get an edge there in finding new innovation that isn’t in their store already?
11/ So what will happen now? Well the history of low margin businesses that take on a lot of debt, miss numbers and don’t innovate….isn’t…..great.
12/ Ok fine I’ll say it – I think UNFI- and most distributors that haven’t found ways to add true value (reflected in higher margins) are in deep trouble.
13/ What it also means is there is a very large problem to be solved that is up for grabs.
14/ Calling all entrepreneurs that want to build a multi billion dollar business that attacks stale boring incumbents that don’t use data. Oh and by the way- you’re helping to bring innovation to the market in the form of other awesome emerging consumer brands.
15/ Here is the giant flag calling for disruption:
A distribution option, for brands to reach offline retailers, that is driven by non-commoditized data in CPG, will create enormous value and a huge business.
A distribution option, for brands to reach offline retailers, that is driven by non-commoditized data in CPG, will create enormous value and a huge business.
