Amid widespread ingredient shortages, rising food costs and disruptions, grocery distributor and retailer SpartanNash is rethinking its entire supply chain. The company’s President and CEO Tony Sarsam told analysts on a call on Thursday (Aug. 19) discussing Q2 earnings that the company is making major changes to how it operates its warehouses, how it plans for sales and operations, how it optimizes its inventory, how it manages its network and how it approaches procurement.
He explained, “This initiative … will address the short-term challenges in the supply chain. It will also allow us to capitalize on the growth of our network in the long term.”
Margins have fallen since 2018. Through this initiative, the company is looking to return to its previous profitability.
As part of this goal, in the last week of the second quarter, SpartanNash opened its first micro-fulfillment center (MFC), a 55,000-square-foot facility that fulfills orders for 24 of the company’s West Michigan retail grocery stores. Sarsam noted that this opening, the goal of which is to “continue the expansion of our digital channel,” follows the company’s digital sales growing over 100 percent on a two-year basis. SpartanNash did not discuss how digital sales last quarter compared to 2020.
Food distribution, which makes up half of the company’s total sales, fell 3 percent to $1.06 billion. Retail, which makes up 30 percent, fell 2 percent, and military, which makes up the remaining 20 percent, dropped 7 percent. However, sales are trending positively now. While the rise in COVID-19 cases could send consumers back to seeking at-home food options such as grocery, Sarsam is not sure whether the company’s current sales growth can be attributed to contagion concerns.
“I think it’s probably too early to say what the implications of the current surge are,” he said. “And we saw our retail business taking some really positive gains ahead of the discussion about the Delta variant and other things, in the early parts of the summer holiday season, and that continues.”
Sarsam believes that in addition to the positive turns sales have already taken this summer, the Biden administration’s recent extension of the Supplemental Nutrition Assistance Program (SNAP)’s Electronic Benefit Transfer (EBT) will have a positive effect on sales, making it possible for more consumers to shop at SpartanNash’s stores and at the stores to which it distributes its foods. The change will boost the program’s monthly assistance by about 30 percent, growing from $121 (the pre-pandemic value to which it was set to return on Sept. 30) to $157.
Much like Target, SpartanNash also saw a return of its deli and bakery businesses in the second quarter, after these areas were closed due to the pandemic in the spring and summer of 2020, which provided a boost to sales across multiple categories. The company’s EVP and CFO Jason Monaco shared that the company’s fresh categories — “deli, bakery and what I would characterize as value-add products” — have recovered both in the food distribution business and in retail.
“Our focus going forward is going to be disproportionately on fresh,” he said. “As people come back to some semblance of the new normal, I think that’s one thing they’ll really value, and we think we’ve gotten great opportunities for growth around the perimeter of the store.”