Profitability will benefit from alignment of inbound logistics and the addition of professional services, which is a higher margin business.
UNFI is the largest distributor of natural and organic products in the U.S. and Canada, and SuperValu is the largest publicly traded food wholesaler in the U.S. This combination can enable UNFI to deliver greater economies of scale and strengthen its position by serving a greater universe of customers with the full spectrum of food products, therefore enhancing the company’s profitability.
An immediate benefit of a completed acquisition will be an expanded and diversified customer base, including many of the fastest growing retailers and e-tailers, across a wider geographic reach. There is potential to enhance existing customer relationships as well as to open opportunities to serve new customers. SuperValu is currently primary distributor to thousands of customer locations in 48 states, many of whom are not currently serviced by UNFI.
Supervalu distributes to those customers from its 29 distribution facilities, many of which are located in areas that are not covered by UNFI’s current footprint. For many of those customers, demand for healthier products is accelerating, and UNFI is poised to leverage those opportunities.
The wider geographic reach and greater scale resulting from the acquisition is expected to increase efficiencies and effectiveness, which we also expect will stabilize and increase margins over time. Such efficiencies include those gained from combining our technology, infrastructure and operations systems. We will have the opportunity to streamline processes, to more efficiently meet the needs of customers and reduce future capital expenditures. We also anticipate increased SG&A efficiency and the ability to increase capacity, optimize lease contracts and reduce fleet-related expenses. These synergies are expected to create a significant financial impact, including a run-rate cost synergy opportunity of more than $175 million by year three.
Long-term guidance will be provided on our fourth quarter fiscal 2018 call in September.